US Banks Agree To Pay $8.5 Billion For Foreclosure Abuse

Nearly 3.8 million households in the U.S. will receive a combined settlement of up to $8.5 billion from ten major banks, reported the New York Times, after their home purchase loans were prematurely foreclosed during the height of the financial crisis in 2009-2010.

Nearly 3.8 million households in the U.S. will receive a combined settlement of up to $8.5 billion from ten major banks, reported the New York Times, after their home purchase loans were prematurely foreclosed during the height of the financial crisis in 2009-2010.

The ten banks, including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup, announced on Monday that they had reached an agreement with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve to pay out some $3.3 billion in cash to borrowers whose mortgages were in foreclosure at some point in 2009 or 2010, while another $5.2 billion would be allocated to modify the terms of outstanding home loans.

Bank analyst Bert Ely told the Voice of America that the affected homeowners fall into several groups of people, including those who had lost their homes and others still struggling to pay off their mortgages.

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“There’s some people, a number of people that were forced into foreclosure that perhaps should not have been. At least there should have been more of an effort made to try and modify their mortgage to make it more affordable for the homeowner,” Ely explained. “In some cases, the house has been resold and occupied by someone else, in which case there would be some type of financial compensation. In other circumstances, particularly if the bank still owns the house, then the homeowner might be able to get it back. “

[quote]“But we also have a number of people, where the foreclosure has not yet taken place, and this settlement provides money to provide for reduction of mortgages to make them more affordable for the people that are still in their homes.”[/quote]

The deal “represents a significant change in direction” from a prior 2011 agreement, added Thomas Curry, a spokesman for the OCC, in a statement cited by Bloomberg.

“When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury. While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner,” he noted.

Some banks though were against the latest settlement. Notably, four banks — Ally Financial, HSBC, OneWest Bank and Everbank — originally part of the negotiations, didn’t sign onto the deal.

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Other consumer advocates added that while the new settlement expedited payment to those affected, some payments might have been much higher under the 2011 agreement.

[quote]“It’s another get out of jail card for the banks, it caps their liability at a total number that’s less than they thought they were going to pay going in,” told Diana Thompson, a lawyer with the national Consumer Law Centre, to Reuters.[/quote]

According to the Financial Times, banks including Goldman Sachs and Morgan Stanley are expected to reach a separate mortgage-related settlement with regulators later this week. The settlement will end a US government-mandated review of loans by mortgage servicers that began in 2011.