Washington: Hundreds of thousands of Americans stand to benefit from the latest mortgage-abuse settlement, but consumer advocates say US banks may be getting the best of the deal.
Banks have agreed to pay $8.5 billion to settle charges that they wrongfully foreclosed on millions of homeowners in the wake of the 2008 financial crisis. Abuses included “robo-signing,” when banks automatically signed off on foreclosures without properly reviewing documents.
But the agreement announced Monday will also help eliminate huge potential liabilities for the banks.
Consumer advocates complained that regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families and fuelled an exodus from neighbourhoods across the country.
The settlement ends an independent review of loan files required under a 2011 action by regulators. Bruce Marks, CEO of the advocacy group Neighbourhood Assistance Corp of America, noted that ending the review will cut short investigations into the banks’ practices.
“The question of who’s to blame — the homeowners or the lenders — if you stop this investigation now, that will always be an open-ended question,” Marks said.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay about $3.3 billion to homeowners to end the review of foreclosures.
The rest of the money — $5.2 billion — will be used to reduce mortgage bills and forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.
The companies involved in the settlement announced Monday also include Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, US Bank and Aurora. The 2011 action also included GMAC Mortgage, HSBC Finance Corp and EMC Mortgage Corp.
A total of 3.8 million people are eligible for payments under the deal announced by the Office of Comptroller of the Currency and the Federal Reserve. Those payments could range from a few hundred dollars to up to $125,000.
Homeowners who were wrongly denied a loan modification will be entitled to relatively small payments. By contrast, people whose homes were unfairly seized and sold would be eligible for the biggest payments.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time-consuming and costly and didn’t reach many homeowners. Banks were paying large sums to consultants to review the files. Some questioned the independence of those consultants, who often ruled against homeowners.
The deal “represents a significant change in direction” that ensures “consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner,” Thomas Curry, the comptroller of the currency, said in a statement.
The agreements come as US banks are showing renewed signs of financial health, extending their recovery from the 2008 crisis that nearly toppled many of them. They are lending more and earning greater profits than at any time since the Great Recession began in December 2007.
Diane Thompson, a lawyer with the National Consumer Law Centre, complained that the deal won’t actually compensate homeowners for the actual harm they suffered.
The deal “caps (banks’) liability at a total number that’s less than they thought they were going to pay going in,” she said.
Thompson supports the decision to make direct payments to victimized homeowners. But she said the deal will work only if it includes strong oversight and transparency provisions.
The settlement is separate from a $25 billion settlement among 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC” Bank of America” Citigroup” JPMorgan Chase and Wells Fargo.