WASHINGTON (CN) - The nation's five largest bank mortgage servicers will pay $25 billion to settle claims of widespread "robo-signing" of foreclosure documents and other fraudulent practices at the expense of struggling homeowners.
The settlement consists of reforms to the national mortgage servicing standards including: distressed home borrowers will be considered for a loan modification rather than being automatically referred to foreclosure; no loan will be referred to foreclosure while a loan modification is being considered; borrowers will be allowed to appeal a denial of a loan modification; mortgage servicers must provide a single point of contact for borrowers as well as easier methods for checking on the progress of their loan modification applications; and loan servicers will be held to strict timelines in dealing with distressed borrowers.
The settlement also includes protections to ensure fairness and accuracy for all borrowers making mortgage payments including increased disclosures on their monthly mortgage billing statements, maintenance of procedures to ensure the accuracy in the posting of mortgage payments, the posting of a schedule of all fees on their website and the requirement that all fees must be reasonable and accurate.
Most of the settlement - $17 billion - will help borrowers who remain in their homes but are imminent risk of default; $3 billion will assist borrowers to refinance mortgages where the outstanding loan balance is more than the current appraised value of the home; $1.5 billion will be provided for restitution to borrowers who have already lost their homes; and $2.6 billion will go to states for use in foreclosure prevention programs.
Illinois Attorney General Lisa Madigan said her state will get more than $1 billion through the settlement, which is the second largest settlement ever obtained through a joint action of state attorneys general.
"After many months of investigation and negotiation, I've concluded that this settlement accomplishes two major goals: it provides timely help for struggling homeowners, and it establishes new rules for mortgage servicing that will protect homeowners in the future," Madigan said in a statement. "While the settlement is a big step forward in our efforts, it is not the end. In Illinois, we will continue to take strong legal action against lenders, banks, servicers and others who contributed to the housing and economic collapse."
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