On February 9, 2012 the attorneys general of 49 states and the District of Columbia (every state but Oklahoma), the federal government, and five banks and mortgage servicers (Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo) reached agreement on a mortgage settlement that will create new servicing standards, provide loan modification relief to distressed homeowners and provide funding for state and federal governments. The settlement was made formal and binding on April 5, when the U.S. District Court in Washington, D.C. entered the consent judgments containing the settlement terms.
The five banks will provide at least $25 billion in consumer relief. The money in the settlement will be distributed in several ways:
- At least $17 billion in principal reduction and loan modification for homeowners who are in trouble and need help to avoid foreclosure.
- Up to $3 billion in refinancing for “underwater” homeowners who are current on their mortgages but owe more than their homes’ current market value.
- $1.5 billion in payments to homeowners who lost their homes to foreclosure between Jan. 1, 2008 and Dec. 31, 2011. These recipients will have to complete a simple form, and they will not have to drop any legal claims they may have.
- Payments to the 49 signing states include efforts to support the prevention of foreclosure as well as consumer protection and education programs, and for civil penalties.
The settlement also establishes first-ever nationwide reforms to mortgage servicing standards. These standards require better communication with borrowers, a single point of contact, adequate staffing levels and training, and appropriate standards for executing documents in foreclosure cases.
In addition, the settlement creates a Monitor whose job it is to oversee the servicers and ensure their compliance with the consent judgments. The participating banks must file regular reports with the Monitor to detail their compliance. Based on these reports as well as his independent oversight, the Monitor will make his own reports to the courts and the participants on a semi-annual basis.