As part of the massive mortgage servicer settlement that was filed Monday, a smaller settlement was disclosed that resolves alleged abuse on government-insured mortgages. That agreement was the result of a lawsuit filed by a whistleblower who will see $18 million from the settlement.
Consent judgments with Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. were filed today in U.S. District Court for the District of Columbia, according to the Department of Justice.
The settlements, which were announced on Feb. 9, were called “the largest federal-state civil settlement ever obtained.”
Included in the consent judgments is $20 billion that will be used towards various forms of financial relief for homeowners and $5 billion that will be paid to federal and state governments. Around $1.5 billion of the funds will go to borrowers who lost their homes to foreclosure between Jan. 1, 2008, and the end of last year.
The consent judgments also include a requirement that new servicing standards are implemented. The standards are designed to prevent foreclosure abuses such as robo-signing, improper documentation and lost paperwork. They will also create new consumer protections, require servicers to exhaust other loss mitigation avenues before foreclosing and outline strict loan modification procedures and appeals processes.
Additional protections over and above those required in by the Servicemembers Civil Relief Act are also part of the settlement. The servicers agreed to a review of service member foreclosures overseen by the Justice Department. That review will all also include a determination of whether any service members were improperly charged more than 6 percent.
Violations of the consent judgments will subject the servicers to $1 million per violation and as much as $5 million for some repeat violations.
Oversight of the settlement will be conducted by Joseph A. Smith Jr., the independent settlement monitor.
Servicers are required to complete three quarters of their consumer relief obligations within two years, while all relief must be completed within three years.
The consent judgments don’t protect servicers from criminal enforcement, civil litigation filed by borrowers or from liability arising from problems with securitizations. Servicers will also still be liable for failing to satisfy underwriting guidelines on loans insured by the Federal Housing Administration. In addition, states will still be able to bring claims against the Mortgage Electronic Registration Systems.
In conjunction with the servicer settlement, the U.S. Attorney for the District of South Carolina said Friday that a $95 million settlement was reached with BofA, Chase, Citi and Wells Fargo. That deal resolves allegations that the quartet used false assignments to submit FHA claims in violation of the False Claims Act, 31 U.S.C. § 3729.
That settlement, also filed in federal court in Washington, D.C., was based on a lawsuit filed by Lynn Szymoniak under the whistleblower provision of the False Claims Act. Szymoniak, a private citizen, will reap $18 million from the settlement.
It wasn’t the only recent whistleblower windfall.
Former CitiMortgage Inc. quality-control executive Sherry Hunt will take home $31 million from a $158 million settlement between Citi and the Justice Department. Senior managers at Citi allegedly threatened Hunt if she didn’t help the company cover up mortgage fraud.
