Banks, regulators reach foreclosure settlement

Banks are putting a chapter of the housing bust behind them, agreeing to an $8.5 billion settlement of regulators' allegations that they didn't follow proper foreclosure processes.

The settlement announced Monday with the Office of the Comptroller of the Currency and the Federal Reserve requires 10 large banks to pay $3.3 billion in cash to 3.8 million mortgage borrowers who were foreclosed upon in 2009 or 2010.

The pact ends a process that regulators launched in April 2011, requiring banks to hire consultants to review hundreds of thousands of foreclosure files for defects. But banks had spent more than $1.5 billion on consultants as of last fall, and no money had been provided to consumers so far. Both banks and regulators concluded that the process was taking far too long.

"Carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers," Comptroller of the Currency Thomas Curry said in a statement.

Under the settlement, borrowers are expected to be contacted by March 31 with details of their payments. They will vary from several hundred dollars for minor violations to $125,000 for violations of a law that bans military foreclosures or a foreclosure on a borrower who didn't miss any payments. The 495,000 borrowers who have already submitted claims through this process are expected to get larger payouts, regulators said.

"A couple hundred dollars will be nothing," said Geralyn Burrell, a 56-year-old Henderson, Nev., paralegal who nearly lost her Las Vegas home to foreclosure three separate times and was among the borrowers who submitted claims.

Consumer advocates said the deal was not as meaningful as regulators said. "It's chump change," said Diane Thompson, a lawyer with the National Consumer Law Center. "It's another example of the banks getting off easy."

Under the deal, banks could receive another $5.2 billion in credit for loan assistance, including some forms of aid they are already undertaking—such as agreements to let a homeowner sell the property for less than the outstanding mortgage amount. Regulators defended this portion of the deal, saying it would ensure that homeowners would get aid.

Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co. and Citigroup Inc. all signed the deal, saying it will deliver more aid to borrowers in a quicker fashion. Bank of America said the agreement would be covered by $2.5 billion in mortgage-related charges it would take for the fourth quarter for last year. Citi said it would record a charge of $305 million in the fourth quarter of last year, while Wells Fargo & Co. said it would record a fourth-quarter charge of $644 million.

Ally Financial Inc., HSBC Holdings PLC, OneWest Bank and Everbank didn't sign onto the deal. A spokeswoman for Residential Capital LLC, a unit of Ally that filed for bankruptcy in 2012, said that due to the company's bankruptcy filing, it will need more time to review the settlement. A spokesman for HSBC North America Holdings Inc. said HSBC "remains in discussion on the matter."

Other banks that signed onto the deal were Aurora Loan Services, MetLife Bank, PNC Financial Services Group Inc., the Sovereign Bank unit of Banco Santander SA, SunTrust Banks Inc., and U.S. Bancorp. MetLife Bank is a unit of insurer MetLife Inc.

The settlement is an outgrowth over revelations of banks' foreclosure practices in fall 2010. Swamped with foreclosure filings, many banks used "robo-signers" to sign off on thousands of cases, stating falsely that they personally reviewed each one.

The pact is in addition to another settlement reached last February, where five large banks, agreed to a $25 billion settlement with the Obama administration and 49 state attorneys general that included homeowner relief to some borrowers.

(Published by WSJ - January 7, 2013)