Ten mortgage servicers — among them some of the country’s most recognizable names in banking — will pay more than $8.5 billion over shoddy loan servicing and foreclosure practices.
The payments include $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance, including loan modifications. The agreement, announced today, could affect more than 3.8 million borrowers nationwide whose homes were in foreclosure in 2009 and 2010.
Eligible borrowers could receive compensation ranging from “hundreds of dollars to $125,000, depending on the type of possible servicer error,” according to a release from the Federal Reserve.
The payments come after an enforcement action in April, 2011 from the Fed and two other federal banking regulators, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. The OTS is now part of the OCC.
The agreement announced today is separate from the $26 million landmark agreement announced last year involving 49 state attorneys general including Connecticut’s and five major mortgage servicers over the same issue. There could be some overlap in the mortgages covered by the two agreements.
The regulators reached the agreement with Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo.
Eventually that number could rise to as many as 14 servicers and banks. The Fed, in its announcement today, said it continues to negotiate with other mortgage servicers.
As part of the agreement, the servicers will scrap the Independent Foreclosure Review process, which the Fed and the OCC ordered to be put in place. The review required the servicers to hire independent consultants to review the foreclosure cases.
Instead, borrowers who lost their homes or were in the process of foreclosure during 2009 and 2010 will automatically qualify for a payment or other foreclosure assistance. Loan modifications are included, but it wasn’t clear today if principal reductions were part of the agreement.
It is hoped getting rid of the reviews will speed up the process, the Fed said, in a release.
Jeff Gentes, managing attorney for foreclosure prevention at the Connecticut Fair Housing Center in Hartford, said he was skeptical of the reviews from the start.
The servicers hired the consultants to do the reviews, and no reports on the progress of reviews were to be released until after the deadline for submitting a claim had passed. The deadline was Dec. 31.
“It did seem like they were going to pay more consultants than homeowners,” Gentes said.
Bank of America, parent of Connecticut’s largest bank, said it supported an alternative to the Independent Review Process.
“We support the new approach because it speeds the delivery of payments to borrowers, will provide support for homeowners still struggling to make payments and encourages continued community stabilization efforts and recovery of the housing market,” a bank spokesman said.
Eligible borrowers will receive payments whether or not they filed for an independent review. Borrowers don’t need to take further action to be eligible for payment, the Fed said.
Borrowers who qualify are expected to be contacted by the end of March with payment details.