Monday, February 20, 2012

Federal and State Officials Announce $25 Billion Mortgage Servicing Settlement

As we previously discussed, federal and state officials announced a national-level agreement between the federal government and 49 state attorneys general to address mortgage loan servicing and foreclosure abuses.  Our Oak Park foreclosure defense lawyer knows this is a crucial deal is being heralded as providing financial relief to struggling homeowners.  The deal, which was approved by U.S. Attorney General Eric Holder and HUD Secretary Shaun Donovan, also establishes significant new homeowner protections for the future. 

Federal and state investigations into fraudulent lending and mortgage foreclosure practices were the impetus of the deal.  The final deal evolved out of a series of negotiations between financial servicers and government officials.  The servicers included Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial.  The total settlement amount is $25 billion, to be distributed according to specific settlement terms.  The settlement’s terms require a commitment of approximately $20 billion in financial relief for homeowners.  Additionally, the servicers must pay $5 billion in cash to the state and federal governments, including $1.5 billion to establish a Borrower Payment Fund that will provide payments to qualifying borrowers whose homes were sold or foreclosed between January 1, 2008 and December 31, 2011. 

The settlement amount also includes more than $766.5 million in monetary sanctions assessed by the Federal Reserve Board, which is responsible for implementing national monetary policy.  An additional $394 million of penalties from the Office of Comptroller of the Currency (OCC) will be held in abeyance provided four of the servicers make payments and take other actions under the settlement with a value equal to at least the penalty amounts assessed for each servicer by the OCC.

Illinois Attorney General Lisa Madigan stated that the deal provides much-needed mortgage relief for homeowners.  Strict new mortgage servicing standards will prevent future abuses in the foreclosure and servicing process.  For example, the servicers must conduct future business under new servicing standards, which include:

     1.  Restrictions on the default management process known as “dual tracking,”
     2.  A requirement for the institutions to provide a single point of contact for borrowers,
     3.  Specific protections for military service members,
     4.  Obligations concerning disclosures and practices related to force-placed insurance
     5.  Limitations on servicing fees.

The new standards also require servicers to establish updated foreclosure and bankruptcy documentation processes, enhanced servicer oversight of third party vendors, and adherence to a new set of loan modification timelines.

The national settlement is a landmark decision that should greatly benefit homeowners in the Chicago area.  However, those working in Oak Park and River Forest foreclosure know that the deal also left several issues unresolved and does not preclude: (1) criminal claims, (2) securities claims and claims related to the use of an electronic mortgage registry, (3) loan origination claims in connection with FHA-insured loans, except those covered specifically by this settlement, and (4) borrower claims.

For additional information on state-level recovery, please visit the Illinois Attorney General’s website here.  If you are a homeowner who is wondering whether you are eligible for assistance under the national settlement, please visit the Illinois AG’s website to utilize a number of helpful resources.  Consumers are also encouraged to call the Homeowner Helpline at 1-866-544-7151.  You can also visit for more information about the national settlement.  As always, the Oak Park foreclosure attorneys at our firm remain ready to help explain how all of these issues might affect your particular case.

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