Government Asks Judge to Approve Major Settlement Over Banks’ Foreclosure Practices
Government officials on Monday asked a federal judge to approve a landmark settlement with some of the nation’s largest banks over flawed and fraudulent foreclosure practices, more than a month after they announced the $26 billion deal with fanfare at the Justice Department.
The 99-page complaint filed in a D.C. federal court details the “pattern of unfair and deceptive practices” perpetrated by banks in the wake of the housing bust. Among them: filing false and misleading court affidavits, charging excessive and improper fees to borrowers, keeping abysmal records, frequently losing paperwork, breaking promises to homeowners trying to modify their loans, employing staffers with little or no training and improperly foreclosing on active-duty military members.
Officials filed separate and lengthy settlement terms with the five banks involved — Bank of America, JPMorgan Chase, Wells Fargo, Ally Financial and Citigroup — that document the penalties each must pay, how that money will be distributed, how new mortgage servicing standards will be enforced and the extent of the legal releases the firms will receive as part of the deal.
Though the dollar amounts differ, the agreements with each bank are largely the same. One exception is a side deal in which Bank of America agreed to reduce loan balances for as many as 200,000 borrowers who owe more than their homes are worth. The average amount of those so-called principal reductions is expected to be more than $100,000, and it will reduce the amount of penalties the firm owes by about $850 million.
Monday’s filing came after nearly 17 months of negotiations between state and federal officials and the nation’s largest banks. Those talks began in late 2010 after widespread outrage over news that banks were using forged and shoddy paperwork to churn through massive numbers of foreclosures, a practice that became known as “robo-signing.” Forty-nine states ultimately signed onto the deal; Oklahoma crafted a separate settlement.