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NEW YORK (
TheStreet) -- Ten major mortgage servicers including
Bank of America(BAC - Get Report),
JPMorgan Chase(JPM - Get Report),
Citigroup(C - Get Report) and
Wells Fargo(WFC - Get Report) have entered into a $8.5 billion settlement with regulators to settle claims related to foreclosure abuses.
Under the terms of the settlement with the
Federal Reserve and the
Office of the Comptroller of the Currency(OCC), the banks will pay $ $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments. The agreement covers 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 with the participating servicers.
The other lenders participating in the settlement are
U.S. Bank(USB - Get Report).
By agreeing to the settlement, the lenders can cease the independent foreclosure review process mandated under an enforcement action in April 2011.
Regulators had determined that the foreclosure review process, which involved a case-by-case review of millions of loan files, was proving too expensive, time consuming and ineffective.
"When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury. While today's announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner," OCC chief Thomas Curry said in a statement.
"We have learned a great deal from the reviews that have been conducted to date. However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers. Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation's housing markets," he said.
Earlier press reports had suggested that 14 lenders would be participating in a settlement totaling $10 billion.
The settlement comes nearly a year after a separate $26 billion mortgage settlement with the five biggest banks in relation to the "robo-signing" scandal. Only $1.5 billion of that settlement was in the form of direct cash relief to 750,000 borrowers.
Eligible borrowers under the latest settlement will receive compensation whether or not they filed a request for review form, and borrowers do not need to take further action to be eligible for compensation, according to the OCC release.
Borrowers are expected to be contacted by the payment agent by the end of March with payment details. Borrowers will not be required to execute a waiver of any legal claims they may have against their servicer as a condition for receiving payment. In addition, the servicers' internal complaint process will remain available to borrowers, according to the statement.
--Written by Shanthi Bharatwaj in New York
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