Thirteen mortgage servicers will pay a total of $9.3 billion to borrowers, the Office of the Comptroller of the Currency the and the Federal Reserve recently announced. The payments will settle federal complaints over the servicers’ foreclosure-processing and loan-servicing procedures. The 13 mortgage servicers are Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
Borrower Assistance and Payments
The servicers will provide $5.7 billion in assistance to struggling borrowers and $3.6 billion in cash payments to foreclosed borrowers as a result of the settlements. Regulators have yet to determine how many borrowers fall into which categories, but when they do, they will calculate how much money each borrower will likely receive. Potentially affected borrowers include those whose homes were in foreclosure stages in 2009 or 2010 and whose mortgages were handled by any of the 13 servicers.
Borrowers who will receive payment are expected to be notified by the end of March, and those borrowers should be receiving between a few hundred dollars and $125,000, starting in April. Borrowers need not waive legal claims against their servicers or take any other measures in order to receive payment.
Regulators expect the servicers to focus the $5.7 billion in assistance on foreclosure prevention, keeping borrowers in their homes. While there is no mandate for what kinds of relief the servicers are to provide, regulators expect they will include loan modifications, deficiency judgment forgiveness, and short sale offers, among other types of relief.
Improper Mortgage Practices
These $9.3 billion in settlements end the slow and expensive individual review processes by banks, which were originally ordered by the Office of the Comptroller of the Currency and Federal Reserve in 2011. The order came after it was discovered that mortgage servicers were improperly handling foreclosures in 2009 and 2010, including the notorious “robo-signing” problem, where servicers were mass-producing false and forged documents related to mortgage foreclosures. An intense investigation was launched to determine which borrowers were due compensation, reviewing past foreclosures on a case-by-case basis, which has finally ended with this national settlement. Regulators estimate that less than 6.5 percent of the loans reviewed have errors.
Wells Fargo Class Action Settlement
Wells Fargo recently agreed to a $500,000 mortgage class actionsettlement in California. Delinquent mortgage holders claim they were tricked into making payments on foreclosure-bound properties. Wells Fargo allegedly violated California consumer protection and debt collection laws when it sent letters to the borrowers saying the bank would consider loan modification if the borrowers sent in six more loan payments. An estimated 28,000 homeowners received these letters.
Wells Fargo Facing Class Action Lawsuit
Wells Fargo is again facing another class action lawsuit. This time, the bank is accused of charging improper penalties and fees to mortgagors who filed for bankruptcy but later withdrew their petition or had it dismissed. The plaintiffs claim that Wells Fargo puts mortgage customers on a bankruptcy list when they initiate bankruptcy proceedings, but it refuses to remove customers from the list when bankruptcy proceedings are terminated. This allows the bank to refuse payments and to charge late fees and penalties. This practice violates the New Jersey Consumer Fraud Act, according to the plaintiffs. Furthermore, the complaint alleges that Wells Fargounlawfully assessed charges for hazard insurance on a home that was already insured and then willfully ignored “proof” that extra coverage was not needed.