This morning officials announced a $25 billion settlement with the five largest mortgage lenders over foreclosure abuses. Under the agreement, Bank of America, Wells Fargo, JPMorgan Chase, CitiGroup, and Ally Financial, will reduce nearly 1 million loans, compensate Americans wrongfully foreclosed upon with payments ranging from $2,000 – $750,000 and refinance mortgages for underwater borrowers over the next 3 years.
During the wrongful foreclosure crisis, Americans across the country were being threatened with foreclosure filings regardless if they were current with payments. Complaints included banks foreclosing illegally on the wrong address, illegally foreclosing on soldiers fighting abroad, foreclosing on homes that were fully paid off, foreclosing on homeowners who were barely late with their payment and foreclosing on homeowners who requested mortgage modifications under home affordable mortgage programs.
One case of the latter wrongful foreclosure scenario included a 70-year-old Florida woman, whose husband was ill and bedridden. With her husband’s high medical bills and facing financial difficulty, she applied for a loan modification under her lender’s Home Affordable Modification Program. After making her January 2011 payment early (December 23, 2010), the bank notified her that they would no longer accept her mortgage payments and that foreclosure proceedings were inevitable. The lender was forced to foreclose because “In accordance with the Trial Payment Letter dated December 15, 2010, it indicates that if you are not able to make each payment in the month in which it is due, you will not be eligible for a modification under the Home Affordable Modification Program.”
Other victims were wrongfully foreclosed upon simply because lenders did not verify documents. Bank employees signed papers they hadn’t read or used fake signatures to speed foreclosures i.e. ‘robo-signing’ (some reports reveal one lender official signed off on almost 10,000 documents in one month). Earlier this week, the first senior executive, DocX founder and former president Lorraine O. Brown, was indicted on criminal charges of forgery and faces jail time. “This is the first time any grand jury in the country has indicted a corporation or a high-level executive at a corporation for ‘robo-signing’”, Missouri Attorney General Chris Koster stated to the Huffington Post. Brown’s lawyer announced she intends to plead ‘not guilty’, had no criminal intent, and plans to “vigorously defend” herself against the charges.
Regarding the $25 billion settlement, the Justice Department claims at least $10 billion will go toward reducing the principal for borrowers who are delinquent or underwater borrowers at risk of default and approximately $3 billion will go toward refinancing to privately held mortgages issued from 2008 – 2011, and the other payments will go to the federal and state governments to “repay public funds lost as a result of servicer misconduct.”
Attorney General Eric Holder, testified the settlement would “hold mortgage servicers accountable for abusive practices.” However, critics believe the proposed deal does not go far enough. Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement and moreover, critics claim a more thorough investigation is necessary. Under the deal, however, homeowners are still able to sue lenders in civil court, and federal and state authorities can pursue criminal charges.
The state of affairs will be overseen by North Carolina’s banking commissioner, Joseph Smith Jr. Lenders that violate the deal will face $1 million penalties per violation and up to $5 million for repeat violators.
Under the deal, 49 states have agreed not to pursue civil charges related to these types of abuses. Oklahoma did not agree to the deal and will receive no money.