Foreclosure Pact Alleges a Pattern of Malfeasance
U.S. and state officials accused five large U.S. banks of overcharging and misleading borrowers in court documents filed Monday as part of the $25 billion settlement of alleged foreclosure abuses.
The filing offered a detailed description of how the five banks allegedly violated state and federal law. Officials spent more than a year investigating foreclosure practices that began as a probe of “robo-signing,” or employees approving documents without proper review.
Banks “engaged in a pattern of unfair and deceptive practices” and made “false or fraudulent” claims to the federal government, according to an eight-count complaint filed in U.S. district court for the District of Columbia.
In settling, the five banks—Ally Financial Inc., Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co . and Wells Fargo & Co .—neither admitted nor denied guilt.
Under the agreement, the banks will provide principal relief and other borrower assistance valued at $17 billion. In addition, roughly $5 billion of the settlement will be paid in fines, while $3 billion will be used to help refinancing for homeowners who owe more than their homes are worth. The deal also includes new mortgage-servicing standards.
Former North Carolina Banking Commissioner Joseph A. Smith Jr. will serve as the monitor for the settlement, charged with ensuring that the terms of the agreement will be met over the next 3½ years. Banks will be subject to penalties of up to $1 million per violation of the order, with penalties of up to $5 million for certain repeat violations, according to the deal.
The issues laid out in the complaint go well beyond the allegations of robo-signing. Among other things, the complaint alleges that the five banks charged borrowers excessive or improper fees, failed to properly apply borrower loan payments and wrongfully denied borrowers loan modifications.
The banks also provided homeowners with “false or misleading information,” failed to have appropriate staffing levels to meet the surge in troubled loans, and overcharged and improperly foreclosed on members of the military, according to the complaint.
Banks also engaged in a “continuing abuse of the bankruptcy process” and filed “false or fraudulent claims” for reimbursement from the Federal Housing Administration’s mortgage insurance program, according to the court filing. The complaint singles out Countrywide Financial Corp., which was acquired by Bank of America in 2008, for faulty underwriting that has cost the Federal Housing Administration “hundreds of millions of dollars in damages.”