Federal banking regulators recently announced a new mortgage foreclosure settlement to replace a 2011 settlement between the regulators and certain home loan servicers. Lenders participating in this new settlement, including Bank of America, Citigroup, Wells Fargo, JPMorgan Chase, MetLife Bank, PNC, Sovereign, Sun Trust, U.S. Bank and Aurora, have agreed to distribute $8.5 billion to settle complaints alleging that some homeowners were improperly foreclosed upon. A portion of the settlement, in the amount of $5.2 billion, will be provided to certain borrowers in the form of loan modifications, forgiveness of deficiency judgments and other relief, while the balance of the settlement will be paid directly to other eligible borrowers.
Over 3.8 million borrowers whose mortgages with participating lenders were foreclosed in 2009 and 2010 will receive some amount of compensation depending on their level of potential harm as determined by the participating lenders. Borrowers will be designated one of eleven categories of harm. All borrowers occupying the same category will receive the same amount of compensation. For certain borrowers who should not have lost their home to foreclosure, compensation granted may be as much as $125,000. Regulators will determine the amounts of compensation to be allocated to each category and will also oversee the lenders' category determinations for the borrowers.
Nearly 500,000 borrowers sought independent reviews of their foreclosures under the previous settlement agreement with regulators and will be entitled to receive larger compensation awards than those borrowers who did not seek such reviews under the previous settlement.
Although the direct payments are stated by the Office of the Comptroller of the Currency (OCC) to be the largest compensation amounts offered to borrowers pursuant to improper lender actions during the foreclosure crisis, some consumer law experts claim the settlement falls short of adequately compensating borrowers. Alys Cohen, an attorney for the National Consumer Law Center, was quoted by USA Today as stating that the agreement is "flawed" and "if the (independent foreclosure) reviews had been done right the first time, banks would have been on the hook to pay far more to homeowners."
Eligible borrowers were contacted by a designated payment agent at the end of March with further details on the settlement.
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