The Star-Ledger

Banks To Pay $8.5 Billion In Foreclosure Settlement

The Star-Ledger — Monday, January 7, 2013

By Tom De Poto / The Star-Ledger

Ten of the nation's largest banks banks reached an agreement with federal regulators yesterday to pay more than $8.5 billion to homeowners who were in foreclosure at the peak of the housing crisis.

Activists and others, however, raised questions about how effective this latest deal would be in healing the damage caused by lenders.

In a separate development, Bank of America agreed to pay $10.6 billion to government-backed mortgage financier Fannie Mae to settle claims related to delinquent mortgages.

The 10-bank deal ends the Independent Foreclosure Review program begun in 2011 to handle complaints from borrowers about excessive fees, legal shortcuts and shoddy paperwork by banks that resulted in foreclosure filings. During 2009 and 2010, 4.4 million homes — 131,608 in New Jersey — were eligible to request a review.

The reviews began in November 2011, but fewer than 500,000 borrowers filed claims — 4,417 from New Jersey.

The program was created by the Office of the Comptroller of the Currency and the Federal Reserve and required banks to hire independent consultants, at a cost of several million dollars. The case-by-case reviews were supposed to gather data on the alleged abuses, but were more time-consuming and expensive than anticipated, the banks alleged.

"It has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers," Comptroller of the Currency Thomas J. Curry said in a statement. "Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation's housing markets."

The banks will provide $3.3 billion in direct payments to wronged borrowers, and $5.2 billion in other forms of mortgage assistance, including loan reductions.

The agreement will affect at least 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010.

"We see how few borrowers applied," said Joy Sperling, a partner with the law firm Day Pitney in Parsippany. "Following through with the reviews might have cost the banks less than the payout."

Sperling also noted that studies have shown if the funds aren't monitored, they will do little to help the foreclosure crisis.

"Moving things forward, that's great," she said. "But if it doesn't cure arrears, if the money isn't used appropriately, you're just delaying the inevitable. It's a matter of what's done with the money that's important."

Compensation is based on the severity of abuse by the banks, the OCC said. Sums could range from hundreds of dollars to $125,000 plus lost equity.

Staci Berger, head of the Housing Community Development Network, also called for close monitoring of the distribution.

"The money is very important for the people whose lives were ruined by less-than-forthcoming mortgage practices," she said.

"Our concern is that none of these dollars be used for anything other than their main intent," she said, recalling Gov. Chris Christie's decision to roll other federal money to aid struggling homeowners into the general Treasury.

Neither the OCC nor the Federal Reserve said how the money will be distributed or what agency will handle the transactions. Eligible borrowers will be contacted before the end of March, the agency said.

"It's a false settlement," said Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action. She said homeowners who walked away from their property three to four years ago would be difficult to locate.

"Once they've left their homes, you have no idea where they went," she said. "How do you give money to people you have no way to get in touch with?"

The banks involved in the agreement include Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
Four smaller banks who were part of the program did not sign on to yesterday's settlement.

Separately, Bank of America agreed yesterday to pay $3.6 billion in cash to Fannie Mae and buy back $6.75 billion in loans that the bank and its Countrywide Financial unit sold to the agency from Jan. 1, 2000 through Dec. 31, 2008. That includes about 30,000 loans. The bank is also paying $1.3 billion to the agency for failing to deal with foreclosures fast enough.

Five banks, including Ally Financial, JPMorgan Chase, Citigroup, Wells Fargo and Bank of America, agreed to pay about $25 billion in an accord with 49 states and an assortment of federal agencies in February, 2010. Yesterday's settlements are unrelated to the larger agreement.

Top Top | NJCA in the News | NJCA Homepage