The long-awaited joint federal-state settlement with the major banks for their alleged fraudulent documentation and processing of mortgages and foreclosures was announced on Thursday, February 9. Will it help you, and if so, how?
I interrupt my ongoing series on small business bankruptcy to answer your most immediate questions about this huge settlement.
1. Who is included in this settlement?
- Only five big banks are currently signed on: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial and Citigroup. Only mortgages owned and held by them are directly affected. Negotiations continue with nine other mortgage servicers, which if successful could bring the total amount of money involved to $30 billion.
- 49 states joined in the settlement; only Oklahoma did not.
- Mortgages held by Fannie Mae and Freddie Mac—consisting of the majority of U.S. mortgages—are NOT covered.
2. What does this settlement resolve and what is open for further negotiation and litigation? In other words, what liabilities are the banks escaping from for their $26 billion?
- The claims against the banks that are released in this settlement are limited to mortgage servicing and foreclosure claims. Claims for a variety of other alleged wrongdoing are not covered and so remain open to being pursued by the federal and state regulators, investors, and homeowners. Claims that are NOT covered include those related to the securitization of mortgage-backed securities that were at the heart of the financial crisis, and those against or involving MERS (Mortgage Electronic Registration Systems).
- Individuals’ rights to bring their own lawsuits or to be part of a class action against any banks for any claims are not affected by this settlement.
- The settlement does not limit any potential criminal liability for any individuals or financial institutions; it provides no immunity from prosecution whatsoever.
3. How does the settlement help you if your mortgage is held by one of these five banks?
- If you need a mortgage loan modification, these servicers will (finally!) be required to offer principal reductions, for first and second mortgages, to a value of up to $17 billion. This is where the bulk of the settlement funds are earmarked.
- If you’re current on your mortgage but your home is worth less than the mortgage, $3 billion of the settlement is to provide refinancing relief.
- If your home has already been foreclosed, $1.5 billion will be paid out by the banks as a penalty against them–around $2,000 per homeowner–without you needing to show any damages or releasing any claims against the bank.
4. Where do you go for more information and to find out whether you will be helped in any of these ways?
- Go to the new settlement website for current and upcoming information about it: