WASHINGTON, D.C. -- Federal officials announced Thursday a settlement has been reached between states and the nation's biggest mortgage lenders over foreclosure abuses. The deal would benefit thousands of homeowners in Washington state.
Five major banks -- Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial -- will pay roughly $26 billion to reimburse American homeowners and overhaul their industry.
The nationwide settlement stems from abuses that occurred after the housing bubble burst. Many companies that process foreclosures failed to verify documents. Some employees signed papers they hadn't read or used fake signatures to speed foreclosures -- an action known as robo-signing.
The deal is the biggest involving a single industry since a 1998 multistate tobacco deal. It would force the five largest mortgage lenders to reduce loans for about 1 million households. The reduced loans would benefit homeowners who are behind on their payments and owe more than their homes are worth.
In addition, another 750,000 Americans -- about half of the households who might be eligible for assistance under the deal -- would likely receive checks for about $1,800 each.
The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.
"While today’s agreement resolves certain civil claims based on mortgage loan servicing activities, it does not prevent state and federal authorities from pursuing criminal enforcement actions," U.S. Attorney General Eric Holder said Thursday.
The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. In addition to the payments and mortgage write-downs, the deal promises to reshape long-standing mortgage lending guidelines. It will make it easier for those at risk of foreclosure to make their payments and keep their homes.
Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.
The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages -- roughly 30 million loans.
$648 million to benefit Washington state homeowners
Washington State Attorney General Rob McKenna elaborated how the settlement would benefit Washington homeowners.
"Thousands of homeowners in Washington state are going to be able to obtain a modified home loans as a result of this. These are people whose loans are held by these five big banks," said McKenna. "These include people who are delinquent, in default, headed toward foreclosure - they will now have fair treatment and fair consideration for their eligibility for a modified loan that will allow them to stay in their home."
About $648 million in benefits will go toward programs helping Washington state homeowners, specifically those with mortgages owned by Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.
"This is not over. There are other banks that we are also looking at for settlements," said McKenna.
McKenna said thousands more will benefit from refinancing, even though they're not in default. A one-time payment of $2,000 will also be available to many homeowners who have already lost their homes.
The settlement agreement also puts into place a list of new protections for mortgage holders on the brink of foreclosure.
"We think this will help stabilize the real estate market because foreclosures drive down real estate values in a neighborhood, forcing even more people under water," said McKenna.
McKenna detailed where settlement funds would go toward:
- $455 million for programs to help borrowers
- $70 million toward refinancing homes worth less than the amount owed. Borrowers who qualify must be current on their mortgage payments on a loan owed by one of the five banks.
- $24 million toward payments to foreclosure victims. Borrowers who were not properly offered loss mitigation or who were otherwise improperly foreclosed on will be eligible for a payment of about $2,000.
- $45 million toward foreclosure relief and assistance programs. McKenna is proposing a committee comprising of state legislators from both parties, a representative from Governor chris Gregoire's office and consumers advocate groups to help determine how to best allocate the funds.
Not all borrowers will qualify for the lower monthly payments offered by the settlement. The settlement impacts loans held by the five banks and does not affect loans controlled by the Federal Housing Finance Agency, including loans backed by Fannie Mae and Freddie Mac.
Where to go for help
For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. Consumers may also contact the banks directly for additional information:
- Bank of America: 877-488-7814
- Citi: 866-272-4749
- Chase: 866-372-6901
- GMAC: 800-766-4622
- Wells Fargo: 1-800-288-3212
The agreement is backed by a federal court order to ensure that the banks comply with the terms of the settlement. It is expected to take between 6 to 9 months to identify those who qualify. Once they do, those homeowners or victims will recieve letters in the mail.
For more information about the mortgage servicing settlement, Washington Attorney General Rob McKenna's office advised homeowners to go to:
The Justice Department advised Americans to go to:
KING 's Roberta Romero and Liza Javier contributed to this report.