In a settlement with regulators that could affect hundreds of thousands of Californians, 10 major lenders agreed Monday to pay more than $8.5 billion to borrowers harmed by abusive foreclosure practices during the housing bust.
The pact, announced by the Office of the Comptroller of the Currency and the Federal Reserve, will provide cash payments of up to $125,000 to borrowers who were treated unfairly by their lenders.
The regulators also said they have scrapped a controversial system in which consultants analyzed each loan individually to determine whether a borrower had been harmed. Critics said the process was too expensive -- costing $1.5 billion so far -- and was taking too long.
"I would hope that the relief reaches those who were hardest hit," said Kevin Stein of the California Reinvestment Coalition. "There has been a general theme through all these programs that some relief is available, but not enough to make up for past wrongs. And there's a concern it is not reaching the hardest hit communities."
Millions of Americans have lost their homes to foreclosure since the housing bubble burst, and millions more are still struggling to make mortgage payments. This settlement covers borrowers who fell behind on their payments and faced foreclosure in 2009 and 2010.
Separately Monday, Bank of America agreed to pay the government-controlled mortgage giant Fannie Mae $10.3 billion to resolve questions over dubious mortgages from
While that agreement provides relief for taxpayers on the hook for billions in shaky loans, the deal with the 10 lenders promises quick relief for 3.8 million individual borrowers -- 788,000 of them in California, according to the comptroller's office.
The 10 loan servicers have agreed to make $3.3 billion in cash payments to borrowers who were harmed. An additional $5.2 billion will be used for assistance such as loan modifications and in restitution for loan servicing and foreclosure abuses.
Cash compensation will range "from hundreds of dollars up to $125,000, depending on the type of possible servicer error," such as excessive fees, flawed paperwork or improperly canceled loan modifications, the comptroller's office said.
During that period, roughly 96,000 borrowers were in foreclosure in Alameda, Contra Costa, San Mateo and Santa Clara counties, according to ForeclosureRadar, a website based in Truckee.
In a significant change, borrowers will no longer have to apply for relief and await a lengthy review. Instead, borrowers will be sent money "in a timely manner" after a determination of how severely they were harmed.
"The biggest difference is that in this settlement you're just categorizing borrowers into large, broad categories of potential errors based on loan characteristics," said Bryan Hubbard, spokesman for the comptroller's office. "You're not trying to identify the harm with any precision at all."
Borrowers will not have to waive any legal claims they have against a servicer in order to receive payment. Eligible borrowers will be contacted by the end of March with details on the payment, Hubbard said.
Some advocacy groups said they'll be watching how and to whom the relief will be distributed.
Christina Livingston, executive director of Alliance of Californians for Community Empowerment, said, "We want to make sure we see the money delivered to communities that were hard hit, many of which are communities of color who were targets of unfair loan practices."
The $3.3 billion, divided among 3.8 million borrowers, is less than $1,000 per household, said Paul Leonard of the Center for Responsible Lending in Oakland. "We think the overall amount of money is inadequate, particularly the amount of hard dollars flowing to harmed borrowers."
Still, Gabriel Naguit, 75, an accounting professional, is hoping there's something in it for him.
"I hope I'm seeing a light at the end of a tunnel of injustice," he said Monday.
Naguit said he has spent the past three years struggling to save his home in Hercules from foreclosure.
He said a complaint filed with the currency office last year hasn't produced any help. "Nothing has been done," he said.
The banks and servicers who signed the agreement are Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo.
Negotiations are still going on with four other servicers.
Contact Pete Carey at 408-920-5419 Follow him on Twitter.com/petecarey.
Here are details of the agreement with 10 lenders announced Monday by the Office of the Comptroller of the Currency and the Federal Reserve: