[Information updated February 20, 2012]
Under a deal announced by federal and state officials on February 9th, 2012, the nation’s five largest banks – Ally Bank (formerly GMAC), Bank of America, Citi, JPMorgan Chase and Wells Fargo – have agreed with 49 states to settle charges of abusive and negligent foreclosure practices dating back to 2008.
The banks will commit $26 billion to help underwater homeowners and compensate those who lost their homes due to improper foreclosure practices. Approximately $140 million of this money has been allocated for homeowners in the state of Wisconsin.
Most of the relief will go to those who owe more than their homes are worth, a situation generally referred to as being underwater on a loan. While the banks have incentives to provide most of the relief over the next 12 months, the settlement allows for relief to be disbursed over the course of the next three years.
Settlement Details
Because of the complexity of the mortgage market and the time line of this agreement, which will be executed over a three-year period, borrowers may not know immediately if they are eligible for relief. Over the next 6 to 9 months, the settlement administrator, the Wisconsin Attorney General’s office, and the mortgage servicers will identify homeowners eligible for the immediate cash payments, principal reductions and refinancing. Those eligible should receive a letter informing them of their status.
Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer at the numbers below to see if you are eligible.
Monetary Relief
There are four separate pools of money that will provide relief to Wisconsin residents. The purposes of these four pools have some overlap and more than one pool may be available under certain circumstance.
1) Federal benefits. The first pool of money requires the settling banks to earn “credits” totaling at least $17 billion worth of borrower assistance nationwide. The Wisconsin share of this pool is estimated to be $60 million.
At least 60% of this pool will be allocated to reduce the principal balance of home loans for borrowers who are in default or at risk of default. A reduction in loan principal will provide the borrower with lower payments and give homeowners an opportunity to stay in their homes.
The remainder, will be used for other benefits to homeowners, including facilitation of short sales, unemployed payment forbearance, relocation assistance, waiver of deficiency balances, and remediation of blighted properties.
2) Refinance benefits. The settlement provides $3 billion nationwide, with $31.3 million allocated to Wisconsin, for eligible homeowners who are current on their payments, have a current interest rate of at least 5.25%, but have negative equity (the outstanding loan amount is great than the current market value of the property). The banks will be required to notify eligible homeowners of the availability of these programs and the refinanced rate must reduce monthly payments by at least $100.
3) Payments to borrowers. Borrowers who were foreclosed on after January 1, 2008, lost their homes, and were not properly offered loss mitigation or were otherwise improperly foreclosed on will be eligible for a uniform payment of up to $2000, depending on level of response. Nationwide, $1.5 billion was allocated for this purpose, with $17.2 million designated for Wisconsin. Borrowers who receive payments will not release claims and may seek additional relief in the courts.
4) Payments to states. Participating states will receive $2.5 billion, $31.6 million of which will go to Wisconsin. These funds may be distributed at the discretion of the attorneys general for designated purposes. Permitted purposes include compensation to states for losses resulting from the foreclosure crisis, investigation and prosecution of mortgage fraud and other financial crimes, civil penalties, and foreclosure relief and housing programs such as housing counseling, legal assistance, foreclosure prevention hotlines, foreclosure mediation, and community blight remediation.
Additional Settlement Details
The settlement agreement contains important details regarding the ongoing liability of the banks and new loan servicing standards. Key provisions in these sections include:
Release of Liability
The banks and their affiliates will be released from civil liability to state attorneys general and bank regulators for past servicing conduct including conduct related to mortgage loan servicing, foreclosure preparation, and mortgage loan origination services. Importantly, the release does not affect the rights of any individuals or entities to pursue their own claims for relief.
Servicing standards
The settlement will require the settling banks to comply with comprehensive “servicing standards” that will significantly reform all aspects of post-closing mortgage servicing.
Among other things, the new standards will:
- prevent robo-signing and other improper foreclosure practices
- require banks to offer loss mitigation alternatives to borrowers before pursuing foreclosure
- increase the transparency of the loss mitigation process
- impose timelines for servicers to respond to borrowers
- restrict the practice of “dual tracking,” where foreclosure is initiated despite the borrower’s engagement in a loss mitigation process.
Consumer Resources
Under the terms of the agreement, the five banks involved with this settlement have set up phone lines to provide consumers with information related to loans that they service. Borrowers may obtain information about the settlement and their rights by calling the following numbers:
- Ally (GMAC): 800-766-4622
- Bank of America: 877-488-7814
- Citi: 866-272-4749
- JPMorgan Chase: 866-372-6901
- Wells Fargo: 800-288-3212
Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer at the numbers above to see if you are eligible.
Watch our website for updates on this relief program
The Dane County Foreclosure Prevention Taskforce is monitoring developments related to the settlement agreement to determine exactly how it will impact local at-risk homeowners. Please watch our website for the latest developments on this relief program.
Local news articles on the mortgage settlement agreement (listed chronologically):
Property Trax: Homeowner advocates blast Walker’s plan to use $26 million from mortgage settlement for state deficit repair (Wisconsin State Journal – 02/10/2012)
Wisconsin to use part of mortgage settlement for budget (Wisconsin State Journal – 02/10/2012)
Property Trax: Local advocates warn struggling homeowners not to assume $25 billion settlement with banks will help them (Wisconsin State Journal – 02/09/2012)
Wisconsin homeowners could get $140 million in foreclosure abuse deal (Wisconsin State Journal – 02/09/2012)
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