Five Largest Mortgage Servicers Agree to $25B Settlement
The federal government and 49 state attorneys general have reached a landmark $25 billion agreement with the nation’s five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.
The agreement provides substantial financial relief to homeowners and establishes significant new homeowner protections for the future, announced U.S. Attorney General Eric Holder, Department of Housing and Urban Development (HUD) Secretary Shaun Donovan, Iowa Attorney General Tom Miller and Colorado Attorney General John W. Suthers.
The joint federal-state group entered into the agreement with the nation’s five largest mortgage servicers: Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial (formerly GMAC).
The agreement requires servicers to implement comprehensive new mortgage loan servicing standards and to commit $25 billion to resolve violations of state and federal law. These violations include servicers’ use of “robo-signed” affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court.
Under the terms of the agreement, the servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers. At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth. At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth. Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs.
Mortgage servicers are required to fulfill these obligations within three years. To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months.
In addition to the $20 billion in financial relief for borrowers, the agreement requires the servicers to pay $5 billion in cash to the federal and state governments.
To read the full Department of Justice news release, click here.
For more information about the mortgage servicing settlement, click here.