WASHINGTON — Ten major banks agreed Monday to pay $8.5 billion to settle federal complaints that they wrongfully foreclosed on homeowners who should have been allowed to stay in their homes.
The banks, which include Bank of America, JPMorgan Chase and Wells Fargo, will pay billions to homeowners to end a review process of foreclosure files that was required under a 2011 enforcement action. The review was ordered because banks mishandled people's paperwork and skipped required steps in the foreclosure process.
The settlement was announced by the Office of the Comptroller of the Currency and the Federal Reserve.
Separately, Bank of America agreed Monday to pay $11.6 billion to government-backed mortgage financier Fannie Mae to settle claims related to mortgages that soured during the housing crash.
The agreements are the banks' latest step toward eliminating hundreds of billions of dollars in potential liabilities related to the housing crisis that crested in 2008.
But advocates say the foreclosure deal allows banks to escape responsibility for damages that might have cost them much more. Regulators are settling at too low a price and possibly at the expense of the consumer, they say.
"This was supposed to be about compensating homeowners for the harm they suffered," said Diane Thompson, a lawyer with the National Consumer Law Center. The payout guidelines already allowed wronged homeowners less compensation than the actual damages to them, she said.
'All politics,' broker says
Patrick Wallace, president of the Central Valley Association of Realtors and a broker with Re-Max Executive, said the deal doesn't hold the banks accountable.
"They want it behind them. This is all politics; this is not about the consumer being taken care of," he said.
Under the settlement, people who were wrongfully foreclosed on could receive $1,000 to $125,000. Failing to offer someone a loan modification would be considered a lighter offense; unfairly seizing and selling a person's home would entitle that person to the biggest payment, according to guidelines released last summer by the comptroller's office.
The agreement covers up to 3.8 million people who were in foreclosure in 2009 and 2010. All will receive some compensation. That's an average of $2,237 per homeowner, although the payouts are expected to vary widely.
It's unclear how much of that money will come to Stanislaus, Merced and San Joaquin counties, where an estimated 80,000 homes have been foreclosed on in the past five years.
"The big problem is their sloppy bookkeeping in the first place," Wallace said. "They put themselves in this mess. I am not sure how many years it will be before they totally figure it out."
With a payout agreement Wallace likened to a class-action lawsuit, he fears they might never figure it out. As a result, he predicts that many people who were rightfully foreclosed on because they stopped paying their mortgage will get a piece of the money, leaving less for the people whose loans were wrongly processed.
About $3.3 billion would be direct payments to borrowers, regulators said. An additional $5.2 billion would pay for other assistance including loan modifications.
The companies involved in the settlement include: Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
The deal "represents a significant change in direction" from the original 2011 agreements, Comptroller of the Currency Thomas Curry said in a statement.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time-consuming and costly without reaching many homeowners. Banks were paying large sums to consultants who were reviewing the files. Some questioned the independence of those consultants, who often ruled against homeowners.
Curry said the new deal meets the original objectives "by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner."
Thompson agreed that the earlier review process was deeply flawed and said the move toward direct payments is a positive development. But she said the deal only will work if it includes strong oversight and transparency provisions.
Official: Break for banks
"It's another get out of jail free card for the banks," said Thompson. "It caps their liability at a total number that's less than they thought they were going to pay going in."
Maryland Congressman Elijah Cummings, the top Democrat on the House Committee on Oversight and Government Reform, said in a statement that he was "deeply disappointed" in the regulators' actions.
"I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered," Cummings said. He said regulators have failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but not included in the settlement.
The settlement is separate from a $25 billion settlement between 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.
Bee staff writer Erin Tracy contributed to this report.
AT A GLANCE
Ten of the largest U.S. mortgage servicers will pay a combined $8.5 billion under an agreement that will end case-by-case reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators. Companies including JPMorgan Chase, Bank of America and Citigroup must provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers.
Eligible borrowers are expected to get payments of as much as $125,000, depending on how badly their foreclosure was handled.
A payment agent will act as go-between for payments, and eligible borrowers should expect to be contacted by the end of March.
The settlement's payouts will be dispersed among more than 3.8 million borrowers who went through foreclosures in 2009 or 2010.