The National Mortgage Settlement of 2012 required that certain banks (Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo) provide extensive relief to borrowers in the form of loan modifications, refinancing, and even cash payouts. Read on to learn more about the National Mortgage Settlement.
The National Mortgage Settlement
Over the past few years, state and federal investigations into mortgage foreclosure activities revealed extensive mortgage servicing misconduct, including:
- robosigning (where foreclosure documents were signed by people who had no knowledge about whether the information contained in the documents was correct)
- inaccurately notarized documents
- improper foreclosure procedures, and
- deceptive practices in the loan modification process (such as telling borrowers that a loan modification was imminent while simultaneously foreclosing).
As a result of these investigations, in February 2012, 49 state attorneys general and the federal government reached a historic settlement with five of the nation’s largest banks. The settlement held them accountable for the servicing violations that contributed to the mortgage crisis in this county.
The National Mortgage Settlement provided up to $25 billion in relief to current and former homeowners.
Who Benefited From the Settlement
The settlement benefits were for those borrowers whose loans are owned or serviced by the following five major loan servicers:
- Ally/GMAC/Residential Capital LLC (known as the "ResCap" parties)
- Bank of America
- JPMorgan Chase, and
- Wells Fargo.
To find out who your mortgage servicer is, look at your mortgage payment coupon. The company that you make your monthly mortgage payment to is your mortgage servicer (which may be different than the owner of your loan).
Settlement applies to owner-occupied homes. The settlement applies if the loan is for an owner-occupied property that is the primary residence of the borrower.
Fannie Mae and Freddie Mac loans were not a part of the settlement. Loans serviced by one of the servicers above, but owned by Fannie Mae or Freddie Mac, were not eligible for benefits under the settlement. To find out if either Fannie Mae or Freddie Mac owns your loan, go to www.knowyouroptions.com/loanlookup and www.freddiemac.com/mymortgage.
Borrowers in Oklahoma were not covered. Borrowers from Oklahoma were not entitled to any of the relief provided for in the settlement because that state elected not to join the settlement. (Oklahoma made its own agreement with the five servicers. Go to www.oag.ok.gov and click on "Oklahoma Mortgage Settlement Information" on the right-hand side of the screen for more information.)
Relief Provided by the Settlement
As of March 2014, all five settling banks have satisfied their consumer relief and financing obligations under the settlement. Here are some of the remedies that were provided.
Loan Modifications for Struggling Homeowners
The settlement provided assistance for struggling homeowners in need of a loan modification, including first and second lien principal reductions. (Lower principal balances result in lower payments, thus allowing homeowners a chance to retain their property.)
Refinancing for Underwater Homeowners
Homeowners who were current on payments, but whose property value was underwater (where the amount owed to the lender is more than the home’s fair market value), were granted refinancing relief.
Cash Payouts for Borrowers Who Lost Their Homes
Homeowners who lost their homes because they were not properly offered loss mitigation options or were otherwise improperly foreclosed on between January 1, 2008 and December 31, 2011 were eligible for cash payouts from a $1.5 billion fund.
Amount of the payout. Borrowers who submitted a valid payment claim form through the National Mortgage Settlement received a check for approximately $1,480. Checks went out between June 10, 2013, and June 17, 2013. (The deadline to make a claim was January 18, 2013.)
As of March 2015, claim filing for a cash payout and payment activity was ongoing. Even though the original deadline for submitting a claim under the settlement has long passed (in 2013), borrowers who were eligible to participate, but who did not make a claim by the deadline or receive a payment, may contact the settlement administrator, Rust Consulting, at 866-430-8358 to learn more about options for submitting their claims.
Funding to the States
The states that were part of the settlement received $2.5 billion to help distressed homeowners who were wronged by the banks. However, much of the money that was allocated to the states for this purpose has been redirected. Approximately 44% has been redirected to rainy day funds, budget balancing efforts, and economic development funds rather than on homeowners.
Nationwide Reforms Required by the Settlement
The settlement required, among other things, that the banks:
- appoint a single point of contact for loss mitigation efforts
- have adequate staffing levels and training
- honor trial and permanent loan modification agreements by a prior loan servicer
- maintain better communication with borrowers
- comply with the Servicemembers Civil Relief Act
- implement appropriate standards for executing documents in foreclosure cases
- end improper fees, and
- end dual tracking (where the bank proceeds with foreclosure while simultaneously working with the borrower on a loan modification).
The servicing standards under the settlement will continue in effect until the later part of 2015, though they are largely duplicated by the Consumer Financial Protection Bureau’s servicing rules.
More Information on the National Mortgage Settlement
To learn more about the National Mortgage Settlement, go to http://nationalmortgagesettlement.com/ or contact your mortgage servicer.