US banks agree an $8.5 billion foreclosure settlement
Under the new agreement, those people who had their homes seized and then sold would get the biggest pay offs, while banks who failed to modify people’s loans in light of a change of income would get off more lightly. The settled compensation is anywhere between $1000 and $125,000.
The initial 2011 enforcement review was ordered because banks and mortgage companies had bypassed steps in the foreclosure process and had mishandled people’s paperwork.
The banks involved include the Bank of America, Wells Fargo, JP Morgan Chase, Citigroup, MetLife Bank, PNC Financial Services and Sovereign.
Monday’s settlement was announced by the Office for the Comptroller of the Currency (OCC) and the Federal Reserve and covers up to 3.8 million people who had their homes repossessed in 2009 and 2010.
Of those about 400,000 borrowers may receive payments. About $3.3 billion would be in direct compensation payments to borrowers, while $5.2 billion would pay for assistance such reducing loans or the interest rates at which they are paid back.
The deal “represents a significant change in direction” from the original 2011 agreements said Thomas Curry, a spokesman for the OCC said in statement.
Both banks and consumer watch dogs had complained that the 2011 settlement required loan-by-loan reviews, which were time consuming and costly without reaching many home owners.
Banks were also paying large sums to consultants to review the files and some people questioned the independence of those consultants.
Curry said that the new deal ensures “That consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner”.
But some consumer advocates have said the new settlement lets the banks off the hook, as under the old deal some payments could have been much higher.
“It’s another get out of jail card for the banks, it caps their liability at a total number that’s less than they thought they were going to pay going in,” said Diana Thompson, a lawyer with the national Consumer Law Centre.