Huge Government Agreement With Banks May Provide Homeowner Relief

Real monetary assistance is in store for many homeowners in financial trouble, according to a Feb. 9 U.S. Department of Justice press release.

A coalition of federal and state law enforcement and regulatory agencies (including 49 of the state attorneys general) has reached a gigantic settlement with the five largest mortgage servicers in the U.S. – Ally Financial Inc. (formerly GMAC), Bank of America Corporation, Citigroup Inc., JP Morgan Chase & Co. and Wells Fargo & Company – for “mortgage loan servicing and foreclosure abuses.”
The $25 billion settlement grows out of the work of President Barack Obama’s federal-state-local Financial Fraud Enforcement Task Force that was formed to “investigate and prosecute significant financial crimes.”
In very basic terms, the government agrees to give up the right to pursue against the five banks under civil law the targeted banking law violations in exchange for those lenders providing significant financial relief to specific homeowners.

Although the government agencies give up the right to bring civil claims against the lenders for certain violations of mortgage-servicing laws, it does not block individual borrowers’ lender-liability claims. The government’s right to pursue criminal prosecution in these matters is also preserved. Other specific civil claims against the mortgage companies are also still reserved to federal and state government authorities.
In exchange, the banks have three years to fulfill their part of the bargain to the tune of about $25 million. Some of the major terms include:

  • Changing abusive and deceptive mortgage servicing practices
  • Dropping the principal balance on loans for some financially strapped borrowers
  • Refinancing certain underwater mortgages (those where the house is worth less than the mortgage balance)
  • Allowing forbearances for some unemployed borrowers
  • Granting relief to qualifying members of the military
  • Paying cash to the government for relief to certain people who lost their homes in foreclosure and for other related consumer programs

The agreement will be monitored by Joseph A. Smith Jr., the North Carolina Commissioner of Banks. Smith will have the authority to impose very large penalties for bank violations.
Consumers’ lawyers will be closely attuned to the governmental and bank rollout of these programs for homeowner relief.

Source: U.S. Department of Justice Press Release, “Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses”, Feb. 9, 2012