The U.S. Department of Justice (DOJ), the U.S. Department of Housing and Urban Development and 49 state attorneys general have announced the filing of their $25 billion agreement with the nation's five largest mortgage servicers to address mortgage loan servicing and foreclosure abuses.
The federal government and state attorneys general filed in U.S. District Court in the District of Columbia proposed consent judgments with Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc., to resolve violations of state and federal law.Â Â Â Â
According to a statement issued by the DOJ, the consent judgments provide the details of the servicers' financial obligations under the agreement, which include payments to foreclosed borrowers and more than $20 billion in consumer relief; new standards the servicers will be required to implement regarding mortgage loan servicing and foreclosure practices; and the oversight and enforcement authorities of the independent settlement monitor, Joseph A. Smith Jr., the former North Carolina commissioner of banks.
The consent judgments also require the servicers to collectively dedicate $20 billion toward various forms of financial relief to homeowners, including the reduction of the principal on loans for borrowers who are delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth; the refinancing of loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth; the forbearance of principal for unemployed borrowers; anti-blight provisions; short sales; transitional assistance; and benefits for service members.
The consent judgments' consumer relief requirements include varying amounts of partial credit the servicers will receive for every dollar spent on the required relief activities.Â Because servicers will receive only partial credit for many of the relief activities, the agreement will result in benefits to borrowers in excess of $20 billion. The servicers are required to complete 75% of their consumer-relief obligations within two years and 100% within three years.
In addition to the $20 billion in financial relief for borrowers, the consent judgments require the servicers to pay $5 billion in cash to the federal and state governments. Approximately $1.5 billion of this payment will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008, and Dec. 31, 2011, and who meet other criteria.
The court documents also provide details on new servicing standards that the mortgage servicers will be required to implement, including increased oversight of foreclosure processing and third-party vendors, and new requirements to undertake pre-filing reviews of certain documents filed in bankruptcy court. Servicers will be restricted from foreclosing while the homeowner is being considered for a loan modification.
According to the DOJ, the new servicing standards also include procedures and timelines for reviewing loan modification applications and give homeowners the right to appeal denials. Servicers will also be required to create a single point of contact for borrowers seeking information about their loans and maintain adequate staff to handle calls.
Furthermore, the consent judgments will provide enhanced protections for servicemembers that go beyond those required by the Servicemembers Civil Relief Act (SCRA). In addition, the servicers have agreed to conduct a full review, overseen by the DOJ's Civil Rights Division, to determine whether any servicemembers were foreclosed upon or improperly charged interest in excess of 6% on their mortgage in violation of SCRA.
‘The oversight and enforcement authorities of the settlement's independent monitor are detailed in the court documents,’ says the DOJ. ‘The monitor will oversee implementation of the servicing standards and consumer relief activities required by the agreement and publish regular public reports that identify any quarter in which a servicer fell short of the standards imposed in the settlement.
‘The consent judgments require servicers to remediate any harm to borrowers that are identified in quarterly reviews overseen by the monitor and, in some instances, conduct full look-backs to identify any additional borrowers who may have been harmed,’ the DOJ continues. ‘If a servicer violates the requirements of the consent judgment, it will be subject to penalties of up to $1 million per violation or up to $5 million for certain repeat violations.’