January 8, 2013 10:31:50 AM
WASHINGTON -- Hundreds of thousands of Americans stand to benefit from the latest mortgage-abuse settlement, but consumer advocates say U.S. banks may be getting the best of the deal.
Banks have agreed to pay $8.5 billion to settle charges that they wrongfully foreclosed on millions of homeowners in the wake of the 2008 financial crisis. Abuses included "robo-signing," when banks automatically signed off on foreclosures without properly reviewing documents.
But the agreement announced Monday will also help eliminate huge potential liabilities for the banks.
Consumer advocates complained that regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families and fueled an exodus from neighborhoods across the country.
The settlement ends an independent review of loan files required under a 2011 action by regulators. Bruce Marks, CEO of the advocacy group Neighborhood Assistance Corp. of America, noted that ending the review will cut short investigations into the banks' practices.
"The question of who's to blame the homeowners or the lenders if you stop this investigation now, that will always be an open-ended question," Marks said.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay about $3.3 billion to homeowners to end the review of foreclosures.
The rest of the money $5.2 billion will be used to reduce mortgage bills and forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.
A total of 3.8 million people are eligible for payments under the deal announced by the Office of Comptroller of the Currency and the Federal Reserve. Those payments could range from a few hundred dollars to up to $125,000.
Homeowners who were wrongly denied a loan modification will be entitled to relatively small payments. By contrast, people whose homes were unfairly seized and sold would be eligible for the biggest payments.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time-consuming and costly and didn't reach many homeowners. Banks were paying large sums to consultants to review the files. Some questioned the independence of those consultants, who often ruled against homeowners.
The deal "represents a significant change in direction" that ensures "consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner," Thomas Curry, the comptroller of the currency, said in a statement.
But Charles Wanless, a homeowner in the Florida Panhandle, is among those who question that promise. Wanless, who is fighting foreclosure proceedings with Bank of America, says he doubts the money will benefit many who lost homes.