A settlement has apparently been agreed upon between a majority of the states' attorneys general and five of the nation’s big banks: Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, and Ally Financial. The settlement stems from charges that the banks and their subsidiary servicers used robo-signing, among other abuses, in processing thousands of foreclosures.
$25 billion in cash is expected from the banks, with $17 billion of those funds to be used for writing down mortgage principal balances for close to 850,000 affected homeowners. The remaining $3 billion is earmarked as restitution payments of $1,500 each to borrowers who lost their homes to foreclosure and the rest toward state funds for foreclosure relief.
To date, as many as 40 states may have agreed to participate in the settlement. Delaware and New York haven’t yet said they’ll join in, and California is still holding back, claiming in negotiations last month that the settlement doesn’t do enough for homeowners in the state which has suffered the greatest number of foreclosures.
Perhaps some of the most heartening news is that in addition to any cash from the banks, the final settlement will likely include new regulations for servicers. Some are:
- Enforcing firm modification timelines for servicers to meet, including notifications to borrowers of actions on modification requests.
- Providing a single point of contact for borrowers over the course of the modification process.
- Requiring a freeze on foreclosures during modification considerations and providing methods for penalties and enforcement.
- Outlining steps for banks to verify the accuracy of amounts owned and placing limits on fees the banks can charge distressed borrowers.
- Adopting directives to improve tracking of mortgage notes and chain of title.
- Increasing supervision of foreclosing law firms and other third-party vendors.
Especially in the case of suspected criminal activity, the settlement apparently contains nothing to keep the states from continuing to investigate the banks, nor would it interfere with legal action by an individual borrower against the banks or their servicers.
There are still outstanding matters to be addressed, so this settlement agreement is not set in stone…but it IS a step closer to hammer and chisel meeting granite.