The government vows to closely monitor that the nation’s five largest banks fulfill the aid to home owners outlined in a $25 billion mortgage settlement over foreclosure allegations.
More details emerged in court filings on Monday of the landmark settlement among the nation’s five largest banks and state and federal government officials. The settlement, first announced last month, stems from allegations over banks’ foreclosure practices, although as part of the settlement the banks do not have to admit to any wrongdoing.
Among some of the aid outlined in the $25 billion settlement for home owners:
•Banks have agreed to pay about $20 billion to help home owners avoid foreclosure. The majority of that money will be allocated to reducing the mortgage principal and modifying loans for about 1 million underwater home owners.
•Banks have agreed to pay $5 billion to federal and state government officials, with a portion of that money going to compensate about 750,000 Americans who have been found to be wrongfully foreclosed upon from 2008 through 2011. Affected home owners will receive $2,000 checks.
•Banks will be required to adopt new processing standards for foreclosure. For example, banks will be unable to pursue a foreclosure when home owners are being considered for a loan modification.
•Banks must comply with the terms of the settlement or face stiff penalties. Banks are required to complete all loan relief requirements as part of the settlement within three years; 75 percent of it is to be fulfilled within two years. Any bank that violates the agreement will be fined $1 million for each violation, capped at $5 million for repeat violations.
•The settlement does not free banks from criminal action. Federal and state officials can still pursue criminal action action against banks for any wrongdoing over foreclosures.
The mortgage settlement only applies to mortgages held privately. It does not apply to mortgages held by Fannie Mae and Freddie Mac.
The banks part of the settlement are Bank of America, Citigroup, JPMorgan, Chase, Wells Fargo, and Ally Financial.
Some banks have negotiated separate requirements so they won’t have to pay as much in penalties to federal and state officials. For example, in return to a reduction in penalties, Ally Financial has agreed to cut the mortgage principal for struggling home owners by 105 percent of the home’s value. Bank of America says it will trim the mortgage principal of more than 200,000 struggling borrowers.
The settlement still must be approved by a judge to be final.
Source: “Feds Promise Tough Oversight in Mortgage Deal,” Reuters (March 12, 2012) and “Gov’t Files $25B Mortgage Settlement; Banks to Provide Relief Without Admitting Wrongdoing,” Associated Press (March 12, 2012)