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If mortgage servicers fail to pay the agreed $25 billion in relief to states and borrowers as part of the foreclosure settlement, the firms could face more than $1 billion in fines from federal regulators.

The Office of the Comptroller of the Currency settled with the top mortgage servicers over $394 million in possible penalties as part of the foreclosure consent orders signed last year. The Federal Reserve announced a settlement over $767 million in fines to the servicers as well.

Servicers signed consent orders in April 2011 with the OCC and the Fed, pledging to correct faulty foreclosure practices and review more than 4 million foreclosure filings throughout 2012 for possible reimbursement to borrowers.

The announcement comes in coordination with the $26 billion foreclosure settlement between the banks and the state attorneys general along with the Justice Department.

Taken together, the OCC and the Fed could charge a total of $359 million to Bank of America (BAC), $388 million to JPMorgan Chase (JPM), $175 million to Wells Fargo (WFC) and $34 million to Citigroup (C) and $22 million to Ally Financial (GJM).

The state AG and federal settlement announced Thursday requires servicers to provide the principal reduction, refinances and cash payments to foreclosed borrowers within three years.

If after three years, the servicer has not followed through, the OCC will assess a penalty against the servicer for the difference between the combined value of the actions the servicer did take and the above penalty amounts.

"The actions announced today mark important progress in addressing the problems associated with foreclosure processing and are a critical step toward restoring a functioning industry that protects the rights of the customers it serves," said Acting Comptroller of the Currency John Walsh.


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