Banks' $8.5 billion deal kills unproductive reviews
A foreclosure-review system that failed to compensate mistreated borrowers has been mostly scrapped in an $8.5 billion agreement with the largest U.S. mortgage servicers.
U.S. regulators' deal Monday with 10 mortgage servicers replaces an almost two-year, case-by-case review of flawed foreclosures. The Independent Foreclosure Review process agreed to by 14 servicers in a 2011 settlement has so far cost the servicers more than $1.5 billion in fees to the consultants reviewing cases.
Companies including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. must now provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers, the Office of the Comptroller of the Currency and the Federal Reserve said in a statement. This largest cash payout to those harmed by bad foreclosures during the subprime mortgage crisis is also meant to help people with current home-loan struggles.
"The IFR process was poorly designed and executed," said Representative Maxine Waters of California, the senior Democrat on the House Financial Services Committee, in a statement. She said she was concerned about "the independence of the consultants selected to review homeowner files for potential harm, the complexity of the materials sent to borrowers, and a lack of outreach by servicers to impacted households."
When the regulators ordered the review process for 2009 and 2010 foreclosures, they "pledged to fix what was broken, identify who was harmed, and compensate them for that injury," said Comptroller of the Currency Thomas Curry, adding that this "significant change in direction" will meet the original objective faster.
"It has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers," Curry said.
JPMorgan, the biggest U.S. bank by assets, will pay $700 million for the cash portion of the deal in addition to other settlement costs, according to a person briefed on the matter who declined to be identified because a bank-by-bank breakdown hasn't been announced.
Executives of New York-based JPMorgan "are pleased to have it now behind us," said Amy Bonitatibus, a spokeswoman for the bank. "We have helped nearly one million homeowners avoid foreclosure over the last four years and will continue to help others who may be struggling," she said.
Charlotte, North Carolina-based Bank of America also agreed yesterday to pay $11.7 billion to resolve mortgage disputes with U.S.-owned Fannie Mae. It said in a statement that it was profitable in the fourth quarter after accounting for that cost and an additional $2.5 billion for expenses including litigation and a regulatory settlement.
"We support the new approach because it expands the number of borrowers who will receive payment, speeds the delivery of those payments, and will provide support for homeowners still struggling to make payments," Dan Frahm, a Bank of America spokesman, said in an e-mail.
Citigroup, the third-biggest U.S. bank by assets, will show a $305 million pretax charge for the cash payment when it reports fourth-quarter results on Jan. 17, the company said in a statement. The New York-based lender's $500 million share of the mortgage assistance will be absorbed by existing loan-loss reserves, according to the statement.