Robo-Signing Settlement Finalized

Federal and state officials announced Thursday morning that the federal government and 49 state attorneys general â€" with Oklahoma as the lone exception â€" have reached a $25 billion agreement with the nation’s five largest mortgage servicers to address what authorities describe as “loan servicing and foreclosure abuses.”

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After 16 months of investigation and negotiation, the federal-state group entered into what is the largest joint federal-state civil settlement in history.

The settlement agreement with the nation’s top five servicers â€" Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial (formerly GMAC) â€" provides financial relief to homeowners and establishes new homeowner protections.

“This historic settlement will provide immediate relief to homeowners â€" forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” said HUD Secretary Shaun Donovan.

The settlement, however, does not preclude the government from pursuing criminal or civil claims outside of the agreement, and borrowers and investors can still pursue individual or class action suits against the banks for robo-signing grievances, according to a statement from Iowa Attorney General Tom Miller, head of the attorney general negotiating committee.

Deputy Attorney General Eric Holder also made clear that the settlement does not absolve the servicers from securitization activities â€" an issue of concern among several attorneys general throughout the negotiation process.

The settlement “preserves extensive claims related to mortgage securitization activities, including the claims that will be the focus of the new Residential Mortgage-Backed Securities Working Group,” Holder stated Thursday.

*The Breakdown:*

The $25 billion will be distributed in two ways: $20 billion is designated for financial relief to borrowers, and $5 billion in cash will go directly to federal and state government agencies.

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The $20 billion in financial aid to borrowers will further be broken down into three categories, according to the Department of Justice (DOJ):

• $10 billion has been designated to principal reductions for homeowners currently delinquent or “at imminent risk of default.”

• $3 billion has been earmarked for the refinancing of loans for underwater homeowners.

• $7 billion is to assist homeowners through other means such as short sales, forbearance, relocation assistance, and aid for service members who have taken losses on their homes due to relocation orders.

The government will distribute its $5 billion in two ways with $1.5 billion allocated for borrowers and $3.5 billion allocated to reimbursing “public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general,” according to the DOJ.

The $1.5 billion for borrowers will be distributed through a Borrower Payment Fund, which will offer cash assistance to homeowners whose homes were foreclosed between 2008 and 2011 and who were subject to servicer error or misconduct.

These foreclosed homeowners are ""estimated"":http://dsnews.comarticles/industry-waits-with-bated-breath-as-states-consider-robo-signing-settlement-2012-02-06 to receive about $2,000 after losing their homes.

The DOJ points out that this fund is not part of the ""independent reviews and compensation"":http://dsnews.comarticles/occ-requires-review-of-45m-foreclosures-2011-09-19 already underway at several large servicers.

*New Standards:*

In addition to the $25 billion, the five servicers have agreed to a new set of ""servicing standards."":http://www.atg.wa.gov/uploadedFiles/Home/About_the_Office/Cases/National_Mortgage_Settlement/ServicingStandardsHighlights.pdf

""These new customer service standards are in keeping with the Homeowner Bill of Rights recently announced by President Obama â€" a single, straightforward set of commonsense rules that families can count on,"" Donovan sated Thursday.

The new standards call for an end to robo-signing, proper documentation procedures for foreclosure and loss mitigation, and enhanced communication with borrowers.

Servicers have agreed to notify borrowers 14 days before referring their loan to a foreclosure attorney; adopt procedures to oversee and ensure proper conduct from all third-party providers; and discontinue dual tracking â€" the processing of a foreclosure while a homeowner is pursuing a loan modification or bankruptcy.

The servicers have also agreed to establish a single point of contact for all borrowers who contact their servicer regarding a difficulty to make monthly mortgage payments.