Bank of America had a costly day, signing on not only on a multibillion-dolllar foreclosure settlement, but also agreeing to pay Fannie Mae $11.6 billion.
WASHINGTON — Almost 4 million homeowners might receive cash compensation and mortgage relief in a multibillion-dollar settlement with 10 major banks, government regulators announced Monday.
Bank of America, JPMorgan Chase, Wells Fargo, and seven other mortgage-servicing firms have agreed to give borrowers $3.3 billion in direct payments and $5.2 billion in loan modifications and other help to settle allegations they wrongly foreclosed on them in 2009 and 2010. The other lenders are Citibank, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Aurora.
Eligible homeowners may get payments from hundreds of dollars to $125,000, depending on the error.
The deal intends to compensate Americans whose homes were seized because of abuses such as “robo-signing,” when banks automatically signed off on foreclosures without properly reviewing documents.
The agreement also will help eliminate huge potential liabilities for the banks.
It aims to end a troubled foreclosure review of millions of loan files mandated by banking regulators.
Among the problems that came to light the last few years were sloppy record-keeping and “robo-signing,” in which foreclosures were made based on forged or unreviewed documents.
Consumer advocates complained that regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families and fueled an exodus from neighborhoods across the nation.
The deal ends an independent review of loan files required under a 2011 action by regulators.
Bruce Marks, chief executive officer of advocacy group Neighborhood Assistance Corp. of America, said ending the review will cut short inquiries into bank practices. “The question of who’s to blame — the homeowners or the lenders — if you stop this investigation now, that will always be an open-ended question,” he said.
Homeowners who were wrongly denied loan modification will be entitled to relatively small payments. Those whose homes were unfairly seized and sold would be eligible for the biggest payments.
Banks and consumer advocates had complained the loan-by-loan reviews required under the 2011 order were time-consuming and costly and didn’t reach many homeowners. Banks paid large sums to consultants to review the files. Some questioned the independence of those consultants, who often ruled against homeowners.
The deal “represents a significant change in direction” that ensures “consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner,” said Thomas Curry, comptroller of the currency.
Diane Thompson, lawyer with the National Consumer Law Center, complained the deal won’t compensate homeowners for the harm they suffered. The deal “caps [banks’] liability at a total number that’s less than they thought they were going to pay going in,” she said.
She supports the decision to make direct payments to victimized homeowners. But she said the deal works only if it includes strong regulatory and transparency provisions.
The settlement doesn’t close the book on the housing crisis, which caused more than 4 million foreclosures. It covers only consumers in foreclosure in 2009 and 2010.
Some banks didn’t accept the deal. And resolving millions of claims involving multiple banks and mortgage firms is complicated and time-consuming.
Regulators said the settlement would provide more speedy relief to borrowers, who will be compensated regardless of whether they’ve filed requests for review.
Banks said they’re pleased the independent foreclosure review is behind them. “We have helped nearly 1 million homeowners avoid foreclosure over the last four years and will continue to help others who may be struggling to make their payments,” Amy Bonitatibus, a JPMorgan Chase spokesman, said.
Regulators announced the deal the same day Bank of America agreed to pay $11.6 billion to government-backed mortgage financier Fannie Mae to settle claims tied to mortgages that soured during the housing crash.
The deal covers mortgages totaling $1.4 trillion originated primarily by Countrywide Financial Corp. and sold to Fannie Mae from 2000 to 2008.
A large portion will be paid out of the bank’s reserves. The deal will cut into Bank of America’s fourth-quarter earnings by about $2.7 billion, the bank said.