Federal financial regulators finalized an $8.5 billion deal with 10 mortgage servicing companies to compensate eligible homeowners harmed by the foreclosure crisis.
The deal, announced by the Office of the Comptroller of Currency and Federal Reserve, effectively replaces the prolonged independent foreclosure review process with a one-time settlement to compensate impacted homeowners.
The deal, which is the second major servicing settlement in two years, is not an admission of guilt and essentially replaces the independent foreclosure review process that was criticized for being too costly and time consuming. The focus is to compensate borrowers financially and move on.
The prolonged independent foreclosure review process that government regulators imposed on some of the largest servicers back in 2011 is now being replaced with a financial payout to cover eligible borrowers.
The deal covers the following servicing shops: Aurora, Bank of America (BAC), Citibank (C), JPMorgan Chase (JPM), MetLife Bank (MET), PNC (PNC), Sovereign, SunTrust (STI), U.S. Bank (USB) and Wells Fargo (WFC).
As part of the agreement, the 10 servicers will provide $3.3 billion in direct payments to borrowers who may have been impacted by deficient mortgage servicing practices. Another $5.2 billion in assistance will fund loan modifications and forgiveness of deficiency judgments, the regulators said.
The deal received approval from the Federal Housing Finance Agency. In addition, FHFA has approved the transfer of servicing for roughly one million loans from Bank of America to specialty servicers.
"Resolving these issues at this time is in the best interest of taxpayers and reduces uncertainty in the nation’s mortgage finance market," said Edward DeMarco, FHFA Acting Director. "This is a major step forward in resolving issues from the past and providing greater certainty in the marketplace, which remain critical FHFA goals as conservator."
The payments will cover servicers that entered into enforcement actions with prudential regulators back in April 2011. Originally, 14 servicers settled with the OCC. Regulators are still working on a potential deal with the remaining servicing shops.
"We have learned a great deal from the reviews that have been conducted to date," said Comptroller of the Currency Thomas Curry. "However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers."
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