A settlement ending the Independent Foreclosure Reviews mandated by the Federal Reserve and Office of Comptroller of the Currency (OCC) against a number of major mortgage servicers was finally announced on Monday.  The settlement, involving ten banks and $8.5 billion in payments appears to have traveled a torturous path since we first reported on it on December 31.

The agreement, according to the Federal Reserve will result in $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance such a loan modifications and forgiveness of deficiency judgments.  In return the regulators will end the case-by-case reviews of millions of mortgage loans files that banks were ordered to undertake under an enforcement action issued in April 2001 by OCC, the Federal Reserve, and the Office of Thrift Supervision.  The reviews, conducted by independent auditors, sought to determine if borrowers had been incorrectly foreclosed or charged inaccurate or excessive fees, or if borrower payments had been inappropriately applied.  The reviews proved to be more time consuming and expensive than originally estimated and as of December 31 only 495,000 of the estimated 4.4 million reviews had been completed.

The Federal Reserve said that up to 3.8 million eligible borrowers are expected to receive compensation ranging from hundreds of dollars up to $125,000, depending on the type of possible servicer error. 

When MND first reported on this story last month it was rumored that all fourteen banks subject to the independent reviews would be party to a settlement estimated at $10 billion.  Late last week it was variously reported that the settlement would be announced momentarily and that it had been put on hold pending a Congressional review at the request of the House Government Oversight Committee. 

The settlement as finally announced included Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.  The four banks not subject to the agreement are Ally, OneWest, EverBank and HSBC.  The Federal Reserve said that it and OCC "continue to work to reach similar agreements in principle with other servicers that are not parties to the agreement announced today, but that are also subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing." 

CNN Money quoted spokespersons for HSBC and Ally Financial's mortgage subsidiary ResCap as saying that the discussions and/or reviews were continuing while the remaining two banks, Everbank and OneWest either declined or did not respond to requests for comment. 

The Federal Reserve said that the regulatory agencies accepted the agreement "because it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process."  Eligible borrowers will be compensated whether or not they filed a request for review and should be contacted by a payment agent by the end of March with details on how to receive payment.  They will not be required to execute a waiver of any legal claims they may have against their servicers in order to receive payment.

Comptroller of the Currency Thomas J. Curry released a statement regarding the settlement saying that the Independent Foreclosure Review was designed to fix what was broken and identify and compensate anyone who was harmed.  "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.

"We have learned a great deal from the reviews that have been conducted to date.  However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers.  Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation's housing markets."