(WASHINGTON) – Ten major banks and mortgage companies agreed Monday to payÂ $8.5 billion to settle federal complaints that they wrongfully foreclosed onÂ homeowners who should have been allowed to stay in their homes.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo,Â will pay billions to homeowners to end a review process of foreclosure filesÂ that was required under a 2011 enforcement action. The review was orderedÂ because banks mishandled people’s paperwork and skipped required steps in theÂ foreclosure process.
Under the new settlement, people who were wrongfully foreclosed on couldÂ receive from $1,000 up to $125,000. Failing to offer someone a loan modificationÂ would be considered a lighter offense; unfairly seizing and selling a person’sÂ home would entitle that person to the biggest payment, according to guidelinesÂ released last summer by the Office of the Comptroller of the Currency. Monday’sÂ settlement was announced jointly by the OCC and the Federal reserve.
About $3.3 billion would be direct payments to borrowers, regulators said.Â Another $5.2 billion would pay for other assistance including loanÂ modifications.
The companies involved in the settlement also include: Citigroup, MetLifeÂ Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. TheÂ 2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC MortgageÂ Corp.
The deal “represents a significant change in direction” from the original,Â 2011 agreements, Comptroller of the Currency Thomas Curry said in aÂ statement.
Banks and consumer advocates had complained that the loan-by-loan reviewsÂ required under the 2011 order were time consuming and costly without reachingÂ many homeowners. Banks were paying large sums to consultants who were reviewingÂ the files. Some questioned the independence of those consultants, who oftenÂ ruled against homeowners.
Curry said the new deal meets the original objectives “by ensuring thatÂ consumers are the ones who will benefit, and that they will benefit more quicklyÂ and in a more direct manner.”
“It has become clear that carrying the process through to its conclusionÂ would divert money away from the impacted homeowners and also needlessly delayÂ the dispensation of compensation to affected borrowers,” Curry said.
Some consumer advocates said that the agreement lets banks off the hook forÂ payments that could have ended up being much higher. “It’s another get out ofÂ jail free card for the banks,” said Diane Thompson, a lawyer with the NationalÂ Consumer Law Center. “It caps their liability at a total number that’s less thanÂ they thought they were going to pay going in.”
Leaders of a House oversight panel asked regulators for a briefing on theÂ proposed settlement on Friday. Regulators agreed to brief committee staff afterÂ the settlement was announced on Monday.