Business Crimes Hotline

DISTRICT OF COLUMBIA

$25 Billion Settlement Reached in Connection with Foreclosure Abuse and Loan Servicing

On Feb. 9, the Department of Justice (DOJ) announced that the federal government, along with 49 state attorneys general, had reached a combined $25 billion agreement with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC), aimed at addressing mortgage loan servicing and foreclosure abuses. This agreement with the nation's five largest mortgage service providers, announced as the largest federal-state civil settlement ever, is the result of coordinated efforts by the DOJ, Department of Housing and Urban Development (HUD), HUD Office of the Inspector General, state attorneys general, and state banking regulators nationwide.

In addition to the $25 billion commitment ' an amount that, in part, will resolve state and federal law violations by the service providers that includes deceptive loan modification practices, “robo-signed” foreclosure affidavits, failures to offer alternatives prior to foreclosures on federally insured mortgages, and filing proper documentation in federal bankruptcy court ' the three-year agreement requires the five providers to employ new standards for servicing loans. Specifically, $20 billion of the settlement is committed to providing financial relief for borrowers, including loan principal reduction, refinancing, forbearance for the unemployed, anti-blight programs, short sales, and transitional and other assistance.

The remaining $5 billion of the settlement ' $1 billion of which resolves an investigation into Bank of America and numerous Countrywide entities tied to Federal Housing Administration (FHA)-insured mortgage loans ' will be paid to the federal and state governments, in part to fund a $1.5 Borrower Payment fund for those with homes sold or foreclosed upon from January 2008 through the end of 2011, with the balance of $3.5 billion being used both to repay public funds lost due to servicer misconduct and to fund related public programs.

In announcing the agreement, Attorney General Eric Holder made the following comments: “This agreement ' the largest joint federal-state settlement ever obtained ' is the result of unprecedented coordination among enforcement agencies throughout the government,” adding that “[i]t holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated.”

In addition, HUD Secretary Shaun Donovan said: “This historic settlement will provide immediate relief to homeowners ' forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” adding that “[b]anks must follow the laws. Any bank that hasn't done so should be held accountable and should take prompt action to correct its mistakes. And it will not end with this settlement. One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations. And it does that by committing them to major reforms in how they service mortgage loans. These new customer service standards are in keeping with the Homeowners Bill of Rights recently announced by President Obama ' a single, straightforward set of commonsense rules that families can count on.”

An independent monitor, Joseph A. Smith Jr., who has served as the North Carolina Commissioner of Banks since 2002, has been appointed to ensure that the obligations of the agreement are fulfilled, including interim targets and deadlines. In the event that the settlement's requirements are not met, additional monetary payments are triggered, including $1 million per violation and up to $5 million for certain repeat violations. The independent monitor is also required to publish periodic public reports detailing the service providers' compliance with the terms of the settlement.

In its release, the government also noted that the agreement does not prevent state or federal authorities from pursuing criminal enforcement actions related to the service providers for the same conduct.

DISTRICT OF COLUMBIA

$25 Billion Settlement Reached in Connection with Foreclosure Abuse and Loan Servicing

On Feb. 9, the Department of Justice (DOJ) announced that the federal government, along with 49 state attorneys general, had reached a combined $25 billion agreement with Bank of America Corporation, JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc. (formerly GMAC), aimed at addressing mortgage loan servicing and foreclosure abuses. This agreement with the nation's five largest mortgage service providers, announced as the largest federal-state civil settlement ever, is the result of coordinated efforts by the DOJ, Department of Housing and Urban Development (HUD), HUD Office of the Inspector General, state attorneys general, and state banking regulators nationwide.

In addition to the $25 billion commitment ' an amount that, in part, will resolve state and federal law violations by the service providers that includes deceptive loan modification practices, “robo-signed” foreclosure affidavits, failures to offer alternatives prior to foreclosures on federally insured mortgages, and filing proper documentation in federal bankruptcy court ' the three-year agreement requires the five providers to employ new standards for servicing loans. Specifically, $20 billion of the settlement is committed to providing financial relief for borrowers, including loan principal reduction, refinancing, forbearance for the unemployed, anti-blight programs, short sales, and transitional and other assistance.

The remaining $5 billion of the settlement ' $1 billion of which resolves an investigation into Bank of America and numerous Countrywide entities tied to Federal Housing Administration (FHA)-insured mortgage loans ' will be paid to the federal and state governments, in part to fund a $1.5 Borrower Payment fund for those with homes sold or foreclosed upon from January 2008 through the end of 2011, with the balance of $3.5 billion being used both to repay public funds lost due to servicer misconduct and to fund related public programs.

In announcing the agreement, Attorney General Eric Holder made the following comments: “This agreement ' the largest joint federal-state settlement ever obtained ' is the result of unprecedented coordination among enforcement agencies throughout the government,” adding that “[i]t holds mortgage servicers accountable for abusive practices and requires them to commit more than $20 billion towards financial relief for consumers. As a result, struggling homeowners throughout the country will benefit from reduced principals and refinancing of their loans. The agreement also requires substantial changes in how servicers do business, which will help to ensure the abuses of the past are not repeated.”

In addition, HUD Secretary Shaun Donovan said: “This historic settlement will provide immediate relief to homeowners ' forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers,” adding that “[b]anks must follow the laws. Any bank that hasn't done so should be held accountable and should take prompt action to correct its mistakes. And it will not end with this settlement. One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations. And it does that by committing them to major reforms in how they service mortgage loans. These new customer service standards are in keeping with the Homeowners Bill of Rights recently announced by President Obama ' a single, straightforward set of commonsense rules that families can count on.”

An independent monitor, Joseph A. Smith Jr., who has served as the North Carolina Commissioner of Banks since 2002, has been appointed to ensure that the obligations of the agreement are fulfilled, including interim targets and deadlines. In the event that the settlement's requirements are not met, additional monetary payments are triggered, including $1 million per violation and up to $5 million for certain repeat violations. The independent monitor is also required to publish periodic public reports detailing the service providers' compliance with the terms of the settlement.

In its release, the government also noted that the agreement does not prevent state or federal authorities from pursuing criminal enforcement actions related to the service providers for the same conduct.