The nation’s foreclosure crisis eased a little today as ten banks reached a deal with the federal government to pay $8.5 billion to distribute assistance more quickly to homeowners under the stress of foreclosure.
The government has been trying for several years to come up with a program that would help homeowners in the wake of the housing collapse that sent millions of homeowners into foreclosure or underwater in their mortgages.
This agreement replaces an earlier program, the Independent Foreclosure Review, set up in 2011 to assist homeowners by giving them the opportunity for an unbiased third-party review of their foreclosure and determine whether they qualified for a cash payout of up to $125,000. The program was so slow and cumbersome that it did not attract many applicants.
According to The Huffington Post, “Scrapping a previously agreed-to legal deal, especially one as high-profile and complex as the Independent Foreclosure Review, is highly unusual and a tacit acknowledgement of the program’s failure.”
The new agreement includes Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo. Under the agreement, the companies will make $3.3 billion in direct payments to “eligible borrowers” whose foreclosures were handled improperly, and will make $5.2 billion available in other assistance to struggling borrowers, such as loan modifications.
One of the biggest problems discovered through audits is that many banks, overwhelmed by the number of people going into foreclosure, would just use “robo-signers” to sign off on thousands of cases while claiming that the files were personally reviewed.
The Office of the Comptroller of the Currency decided a new deal would give more money to consumers more quickly and halt an open-ended and expensive process for the mortgage industry.
“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,” Comptroller of the Currency Thomas Curry said in a statement. “Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets.”
A Bank of America spokesman said the pact “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.”
The agreement comes at a beneficial time for the banks because they can take the hit to their share price now, before they report their fourth-quarter earnings in a few weeks.
A JPMorgan Chase spokeswoman said the bank worked to fulfill its obligations under the regulators’ review and “are pleased to have it now behind us.”
In a separate announcement, Bank of America Corp said it will pay $3.6 billion to Fannie Mae to settle claims related to residential mortgage loans for the nine years to the end of 2008.