A final settlement between the nation's five largest mortgage servicers, two federal agencies and 49 of the states' attorneys general (AGs) was announced this morning by officials representing the AGs, the Departments of Justice (DOJ) and Housing and Urban Development (HUD).   The settlement, the result of  a 16 month nationwide investigation into foreclosure abuses, fraud, and unacceptable mortgage servicing practices is, as anticipated, for $25 billion dollars but there was no information released as to which state was not participating in the action. 

Bank of America, JPMorgan Chase & Co., Wells Fargo & Company, Citibank, and Ally Financial, (formerly GMAC) and their servicing subsidiaries have agreed to commit a minimum of $17 billion directly to borrowers through a series of relief effort options including principal reduction.  Servicers will likely provide up to an estimated $32 billion in direct homeowner relief.  There will be $4.2 billion paid directly to the states and $750 million to the federal government.  In addition, a comprehensive set of new standards will be implemented to protect homeowners from future abuses and an independent monitor will be appointed to ensure servicer compliance.

Nothing in the agreement grants any immunity from criminal offenses and will not affect criminal prosecutions.  The agreement does not prevent homeowners or investors from pursuing individual, institutional or class action civil cases against the five servicers.  The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases.

U.S. Attorney General Eric Holder told an audience attending the announcement about the scope of the investigation which led to the settlement calling it a remarkable example of cooperative law enforcement.  It involved multiple federal agencies working in partnership with state AG offices and state banking regulators.   The U.S. Trustees Program alone reviewed more than 37,000 bankruptcy documents and similar large-scale reviews were also conducted by HUD, FHA, and others.  Holder said the investigations revealed disturbing practices. "For instance, we saw that - far too often - servicers pushed borrowers into foreclosure, even though federal regulations required the servicers to try other alternatives first.  These failures didn't just hurt borrowers who might have been able to afford modified mortgages.  They fueled the downward spiral of our economy - and of communities nationwide." 

Holder stressed that, while the agreement resolves some civil claims, it does not prevent state and federal authorities from pursuing criminal enforcement actions nor does it prevent any   claims by any individual borrowers who wish to bring their own lawsuits. 

 "I also want to note that, with this settlement, we aren't just holding mortgage servicers accountable for wrongs they committed.  We are using this opportunity to fix a broken system, and to lay the groundwork for a better future.  Our nation's leading mortgage servicers will be required to follow a new set of standards, which will be overseen by an independent monitor." and will be enforceable in federal court." 

Iowa Attorney General Tom Miller, who led the settlement talks on behalf of the states said, "One of the hardest battles I fought over the last 16 months was over principal reduction.  At first the banks tried to tell us that was a non-starter.  We kept fighting back, and now I'm very proud to say that we got it across the finish line."  He said that targeted principal reduction will be one of the keystones of the agreement, and will help keep many families in their homes and out of foreclosure.  "People will see that this works, it'll result in lower re-default rates, and I think it'll be a catalyst for more."

Miller released a statement through his office that said the final agreement will be filed in U.S. District Court in Washington, probably later this month, and will have the authority of a court order. 

"Because of the complexity of the mortgage market and this agreement, which will span a three year period, borrowers in some cases may be contacted directly by one of the five included mortgage servicers regarding loan modification offers, may be contacted by a settlement administrator or their state attorney general, or may need to contact their mortgage servicer to obtain more information about specific programs and whether their loan qualifies.  More information will be made available as the settlement programs are implemented."

Simultaneous with the settlement agreement, the Office of the Comptroller of the Currency (OCC) announced it had agreed in principal on a settlement of civil money penalties against four of the five banks in connection with unsafe and unsound mortgage servicing and foreclosure practices against which OCC had issued cease and desist orders last April. 

Under this settlement the four banks (Ally is not included in this action) agree not to contest the OCC's ability to impose penalties totaling $394 million and the OCC agrees to hold in abeyance imposition of such penalties if the servicers make payments or take other actions under the larger federal-state settlement with a value of at least the penalty amounts that each servicer agrees OCC could impose.  Additional penalties will be assessed if the agreement is not fulfilled within three years.  Bank of America is liable for $164 million, Citibank, $34 million, Chase $113 million, and Wells Fargo $83 million.