After many months of negotiation, 49 state attorneys general and the federal government have reached agreement on a historic joint state-federal settlement with the country’s five largest loan servicers:
- Bank of America
- JPMorgan Chase
- Wells Fargo
This bipartisan settlement will provide as much as $25 billion in:
- Relief to distressed borrowers in the states who signed on to the settlement; and
- Direct payments to signing states and the federal government.
It’s the largest consumer financial protection settlement in US history.
The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct. Both of these practices violate the law.
The settlement provides benefits to borrowers in the signing states whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service. Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement.
KEY PROVISIONS OF THE SETTLEMENT
Immediate aid to homeowners needing loan modifications now, including first and second lien principal reduction. The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.
State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.
Immediate aid to borrowers who are current, but whose mortgages currently exceed their home’s value. Borrowers will be able to refinance at today’s historically low interest rates. Servicers will have to provide up to $3 billion in refinancing relief nationwide.
Immediate payments to borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process. $1.5 billion will be distributed nationwide to some 750,000 borrowers.
Immediate payments to signing states to help fund consumer protection and state foreclosure protection efforts.
First ever nationwide reforms to servicing standards; something that no other federal or state agency has been able to achieve. These servicing standards require single point of contact, adequate staffing levels and training, better communication with borrowers, and appropriate standards for executing documents in foreclosure cases, ending improper fees, and ending dual-track foreclosures for many loans.
State AG oversight of national banks for the first time. Something no court could award.
National banks will be required to regularly report compliance with the settlement to an independent, outside monitor that reports to state Attorneys General.
Servicers will have to pay heavy penalties for non-compliance with the settlement, including missed deadlines.
Source: Attorney General on National Mortgage Settlement