Major banks reach $8.5 billion mortgage settlement

Ten major mortgage companies, including Atlanta-based SunTrust Banks, agreed on Monday to pay more than $8.5 billion to settle claims of abusive foreclosure practices. Federal regulators said the deal would get compensation faster to affected homeowners and aid borrowers who are currently in financial trouble.

As part of the settlement with the Federal Reserve and the Office of the Comptroller of the Currency, the banks will collectively provide $3.3 billion in cash payments to 3.8 million eligible homeowners who were foreclosed upon in 2009 and 2010. As many as 180,000 Georgians who went through the foreclosure process in those years might qualify for compensation.

The settlement also provides $5.2 billion in borrower assistance that could include mortgage modifications. Some of the money would reflect programs already under way.

Liz Coyle, a spokeswoman for consumer advocacy group Georgia Watch, said the amount of compensation to abused borrowers “is a drop in the bucket” compared to the toll of foreclosures on families and the overall economy. Georgia has been among the hardest hit states for foreclosures.

Because the settlement would end case-by-case reviews of foreclosures by the 10 institutions, some critics worry whether the full scope of banks’ abusive practices will ever be uncovered.

Eligible borrowers who were foreclosed upon in 2009 and 2010 and were subject to various abuses could receive up to $125,000, but the average amount per borrower is less than $900. They will be contacted by a payment agent by the end of March, the regulators said.

Monday’s announced deal includes the mortgage units of the three largest banks in metro Atlanta by deposits in SunTrust, Wells Fargo and Bank of America.

The other servicers involved in the latest pact are: Aurora, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign and U.S. Bank.

A SunTrust spokesman said the bank was “pleased to have reached this agreement, and believe it represents an important step forward in resolving legacy mortgage issues.” A Wells Fargo spokeswoman expressed similar sentiments.

The deal is essentially a do-over of an April 2011 federal enforcement effort to correct mortgage and foreclosure abuses and compensate borrowers. That effort has been maligned by critics.

That agreement ordered 14 major mortgage servicers to hire consultants to review past foreclosures and compensate borrowers for abuses. Those abuses include the banks’ use of faulty paperwork, foreclosing on mortgages they didn’t own, failing to provide proper notice of default and foreclosing while a borrower had the protection of bankruptcy or was under a loan modification plan.

The federal government stepped in with censures and demanded the banks hire consultants to conduct reviews and compensate affected borrowers.

But the Independent Foreclosure Review program has been plagued by allegations the probes were slow moving, costly and not impartial and that borrowers were not actually getting relief.

Late last year, Fed data showed banks had sent nearly 180,000 letters to Georgians saying they might qualify for compensation, but only 6 percent had filed a review request as of Sept. 30.

Ally Financial, EverBank, HSBC and OneWest Bank were part of the original 2011 pact, but were not part of Monday’s announcement. Officials said negotiations are continuing.

The Fed said individual borrowers could receive compensation whether or not they requested a review of their case. Borrowers also will not lose their rights to sue banks for alleged wrongdoing.

Thomas Curry, the Comptroller of the Currency, said his office set out with the foreclosure reviews “to fix what was broken, identify who was harmed, and compensate them for that injury.”

“While today’s announcement represents a significant change in direction, it meets those 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,” he said in a statement.

The new regulatory action is at least tacit proof that the review system was flawed, but consumer advocates told The Atlanta Journal-Constitution they have concerns about the latest deal.

The review process had its flaws, critics said, and concerns grew particularly after ProPublica, an investigative journalism nonprofit, found some banks were doing reviews and determining compensation levels themselves.

But not completing the reviews could obscure how widespread mistreatment of borrowers really was, said John Bartholomew, an Atlanta Legal Aid Society attorney who represents distressed borrowers.

The nonprofit law center has helped borrowers who were foreclosed by the wrong institution, were foreclosed on improperly during an active loan modification and seen other abuses, he said.

“I think there’s got to be concern (the regulators are) throwing it all away and starting over,” he said. Without a full accounting of the reviews, he said, “we’ll never know how widespread the problems were.”

U.S. Rep. Elijah Cummings, D-Md., the ranking member of the House Committee on Oversight and Government Reform, expressed disappointment that regulators announced the agreement without first briefing his committee.

Cummings said “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.”

Monday’s settlement is separate from last year’s sweeping $25 billion settlement with five major U.S. banks and the attorneys general for 49 states, including Georgia. Oklahoma settled its case separately.

Also Monday, Bank of America announced a separate $11.6 billion settlement with government-backed mortgage giant Fannie Mae. The agreement concerned soured mortgages made by the bank and Countrywide Financial that Fannie Mae bundled and sold into securities. Bank of America bought Countrywide during the financial crisis.

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The Associated Press contributed to this article.