On February 9, forty-nine state attorneys general reached an approximately $25 billion settlement with the five largest financial institutions that provide mortgage loans. The lawsuit was brought against the institutions for the practice of “robo-signing” which the lenders used during foreclosure on homes of delinquent borrowers. Seventeen million of the settlement would go toward writing down mortgage principal and other homeowner assistance, $3 billion for refinancing programs and $3 billion toward restitution payments of up to $2,000 for borrowers who lost their homes where improper foreclosure practices were used. The remaining $2.5 million would be put toward state funds for foreclosure relief. The settlement also requires comprehensive reforms of mortgage loan servicing.
The Full Story:
In October 2010, state attorneys general commenced an investigation against those mortgage lenders which they believe did not follow proper documentation protocol by using “robo-signing” in foreclosing on delinquent homeowners following the collapse of the housing market. “Robo-signing” included individuals signing a multitude of foreclosure affidavits without reviewing the validity or accuracy of the sworn statements. When the issue of “robo-signing” surfaced in 2010, foreclosures on homes nearly came to a halt as lenders changed the way they process foreclosure documents.
The terms of the settlement are intended to provide assistance to homeowners who are having trouble making their mortgage payment. A minimum of roughly $10 billion of the $25 billion settlement must be allocated to reduce the principal balance of loans for borrowers who are at risk of defaulting on their mortgage payments. Approximately $5 billion is to be used to facilitate short sales and defer payments for homeowners who are currently unemployed. Assistance can also be provided to relocate homeowners who face foreclosure, waive deficiency balances and fund transformation of blighted properties.
Also under the settlement, the lenders must provide assistance to homeowners who are not delinquent on payments but owe more money on the home than the home is worth. Financial institutions must offer refinancing programs to those borrowers who are current with mortgage payments, owe more than the home is worth and have an interest rate above 5.25%. The total of the refinancing programs must be worth no less than $3 billion.
Finally, $3 billion would go to approximately 850,000 borrowers whose homes were foreclosed on in which “robo-signing” or other improper practices were used. The payment to each borrower varies but is expected to be about $2,000. The remaining $2.5 billion would be paid to states that participated in the settlement and used toward foreclosure relief and housing programs.
The second major aspect of the settlement is the requirement for comprehensive reforms of loan serving. As compiled by the National Mortgage Settlement, those reforms are as follows:
- Information in foreclosure affidavits must be personally reviewed and based on competent evidence.
- Holders of loans and their legal standing to foreclose must be documented and disclosed to borrowers.
- Borrowers must be sent a pre-foreclosure notice that will include a summary of loss mitigation options offered, an account summary, description of facts supporting lender’s right to foreclose, and a notice that the borrower may request a copy of the loan note and the identity of the investor holding the loan.
- Borrowers must be thoroughly evaluated for all available loss mitigation options before foreclosure referral, and banks must act on loss mitigation applications before referring loans to foreclosure; i.e. “dual tracking” will be restricted.
- Denials of loss mitigation relief must be automatically reviewed, with a right to appeal for borrowers.
- Banks must implement procedures to ensure accuracy of accounts and default fees, including regular audits, detailed monthly billing statements and enhanced billing dispute rights for borrowers.
- Banks are required to adopt procedures to oversee foreclosure firms, trustees and other agents.
- Banks will have specific loss mitigation obligations, including customer outreach and communications, time lines to respond to loss mitigation applications, and e-portals for borrowers to keep informed of loan modification status.
- Banks are required to designate an employee as a continuing single point of contact to assist borrowers seeking loss mitigation assistance.
- Military personnel who are covered by the Service members Civil Relief Act (SCRA) will have enhanced protections.
- Banks must maintain adequate trained staff to handle the demand for loss mitigation relief.
- Application and qualification information for proprietary loan modifications must be publicly available.
- Servicers are required to expedite and facilitate short sales of distressed properties.
- Restrictions are imposed on default fees, late fees, third-party fees, and force-placed
To access the mortgage settlement website, please go to: http://www.nationalmortgagesettlement.com/
While the settlement resolves the five financial institutions from broad civil claims resulting from improper foreclosure procedures, the state attorneys general were quick to point out that state and the federal government can still pursue criminal actions and borrowers can still bring individual lawsuits.
Posted by Tristan North