More Details Emerge About Massive Servicing Settlement

The $25 billion settlement, which could wind up being worth as much as $40 billion, was announced on Feb. 9.

The five companies that agreed to the settlement with the 49 states included Ally Financial Inc., Bank of America Corp., Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co.

While Ally didn’t issue a statement, the other four firms did. The following table summarizes the share of the settlement that each of the four firms reported.

Included in the four servicers’ announcements were the following statements.

• BofA: “Under the agreements in principle, Bank of America expects to develop new or enhanced programs to provide borrower assistance and refinancing assistance, to make direct payments to state and federal governments and borrower restitution, and to agree to national servicing standards. The agreements in principle are subject to ongoing discussions among the parties and completion and execution of definitive documentation, as well as required regulatory and court approvals.”

• Citi: “Since the housing crisis began, Citi has worked hard to help families avoid foreclosure and stay in their homes. Further, as the volume of foreclosures increased in 2009, Citi self-identified opportunities to improve its foreclosure processes and proactively undertook actions to enhance its policies and controls. These included: consolidating operations into one central unit; significantly reinforcing the size and training of our staff; and tightening control processes.”

• Chase: “The global settlement releases the firm from further claims related to servicing activities, including foreclosures and loss mitigation activities; certain origination activities; and certain bankruptcy-related activities. Not included in the global settlement are any claims arising out of securitization activities, including representations made to investors respecting mortgage-backed securities; criminal claims; and repurchase demands from the GSEs, among other items.”

• Wells Fargo: “Today’s agreement represents a very important step toward restoring confidence in mortgage servicing and stability in the housing market,” Wells Fargo Home Mortgage President Mike Heid said. “Wells Fargo has actively participated in the discussions leading to this agreement, which builds on the significant refinance and customer relief efforts we already have undertaken.”

American Bankers Association President and Chief Executive Officer Frank Keating called the agreement a milestone that lets the banks move forward.

“ABA is evaluating the full settlement to ensure its enforcement does not further constrain credit availability and that its terms are not applied outside this agreement,” Keating said in a statement. “This settlement addresses a distinct group of mortgages offered during a specific timeframe. It would be a mistake to regard the settlement as applying to mortgage practices industry wide.”

Shaun Donovan, secretary of the Department of Housing and Urban Development, maintained during a press conference announcing the settlement that borrowers were the victims and banks were the villains in the foreclosure crisis.

“We all know how the housing bubble burst — how lenders sold loans to people who couldn’t afford them and how they packaged those mortgages up to make profits that turned out to be nothing more than a mirage,” Donovan alleged. “And we know these actions hurt millions of families — families who did the right thing but still lost their house or saw their home prices drop.”

The nation’s new mortgage watchdog, Consumer Financial Protection Agency Director Richard Cordray, said that the servicing industry’s failures were well-documented. Paperwork was lost, phone calls weren’t answered and documents were falsified.

“Going forward, the consumer bureau will be examining servicers throughout the industry to make sure they are following the law,” Cordray said in a statement. “We will also be issuing rules to bring greater fairness and transparency to the mortgage servicing marketplace. And where we find unlawful practices, we will not hesitate to use our full authority to protect consumers and hold all servicers accountable.”

A subsequent CFPB news release said that provisions tied to the Servicemembers Civil Relief Act provide protections for members of the military who are deployed to a war zone.

On Monday, the Federal Reserve Board said that it released orders tied to previously announced monetary sanctions against the five banks for unsafe and unsound processes and practices in residential mortgage loan servicing and processing. Agreements with the banks included $767 million in monetary sanctions.

In addition, the Office of the Comptroller of the Currency said it settled civil money penalties against four of the banks for $394 million. BofA will pony up $164 million, while Citi is putting up $34 million, Chase is paying $113 million and Wells Fargo is responsible for $83 million.

“The actions announced today mark important progress in addressing the problems associated with foreclosure processing and are a critical step toward restoring a functioning industry that protects the rights of the customers it serves,” Acting Comptroller of the Currency John Walsh said in the news release.

The Federal Trade Commission said that the settlement included the five banks’ release from liability under the FTC Act.

BofA expects its settlement costs will ultimately come in around $11.8 billion, including the amounts owed to the Fed and the OCC and a previously announced settlement of as much as $1 billion with HUD over alleged mortgage fraud by Countrywide on loans insured by the Federal Housing Administration.

Other agreements reached by BofA include:

• The FTC said BAC Home Loans agreed to reverse or refund $36 million in fees to resolve allegations that it charged distressed borrowers fees in violation of a $108 million settlement between subsidiary Countrywide Home Loans Inc. and the FTC in 2010. BofA has already handled $29 million of the latest settlement.

• Nevada Attorney General Catherine Cortez Masto announced the day of the settlement that BofA agreed to settle a lawsuit by the state that will set aside $750 million in first and second lien principal reduction and short sales in the state. Another $30 million will be paid for Nevada’s consumer protection effort. That deal calls for BofA to suspend foreclosure sales for any Nevada borrowers eligible for the National Homeownership Retention Program.

But BofA issued a statement that attempts to allay investor concerns.

“The financial impact of the settlements is not expected to cause any additional reserves to be taken over those made during 2011, based on the company’s understanding of the terms of the agreements in principle,” the statement said. “The refinancing assistance is expected to be recognized as lower interest income in future periods as qualified borrowers pay reduced interest rates on loans refinanced. Although the company may incur additional operating costs (e.g., servicing costs) to implement parts of the global settlement in future periods, it is expected that those costs will not be material.”

The National Notary Association, which is a Mortgage Daily advertiser, is reaching out to help mortgage servicers avoid further legal actions over “shoddy foreclosure practices.” Many of the problems, according to the trade group, revolved around notarization abuses and fraudulent documentation.

“The National Notary Association remains deeply concerned about the abuses of notarization and the lack of knowledge about proper notarial procedures that helped lead to billions in losses for American consumers and the financial industry,” National Notary Association Chief Executive Officer Marc Reiser said in a statement. “With 55 years of leadership and expertise on notarial issues nationwide, the NNA is helping financial institutions comply with the settlement in order to reduce corporate risk, increase consumer protections and help rebuild trust.”

The Los Angeles-based association has published a white paper on corporate best practices for financial institutions.

Florida foreclosure attorney Roy Oppenheim called the settlement an important achievement for President Obama and vindication for borrowers who defaulted and went through foreclosures. But he called it “a slap on the wrist” for banks.

“It was a down payment on the next settlement, which is coming, and will make what the banks paid out last week look like peanuts,” Oppenheim said in a statement alluding to the Residential Mortgage Backed Security Working Group announced last month.

Former Freddie Mac general counsel Bob Bostrom agrees that the settlement is just the “tip of the iceberg.” He noted that the settlement excludes criminal claims, claims tied to securitizations and repurchase claims. It also doesn’t cover fair lending claims, tax claims and claims against the Mortgage Electronic Registration Systems. In addition, claims related to lost county recording fees and third-party claims, such as those by individual borrowers, are excluded.

Bostrom warned that other national servicers who do not voluntarily comply will be the subject to similar agreements. He cited reports that discussions are underway with nine other servicers.

“While the agreement is welcomed by all involved in order to get this matter resolved and out of the public eye, moving forward, the impact of monitoring — with examination and enforcement powers and ability to levy financial penalties for non-compliance — means the matter is really not over yet,” Bostrom stated. “It will involve a continuing process for the servicers — and a very expensive one at that. It puts a heightened emphasis on the need for robust compliance programs.”

The Mortgage Law Group in Chicago complained in its own press release that the deal doesn’t return homes to the thousands of borrowers who already went through foreclosure or address the threat of foreclosure for currently delinquent borrowers.

An investigation into how much most major states claimed they will receive as their share of the settlement turned up more than $35 billion. The following table summarizes the amounts reported by these state.

Federal Trade Commission, Plaintiff, v. Countrywide Home Loans, Inc. and BAC Home Loans Servicing, LP, Defendants.
Case No. CV-10-4193, FTC File No. 082 3205 (U.S. District Court for the Central District of California).