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States, banks reach foreclosure-abuse settlement

A foreclosed sign stands in front of a home in the 6200 block of West Stevenson Street in Milwaukee on Tuesday. Wisconsin homeowners are expected to receive $140 million as part of the settlement. (Staff photo by Kevin Harnack)

By DEREK KRAVITZ
Associated Press

WASHINGTON (AP) — U.S. states have reached a $25 billion deal with the nation’s biggest mortgage lenders over foreclosure abuses that occurred after the housing bubble burst.

Federal and state officials announced the deal Thursday. It is the biggest settlement involving a single industry since a 1998 multistate tobacco deal.

Under the agreement, five major banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — will reduce loans for nearly 1 million households. They will also send checks of $2,000 to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.

All but one of the 50 states agreed to the deal. Oklahoma, the lone holdout, will receive no money.

In Wisconsin, homeowners are expected to receive $140 million as part of the settlement.

Gov. Scott Walker and Attorney General J.B. Van Hollen announced the terms Thursday as part of the settlement with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

Of Wisconsin’s share, about $60 million in benefits will come from loan modifications and other direct relief. There will be about $17 million for those whose homes were foreclosed on and suffered servicing abuses between 2008 and the end of last year.

Attorney General Eric Holder (center) -- accompanied by Housing and Urban Development Secretary Shaun Donovan (right), Iowa Attorney General Tom Miller, and other federal and state officials -- announces a settlement regarding mortgage loan servicing and foreclosure abuse Thursday at the Justice Department in Washington. (AP Photo/Cliff Owen)

The conditions will be overseen by Joseph A. Smith Jr., North Carolina’s banking commissioner.

Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.

The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn’t read or used fake signatures to speed foreclosures — an action known as robo-signing.

Under the deal, 49 states said they won’t pursue civil charges related to these types of abuses.

Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.

“There were many small wrongs that were done here,” said U.S. Housing and Urban Development Secretary Shaun Donovan. “This does not resolve everything. We will be aggressive about going after claims elsewhere.”

Bank of America will pay the most to borrowers as part of the deal — nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.

The deal also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.

“The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” JPMorgan Chase said in a statement.

The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.

New York and California came on board late Wednesday. California has more than 2 million “underwater” borrowers, whose homes are worth less than their mortgages. New York has some 118,000 homeowners who are underwater.

In addition to the payments and mortgage reductions, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.

Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.

The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages — roughly 30 million loans. Those owned by mortgage giants Fannie Mae and Freddie Mac are not covered by the deal.

Some critics say the proposed deal doesn’t go far enough. They have argued for a thorough investigation of potentially illegal foreclosure practices before a settlement is hammered out.

Under the deal:

— Roughly $1.5 billion for direct payouts, in the form of $2,000 checks, for about 750,000 Americans who were unfairly or improperly foreclosed upon; another $3.5 billion will go directly to states.
— At least $10 billion for reducing mortgage amounts.
— Up to $7 billion for other state homeowner programs.
— At least $3 billion for refinancing loans for homeowners who are current on their mortgage payments but who are underwater.

Associated Press Writers Michael Virtanen in Albany, N.Y. and Pallavi Gogoi in New York also contributed to this report.

2 comments

  1. This “settlement” is great for bankers, loan services and lawyers who defrauded people and courts across the country. It is bad for everyone else. Imagine being able to commit fraud on the court, steal someone’s home and then when caught you simply pay a few pennies. Notice how the perjury and fraud on our courts aspects of this scandal are being downplayed and whitewashed. If a person did the things these banks and their agents did, they would serve heavy time in prison for fraud, perjury or both. This settlement is another body blow to the rule of law. The message it sends is commit a big crime and you will do no time.

  2. Right on Nick!

    What a farce!

    Banks agree not to commit FRAUD on the court anymore with no enforcement mechanism!

    Why do false and fraudulent affidavits, from the banks, on the court, in the past, get a pass from criminal charges?

    All the fraud affidavits should be charged from bank CEO ight down to employee and supervisors that signed and Ok’d them!

    People lost their houses in commission of the fraud.

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