DOJ, 49 States Reach $25 Billion Settlement With Five Largest Lenders Over Robosigning

More than a year after several of the nation’s largest mortgage lenders temporarily suspended foreclosures after it was revealed that they had been using untrained, unqualified “robosigners” to process foreclosure documents, the U.S. Justice Dept. and the attorneys general of 49 states have announced a $25 billion settlement that will result in mortgage reductions to some homeowners.

The five lenders involved are Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally.

In addition to the allegations of robosigning, the lenders had been accused of deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court.

“This agreement – the largest joint federal-state settlement ever obtained – is the result of unprecedented coordination among enforcement agencies throughout the government,” said U.S. Attorney General Holder. “It holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated.”

$20 billion of the settlement is to be put toward financial relief to borrowers. Of that, at least $10 billion will go to reducing the principal on loans for homeowners who are at risk of foreclosure. At least $3 billion will go toward refinancing loans for borrowers who owe more than their mortgages are worth, but who have managed to stay current on their payments. Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs.

The five lenders will only receive partial credit for every dollar spent on some of these required relief efforts, so the end result is that the benefit to struggling borrower will actually be larger than $20 billion.

The banks have three years to fulfill all the obligations of the settlement, and 75% of their targets must be reached within 24 months. There are incentives for the lenders if they reach certain goals in the first year, and if they miss their deadlines they will be required to pay substantial additional cash amounts.

Of the remaining $5 billion, $1.5 billion will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria. This program is separate from the restitution program currently being administered by federal banking regulators to compensate those who suffered direct financial harm as a result of wrongful servicer conduct. Borrowers will not release any claims in exchange for a payment.

$3.5 billion billion payment will go to state and federal governments to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general.

The one remaining holdout in the settlement is the state of Oklahoma.

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  1. clippy2.0 says:

    Same picture as yesterday? Boo!

  2. PHRoG says:

    1. Get 800+ billion from taxpayers.
    2. Give 25 billion back.
    3. Profit.

    • Phil Keeps It Real [Consumerist] says:

      Sounds like those $25 billion that were ‘recovered’ will just go into someone’s very fat pockets! That distribution breakdown means jack !

      • DariusC says:

        1. Say that you will give $20 billion to consumers
        2. Consumers take your word for it, nobody follows up.
        3. Profit by pocketing the $20 billion and hope nobody notices.

        Nobody ever tracks news after it’s reported huh? It’s funny how people think things are going a certain way because a news agency reports it and yet nobody provides substantial evidence to show that everything proceeded just like it was reported. I know I don’t, but that’s because I don’t have time to make sure people aren’t screwing the system between my jobs, school and other obligations.

        Lawmakers are counting on you being distracted by your life enough to not notice they are misappropriating tax dollars or doing other unscrupulous things.

    • MonkeyMonk says:

      You do realize that the “bailouts” were not just free money? They were guaranteed loans made to companies which are responsible for paying back (and have been paying back) with dividends.

      If you’re curious who got what and how much has been paid back here’s a handy chart:

      http://projects.propublica.org/bailout/list/dividends

      • Tiercelet says:

        You understand that bailing someone out with a free loan *is* a bailout, because real loans cost interest, right?

        And that reinforcing the impression that the largest banks get free insurance *is* a bailout, because any competing financial institution that isn’t “too big to fail” will have to *pay* for its insurance, right?

        And that most of that bailout money was used to buy Treasury bonds at a higher rate of interest — that if I loan you $100 at 0%, you loan it back to me at 5%, and eventually you give me $100, I’ve still bailed you out with free money, right?

        The idea that the bailouts are now-repaid loans is a complete myth.

  3. waybaker says:

    Yet again, help that comes far too late for people that have already lost their homes and are now having to either live with relatives, or try and rent a place in a saturated market with inflated rental prices.

    Don’t get me wrong, its nice to try and stop the bleeding, and keep some of the people in their homes that are struggling now, but I can’t help but feel really bad for the people who just couldn’t hang on quite long enough to make it to the point of qualifying for new assistance methods. What do these people get?

  4. fantomesq says:

    Unreal. The banks skate out of major illegality with a slap on the wrist. Homeowners who were illegally foreclosed on see virtually nothing. Those of us who bought within our means see nothing. Homeowners who were not foreclosed on but are underwater see minimal relief and the banks shed off hundreds of billions in potential liability… for what?!? Obama just lost the votes of every homeowner who lost their house in the last four years…. justice? not hardly.

    • jvanbrecht says:

      I’m with you, I can easily afford my mortgage, however, my house is worth significantly less then I still owe. One of the clauses..

      “At least $3 billion will go toward refinancing loans for borrowers who owe more than their mortgages are worth, but who have managed to stay current on their payments.”

      Will not apply to me because I earn too much, (earning too much is subjective considering I live int he DC area with a high cost of living) yet I still live paycheck to paycheck. I bought a house when I thought I had to due to over valued market, and the thought that if I do not buy at the time, I would never be able to.. of course the bubble burst, and yet I will still see no relief from anyone..

      • MonkeyMonk says:

        Sounds like you’re doing pretty well for yourself. Why do you think you should be entitled to relief?

        • jvanbrecht says:

          I do not feel I am entitled to relief.. what I do feel I am entitled to is the ability to refinance at a lower rate on the balance of my current mortgage.

          I am been denied that ability due to the fact that my $350k home is only worth about $225k at the moment and no financial institution will touch me without me putting down a crapton of money to make up the difference, even with 700+ credit rating for both myself and my wife..

      • Conformist138 says:

        ” I bought a house when I thought I had to due to over valued market, and the thought that if I do not buy at the time, I would never be able to”

        This is exactly the lesson no one ever seems to learn: That was the WORST time to buy! When we’ve all noticed that something is way overpriced, don’t buy it! Prices will come down if consumers refuse to buy a bad deal. But, we can’t ever believe that what goes up must and will come down. We follow every line to it’s extreme and somehow are shocked each and every time the line curves and goes a different way.

        Also, I live paycheck to paycheck, but I get to rent a crappy apartment with my sister, take the bus, and my health care plan is a prescription for hope and happy thoughts (no refills). Feel happy that you own a home and have managed to keep going without getting tossed out into my stratum of society.

        • jvanbrecht says:

          It was not quite as simple as that. Both my wife and I knew that the market would eventually stabilize, but we did not think that the housing market would tumble as badly as it did. There were other circumstances as well, we were worried that we could possibly get priced out of the market, both our respective leases were up, with the number of animals we had, limiting our options (stupid home owners/condo associations….), it was time to buy.

          Granted, if we had waited just a year, we would have received a much better deal, as we bought at the peak of the market. This was also our first purchase, having rented/lived with parents, so we were not as wise as we should have been.

          But at least we are doing okay.

    • Loias supports harsher punishments against corporations says:

      Exactly how involved is Obama, how much sway does he have, and how much sway does his opposition have (whether direct or indirect)?

      I don’t get how the President, whoever he/she is, gets the blame for everything that goes, even when much of it is not in his direct control and still has to make deals with his opposition. If you want to blame someone, perhaps it’s those who support big business on virtually every Congressional measure, and who don’t support consumers. I’m not naming names or parties, because they exist on both sides.

    • DubbaEwwTeeEff says:

      Obama doesn’t direct the DOJ’s law enforcement activities – he can influence the Department in certain ways (who he chooses to appoint, in particular) but he doesn’t have the power to reject or negotiate a settlement on behalf of the government, or even to initiate law enforcement action. There was a scandal relating to this during George W. Bush’s administration, when several U.S. attorneys were apparently fired for acting against the administration’s interests; they’re supposed to be insulated from that as part of separation of powers.

      As for the settlement being a slap on the wrist: well, you’re right when you compare it to the economic damage done by these practices. However, $25 billion is still a very large number, and it will correspond to a much larger amount of aid to homeowners as mentioned in the article. Anything higher than that likely would not have been agreed to by the banks, and if it was awarded in court it probably would have been rejected on appeal for being too punitive. (Remember, this is “the *largest* joint federal-state settlement ever obtained,” per the AG’s quote – emphasis mine.)

      The settlement should also be enough to keep most of the larger banks in line. The settlement requires changes in business practices in addition to the monetary award, and violation of the settlement (or any repeat offenses) will not be looked upon favorably by the courts. Cases like that would probably be brought against banks individually as well, meaning a single corporation would take the full blow the second time around.

      On top of all that, the DOJ probably saved a lot of taxpayer money by not bringing it to court – I don’t have any actual numbers in front of me, but it can’t be cheap to bring legal action against five of the largest banks in the country at once.

      • Tiercelet says:

        You’re totally high.

        First off, 80% of the settlement will be payable by making modifications to loans which aren’t on the banks’ books, but are being serviced by the banks — i.e. they’re actually writing off loans to pension funds, local governments, 401Ks, etc. In exchange for the *bank* receiving immunity, and getting to keep its second liens.

        Second, Obama was working hand-in-glove with everybody involved in this deal from square one.

        Third, “change in business practices”? C’mon. They’re tasked with changing their business practices to match the law, which they’ve been asked to do every time the SEC has settled any claims against them. And the first order of monitoring for compliance is going to be done by the banks themselves. So, sure — we’ll trust them to keep a better eye on the store this time and they’ll tell us when they don’t?

        Fourth, given all the above — what makes you think this would keep the banks in line? They’ve established that the cost of forging documents and completely disregarding their contractural agreements is about $2000 per mortgage. Just a cost of doing business, and now they’ll be free and clear.

        This is a major loss for taxpayers everywhere and for justice & the rule of law.

  5. Maltboy wanders aimlessly through the Uncanny Valley says:

    … and for those folks with enough integrity to not go begging for another government handout even though they continued to make all their payments on homes worth less than what they owe, tough shit.

    • MonkeyMonk says:

      I know it’s popular with the unread to rage about government handouts but this isn’t a government payout. It’s a lawsuit settlement against the 5 major mortgage companies with a payout by those 5 companies.

      You can debate the semantics of the bailouts but this settlement does not absolve any of these companies from paying back bailout funds with interest.

      • Loias supports harsher punishments against corporations says:

        I think the point is that CONSUMERS who were responsible get shit, while people who bought too much house are getting a reprieve.

        • MonkeyMonk says:

          If that was their point then they probably shouldn’t have erroneously called the settlement a government handout.

          Plus, your blanket assumption that everyone having financial difficulties right now “bought too much house” is pretty offensive.

          • Maltboy wanders aimlessly through the Uncanny Valley says:

            Yeah, that was my point, but I guess it wasn’t clear enough for the well-read to comprehend.

          • Maltboy wanders aimlessly through the Uncanny Valley says:

            THIS:
            “The $26 billion is actually $5 billion of bank money and the rest is your money. The mortgage principal writedowns are guaranteed to come almost entirely from securitized loans, which means from investors, which in turn means taxpayers via Fannie and Freddie, pension funds, insurers, and 401 (k)s. Refis of performing loans also reduce income to those very same investors.”

    • Tiercelet says:

      That word is spelled “fools,” not “folks.”

      Seriously — a loan is a business contract, not a moral obligation. Learn this, the way the corporations that slash your pension funds have done. If you don’t, you will be ground into meal for Wall Street. When you owe more than the value of the collateral, you walk away.

  6. dush says:

    How about $200 billion, then we’d have something worth mentioning.

  7. dush says:

    “$10 billion will go to reducing the principal on loans for homeowners who are at risk of foreclosure. At least $3 billion will go toward refinancing loans for borrowers who owe more than their mortgages are worth, but who have managed to stay current on their payments. Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance, benefits for service members who are forced to sell their home at a loss as a result of a Permanent Change in Station order, and other programs.”

    Those are all things where the money goes right back to the banks The banks aren’t actually paying anything! How are the AGs so stupid??

    • MonkeyMonk says:

      Article: “$10 billion will go to reducing the principal on loans for homeowners who are at risk of foreclosure.”

      You: “Those are all things where the money goes right back to the banks The banks aren’t actually paying anything!”

      Please explain your brilliant deductive reasoning here.

      • Loias supports harsher punishments against corporations says:

        Technically, if a bank is paying you, the homeowner, $5000 to reduce your mortgage debt by $5000, it’s going right back to the bank.

        It’s still a loss of revenue from interest rates in the long term, but otherwise it’s cost neutral to the bank – they are simply removing the debt from the books.

        • MonkeyMonk says:

          So If you lend me $100 and I only pay you back $50 it’s not costing you anything? That’s a loan I would be happy to take.

          • dush says:

            It’s more like I loaned you $100. With interest over 30 years you wouldn’t paid me back $180. But I lower your principle by $30 cause I’m a nice guy so now you’ll only end up owing me $110.

      • Tiercelet says:

        Simple — the bank doesn’t own the loan. It’s just a servicer for the first lienholder.

        The bank reduces the first lienholder’s principal? Great — it just paid the settlement with somebody else’s money.

  8. areaman says:

    This article has links to find out if one to qualifies (unless you’re in OK):

    http://online.wsj.com/article/SB10001424052970204642604577213032296123026.html

  9. Loias supports harsher punishments against corporations says:

    “To qualify for a principal reduction, borrowers have to clear several hurdles. For one thing, borrowers have to be behind on their payments or at “imminent risk” of default. “

    So, should I just stop paying my mortgage now?

    • Costner says:

      This is the part that bothers me most, because people who were responsible and didn’t borrow more than they could afford, and those people who built up reserve funds and may have even went so far as to pick up a second job or sell some things they didn’t need on eBay just to keep the bills paid – those are the people who get no help.

      Now the person who took out a second mortgage and spent the $40k on new rims for the Escalade, a trip to Hawaii during the holidays, a new 55″ Plasma, and a new Rolex but later realized they couldn’t afford the payments…. those are the people who are bailed out.

      Amazing – personal responsibility is once again shown to be worthless. Does anyone wonder why socieity operates the way it does when everything around us is telling us to be irresponsible because someone will take care of it?

  10. Marlin says:

    Just think, if you or I break the law… JAIL and FINES. Don‚Äôt pass go‚Ķ

    Large Corp breaks the law… Campaign contributions for friends and a fine. No investigation and no jail time.

    “Corporations are people my friend…”

  11. Nobby says:

    I’m still waiting for my reward for always paying my mortage on time. It’s not my fault my home’s value hasn’t tanked yet.

  12. FrugalFreak says:

    This is the protect bank settlement. Want vaseline with that paltry sum? Don’t let them negate wrongdoing by washing away punishment.

  13. redblade7 says:

    How does this affect the forced arbitration issue? IIRC the Supreme Court ruled that cases like this were impossible?