Federal banking regulators have reached a $9.3 billion pact with 13 major lenders to settle claims of foreclosure abuses like bungled loan modification and flawed paperwork.
The details the settlement, made up of $3.6 billion in cash relief and $5.7 billion in relief to avert foreclosures, were announced Thursday.
Under the deal, homeowners can receive up to $125,000 in cash relief. Despite the banner numbers in the settlement, consumer groups and a range of lawmakers have criticized it for not providing enough relief for aggrieved homeowners.
The agreement formalizes the tentative deals that were reached in January between the mortgage servicing companies and the regulators from the Office of the Comptroller of the Currency and the Federal Reserve.
The pact, reached after weeks of harried negotiations, halted a flawed review of millions of mortgages in foreclosure. Regulators, led by the comptroller’s office, hastily scuttled that review amid heightened concerns that the process was generating billions of dollars in fees for consultants, but providing little relief for borrowers.
The effort was abandoned after consultants examined a tiny fraction of more than four million loans in foreclosure from 2009 to 2010. Ultimately, consultants completed a review of 104,000 loans, regulators said Thursday.
As part of a consent order in April 2011, the comptroller’s office and the Federal Reserve set up the Independent Foreclosure Review, which required banks hire a fleet of outside consultants to comb through loan files. The aim was to spot problems like ! illegal fees, botched loan modifications and examples where borrowers were evicted even though they were current on their mortgage payments.
By halting the review with only a sliver of the loans reviewed for problems, federal regulators don’t have a complete picture of the extent of the abuse. As a result, consumer groups have argued, borrowers harmed by shoddy practices could still receive less money than they deserve.
In a speech this month, Thomas J. Curry, who heads the comptroller’s office, defended the relief allocated through the settlement, describing it as “several times the potential payout had the reviews run their course.â€
An estimated 4.2 million borrowers in foreclosure will be contacted by Rust Consulting, a firm handling the payment details, by the end of March, according to the regulators.
Beyond the cash relief, the 13 mortgage lenders will provide $5.7 billion in other assistance like reducing mortgage balances and refinancing burdensome loans.
Three irms â€" GMAC Mortgage, Everbank and OneWest â€" didn’t sign the pact. The lenders will continue to review their mortgages, according to the regulator. Those three companies service more than 450,000 loans in foreclosure from 2009 to 2010.
