By Holly Pomraning, Assistant Attorney General, Wisconsin Department of Justice
Feb. 13, 2012 – On February 9, 2012, at a press conference in Washington D.C., an historic $25 billion settlement agreement involving the mortgage servicing industry was announced.
The agreement, which the State of Wisconsin joined, resolved claims of 49 states and several federal agencies including the Departments of Justice, Treasury and Housing and Urban Development, against the country’s five largest residential mortgage servicers – Ally Bank (formerly GMAC), Bank of America, Citi, JPMorgan Chase and Wells Fargo.
The settlement provides an estimated $140 million in value to Wisconsin residents, and will be formalized in upcoming weeks by the filing of a complaint and stipulated consent judgment in the United States District Court for the District of Columbia.
The settlement followed a national investigation into widespread abuses of the mortgage foreclosure process such as the practice of “robo-signing” court filings. The key provisions of the settlement, as they relate to Wisconsin’s claims, are discussed below.
The settlement will require the settling banks to comply with comprehensive “servicing standards” that will significantly reform all aspects of post-closing mortgage servicing.
Among other things, the new standards will: (a) prevent robo-signing and other improper foreclosure practices; (b) require banks to offer loss mitigation alternatives to borrowers before pursuing foreclosure; (c) increase the transparency of the loss mitigation process; (d) impose timelines for servicers to respond to borrowers; and (e) restrict the practice of “dual tracking,” where foreclosure is initiated despite the borrower’s engagement in a loss mitigation process.
Bank performance will be measured against agreed-upon metrics and outcome measures and will be overseen by an independent monitor. Among other things, the compliance metrics will cover proper documentation of foreclosures, loss mitigation offers, proper evaluation of loan modification applications, accuracy of borrower account information, and assessment and reasonableness of any fees. A bank that fails to remedy a violation is subject to civil penalties of up to $5 million.
There are four separate pools of money that will provide relief to Wisconsin residents. The purposes of these four pools have some overlap and more than one pool may be available under certain circumstance.
1) Federal “menu” benefits. The first pool of money, referred to informally as the Federal “Menu,” requires the settling banks to earn “credits” totaling at least $17 billion worth of assistance nationwide. The Wisconsin share of this pool is estimated to be $60 million.
At least 60% of this pool will be allocated to reduce the principal balance of home loans for borrowers who are in default or at risk of default. Principal reductions will also yield lower payments and give homeowners an opportunity to stay in their homes.
The remainder, will be used for other benefits to homeowners, including facilitation of short sales, unemployed payment forbearance, relocation assistance, waiver of deficiency balances, and remediation of blighted properties.
2) Refinance benefits. The settlement provides $3 billion nationwide, with $31.3 million allocated to Wisconsin, for eligible homeowners who are current on their payments, have a current interest rate of at least 5.25%, but have negative equity. The banks will be required to notify eligible homeowners of the availability of these programs and the refinanced rate must reduce monthly payments by at least $100.
3) Payments to borrowers. Borrowers who were foreclosed on after January 1, 2008, lost their homes, and were not properly offered loss mitigation or were otherwise improperly foreclosed on will be eligible for a uniform payment of up to $2000, depending on level of response. Nationwide, $1.5 billion was allocated for this purpose, with $17.2 million designated for Wisconsin. Borrowers who receive payments will not release claims and may seek additional relief in the courts.
4) Payments to states. Participating states will receive $2.5 billion, $31.6 million of which will go to Wisconsin. These funds may be distributed at the discretion of the attorneys general for designated purposes. Permitted purposes include compensation to states for losses resulting from the foreclosure crisis, investigation and prosecution of mortgage fraud and other financial crimes, civil penalties, and foreclosure relief and housing programs such as housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation, and community blight remediation.
Release of Liability
The banks and their affiliates will be released from civil liability to state attorneys general and bank regulators for past servicing conduct including conduct related to mortgage loan servicing, foreclosure preparation, and mortgage loan origination services. The release does not cover third parties who may have provided default or foreclosure services for the banks.
Claims specifically excluded from the release include: (a) claims against the Mortgage Electronic Registration Systems, Inc. (MERS); (b) securitization and investor claims, including claims of state and local pension funds; (c) violations of state fair lending laws; (d) criminal law violations; and (e) claims of county recorders for fees. Importantly, the release does not affect the rights of any individuals or entities to pursue their own claims for relief.
Under the agreement, settling banks have set up phone lines to provide information related to loans that they service. Borrowers may obtain information about the settlement and their rights by calling the following numbers:
- Ally (GMAC): 800-766-4622
- Bank of America: 877-488-7814
- Citi: 866-272-4749
- JPMorgan Chase: 866-372-6901
- Wells Fargo: 800-288-3212
Information is also available at the following websites:
Lawyers assisting clients should try the banks first, but if they need further assistance or if the banks are uncooperative, they should contact the author, at (608) 266-5410.