(WASHINGTON) – Ten major banks and mortgage companies agreed Monday to pay  $8.5 billion to settle federal complaints that they wrongfully foreclosed on  homeowners who should have been allowed to stay in their homes.

The banks, which include JPMorgan Chase, Bank of America and Wells Fargo,  will pay billions to homeowners to end a review process of foreclosure files  that was required under a 2011 enforcement action. The review was ordered  because banks mishandled people’s paperwork and skipped required steps in the  foreclosure process.

Under the new settlement, people who were wrongfully foreclosed on could  receive from $1,000 up to $125,000. Failing to offer someone a loan modification  would be considered a lighter offense; unfairly seizing and selling a person’s  home would entitle that person to the biggest payment, according to guidelines  released last summer by the Office of the Comptroller of the Currency. Monday’s  settlement was announced jointly by the OCC and the Federal reserve.

The agreement covers up to 3.8 million people who were in foreclosure in 2009  and 2010. Of those, about 400,000 may be entitled to payments, advocates  estimate.

About $3.3 billion would be direct payments to borrowers, regulators said.  Another $5.2 billion would pay for other assistance including loan  modifications.

The companies involved in the settlement also include: Citigroup, MetLife  Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The  2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage  Corp.

The deal “represents a significant change in direction” from the original,  2011 agreements, Comptroller of the Currency Thomas Curry said in a  statement.

Banks and consumer advocates had complained that the loan-by-loan reviews  required under the 2011 order were time consuming and costly without reaching  many homeowners. Banks were paying large sums to consultants who were reviewing  the files. Some questioned the independence of those consultants, who often  ruled against homeowners.

Curry said the new deal meets the original objectives “by ensuring that  consumers are the ones who will benefit, and that they will benefit more quickly  and in a more direct manner.”

“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,” Curry said.

Some consumer advocates said that the agreement lets banks off the hook for  payments that could have ended up being much higher. “It’s another get out of  jail free card for the banks,” said Diane Thompson, a lawyer with the National  Consumer Law Center. “It caps their liability at a total number that’s less than  they thought they were going to pay going in.”

Leaders of a House oversight panel asked regulators for a briefing on the  proposed settlement on Friday. Regulators agreed to brief committee staff after  the settlement was announced on Monday.

Source: Time


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