Foreclosure Settlement Agreement Update

by on Foreclosures

Settlement Word and a Gavel

In 2012, 49 states reached a $26 billion foreclosure settlement agreement with the country’s five biggest banks. The agreement was designed to hold these lenders accountable for robo-signing and other wrongful actions that contributed to putting the nation in a foreclosure crisis.

As a result of the agreement, lenders have engaged in reducing mortgages, refinancing underwater mortgages, and compensating individuals who had their home foreclosed upon without proper documentation and justification.

The foreclosure settlement agreement included Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial. There is little agreement over whether the settlement agreement was robust enough to not only hold these banks accountable for their actions, but also to truly reach struggling homeowners. For example, nearly a year later and Florida still has a delinquency rate of more than 17%.

Apparently, the foreclosure settlement agreements are not completely over, as federal regulators are currently working out another $10 billion agreement that includes 14 banks.

The “New” Foreclosure Settlement Agreement

What, exactly, is this new foreclosure settlement agreement and how does it differ from the foreclosure settlement agreement of 2012?

Put simply, banks have shelled out millions of dollars to independent consultants who have been responsible for conducting independent foreclosure reviews in an effort to meet the requirement put forth as part of the original agreement. Lenders were to conduct independent reviews and compensate those who suffered as a result of their wrongful actions.

However, as of December 31st (the deadline for submitting a claim for a review) less than 500,000 individuals had filed, which is only 11% of those eligible. Clearly the process is not working as designed.

So what is the solution? Apparently the solution is another $10 billion agreement between federal regulators and the banks that would halt the independent review process.

The question remains of exactly how this money will be used and whether it will truly reach struggling homeowners.

Some believe this $10 million foreclosure settlement agreement is a complete joke and merely bails out the banks and fails to hold them accountable for their actions.

At the end of the day, lenders are looking to put their wrongful actions and “the past” behind them and move forward, no longer having to be held accountable for funding the independent review process that was designed to compensate homeowners who were subject to wrongful actions by these lenders. However, instead of coming up with a way to create a new process that works (since this process clearly is not working), lenders and federal regulators are looking for a simple, lump-sum settlement agreement that would essentially create a clean slate for lenders.