Five Largest Mortgage Servicers Agree to $25B Payout
Barrington M. Salmon | 2/15/2012, 12:19 p.m.
Settlement is Punishment for Banks' Abusive and Illegal Practices
After more than a year of negotiations, five of the nation's largest mortgage providers agreed last week to pay $25 billion after investigations by the Department of Justice, state attorneys-general and state regulators revealed widespread abuse and fraudulent practices that led in part to the meltdown of the housing market.
This is the largest federal-state civil settlement in U.S. history and sets the stage for the Obama Administration, through the federal government, to put in place safeguards to ensure that consumers and homeowners are protected going forward, said U.S. Secretary of Housing and Urban Development Shaun Donovan in a conference call on Thursday, Feb. 9.
Donovan spoke at length about the effects of the mortgage loan servicing and foreclosure abuses on blacks, Latinos and other minorities.
"This comes not a moment too soon for homeowners, the housing market and so many African Americans, the Latino and minority communities and for our economy more broadly," Donovan said. "We all know how the housing bubble burst, how lenders sold home loans to consumers who couldn't afford them and how they packaged those loans to make profits that turned out to be nothing more than a mirage."
"We know these actions hurt millions of families, particularly African American, Latino and other minority families who were targeted for predatory loans and other practices. We saw many families who did the right thing and still lose their homes."
Non-white homeowners nationally were among the hardest hit by the implosion of the housing market and the foreclosure crisis. For example, Donovan said, black families lost half of their wealth during the four years prior to President Barack Obama's ascension to the White House, while Latino families lost roughly two-thirds of their wealth in that same time period.
The mortgage servicers who agreed to the deal are Bank of America Corporation, Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc. and Ally Financial Inc. (formerly GMAC).
"This agreement ... is the result of unprecedented coordination among enforcement agencies throughout the government," said U.S. Attorney General Eric Holder in a separate press conference announcing the settlement. "It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated."
In addition Donovan explained, the settlement, besides providing immediate relief to homeowners, forces the banks to reduce the principal balance on a number of loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers.
The violations of state and federal law include servicers' use of "robo-signed" affidavits in foreclosure proceedings; deceptive practices in the offering of loan modifications; failure to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court, Holder said.