New $8.5 Billion Settlement between Federal Regulators and 10 Banks for Home Foreclosure Abuses

3.8 million people whose homes were in foreclosure in 2009 and 2010 will receive $3.3 billion in cash, plus another $5.2 billion in other help.

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Two federal bank regulators announced last week a major change in a previous settlement, which was taking too long to implement. Last year the banks agreed to hire independent consultants to investigate foreclosure abuses and then to compensate homeowners who had suffered financial losses based on a schedule of payouts. As of the end of 2012 nearly a half-million homeowners had filed applications under this Independent Foreclosure Review system. But not a single homeowner had received any compensation. This new $8.5 billion settlement is intended to speed up the compensation process.

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On January 7, 2013, the Federal Reserve and the Office of the Comptroller of the Currency announced “an agreement in principle“ with 10 banks to streamline a prior settlement, by stopping “the Independent Foreclosure Review, which involved case-by-case reviews, and replace it with a broader framework allowing eligible borrowers to receive compensation significantly more quickly.”

The announcement did not say how this “broader framework” would speed up payments, or how payments would be distributed fairly without the case-by-case reviews.

The 10 banks involved are: Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo. (Four other banks—Ally, OneWest, EverBank and HSBC—were part of the original settlement but not this present one, although they may join later.)

So if your home mortgage was serviced by one of these 10 banks, AND was in foreclosure in 2009 or 2010, and is otherwise eligible, then you “are expected to receive compensation ranging from hundreds of dollars up to $125,000, depending on the type of possible servicer error.” The higher amounts are expected to go to very few borrowers.

Unlike in the earlier settlement, “[e]ligible borrowers will receive compensation whether or not they filed a request for review form, and borrowers do not need to take further action to be eligible for compensation.”  “A payment agent will be appointed to administer payments to borrowers on behalf of the servicers.  Eligible borrowers are expected to be contacted by the payment agent by the end of March with payment details.”

The announcement by the regulators does not say how the $5.2 billion in mortgage modification and other non-cash assistance will be distributed. Contact your lender to see if you can tap into this fund.

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