State-Federal Foreclosure Settlement - FAQs
- How does this settlement benefit Floridians?
- Why did Florida want a guarantee from the banks?
- What are the terms of the separate guarantee for Florida?
- How does this settlement reform the mortgage servicing industry and hold banks accountable?
- Does this settlement prevent dual tracking—the bank’s filing of a foreclosure action against a homeowner while a loan modification is pending?
- Does the settlement immunize banks from prosecution?
- Why reach a settlement rather than continue to litigate?
- What does this settlement do about all the missing or sloppy loan documents that we have heard so much about?
- Does this settlement let the lawyers off the hook?
- What about all the fraudulent lending practices engaged in by the banks?
- What if Florida tried to pursue relief on its own, without the federal agencies?
- Did you conduct an investigation?
- Will this settlement fix the entire mortgage industry breakdown?
- Why are you releasing the banks from some claims?
- Why doesn’t this settlement address the banks’ conduct in securitizing loans?
- How does this settlement affect members of the military?
- What is a mortgage servicer and how do I know who services my loan?
- How will I know whether this settlement affects my situation?
How does this settlement benefit Floridians?
The total value of the settlement nationally is more than $25 billion in credits and $32 billion in total dollar value; Florida will receive a total value of more than $4 billion in credits and $8 billion in total dollar value. Florida’s share is broken down as follows:
- At least $3.1 billion will go toward assisting Florida’s financially troubled borrowers with loan modifications, including reducing principal loan balances, forgiving amounts in forbearance, and providing other loss mitigation (e.g. short sales and deficiency waivers).
- More than $309 million will go to providing refinancing relief to eligible Florida borrowers whose loans are currently underwater. “Underwater” loans are loans where the principal balance exceeds the market value of the home. To be eligible for refinancing, a borrower must be current on mortgage payments, have a loan-to-value ratio (LTV) in excess of 100 percent (i.e., loan is underwater), and a current interest rate over 5.25 percent. Eligible borrowers will receive notices from the banks in the mail. If you have questions about your eligibility or about the program, you may contact your bank at the contact numbers listed below.
- Approximately $171 million in payments will be available to Florida borrowers who have already lost their homes, as partial payment for injury a borrower suffered as a result of improper servicing or a defect in the foreclosure proceeding.
- Qualifying borrowers are expected to receive payments in the range of $1,800 to $2,000.
- To be eligible, borrowers must have had a loan serviced by the settling banks and must complete a simple application and screening process.
- Borrowers who receive a payment under this settlement may still be eligible for relief under the Office of the Comptroller of the Currency review process, which is currently ongoing (for more information, see www.IndependentForeclosureReview.com). However, any sums received in the OCC review process or under a separate settlement or legal action may be reduced by any payment received under the state-federal settlement.
In addition to the significant dollar value of the settlement for Floridians, Florida was one of only two states to obtain a separately negotiated $4 billion guarantee from the top three servicers, which, if not met, subjects the banks to stiff penalties.
Why did Florida want a guarantee from the banks?
The settlement provides for extensive relief for borrowers across the country and commits the banks to a total dollar value of relief nationally, but not to a particular distribution of benefits. Because Florida is one of the hardest hit states, second only to California in foreclosure sales and underwater loans, it was essential to obtain a minimum commitment from the banks. This will ensure beyond any doubt that our residents who have suffered so immensely from this crisis will receive an appropriate share of the relief and that monetary benefits that should have been directed to Florida are not unfairly directed elsewhere.
What are the terms of the separate guarantee for Florida?
Florida obtained a guarantee from Wells Fargo, JP Morgan Chase, and Bank of America to ensure that at least $4 billion in relief under the settlement is provided to Floridians. This guarantee is similar and in proportion to the one provided to California. However, ours is unique in that it includes not only the principal reductions and other financial relief to financially troubled consumers, but it also guarantees refinancing relief to borrowers who are current on their mortgage payments but are stuck in higher interest loans that exceed the value of their homes.
How does this settlement reform the mortgage servicing industry and hold banks accountable?
The settlement is the second largest civil settlement ever obtained by the state attorneys general. It’s second only to the tobacco settlement that has spread payments to the states over 25 years. It will cost the nation’s five largest mortgage servicers, which control about 60 percent of the mortgage servicing market, an estimated $32 billion.
The settlement primarily addresses the banks’ servicing of privately-held (not those owned by FreddieMac or FannieMae) loans, including their handling of foreclosures. Through the imposition of substantial financial penalties and extensive consumer relief, this settlement holds the banks accountable for their servicing violations, including particularly for the practice known as “robo-signing,” where the banks submitted foreclosure documents that were not properly signed, reviewed, or notarized.
The settlement establishes the first-ever, comprehensive reform of mortgage servicing practices intended to protect homeowners. The standards require, among other things:
- a single point of contact for homeowners;
- adequate staffing levels and training;
- improved communication between the servicer and borrower;
- higher standards for executing documents in foreclosure cases to prevent robo-signing of affidavits and other defects in document execution;
- improved handling of delinquent loans to ensure no excessive fees are charged and that borrowers have full access to information;
- close monitoring of lawyers and other agents of the banks involved in the foreclosure process to ensure accuracy and compliance with bank policy;
- implementation of procedures to ensure accuracy of accounts and default fees, including regular audits and detailed monthly billing statements and enhanced billing dispute rights for borrowers;
- enhanced procedures to prevent blight of bank-owned properties;
- restrictions against excessive charges and inappropriate force placed insurance and against increases in servicing fees and late fees;
- certification of the competency of law firms hired to handle foreclosure litigation;
- close review of loan modification applications to ensure applications are handled expeditiously and fairly and that qualified borrowers obtain appropriate relief; and
- numerous added protections against entry of a foreclosure judgment while a borrower’s application for a loan modification is under review.
The agreement and its release preserve legal claims for others to pursue. Governmental entities and private parties are aggressively pursuing securities cases against the banks. A joint federal-state task force has been formed to investigate and prosecute those responsible for the collapse of the mortgage lending and investment markets.
Does this settlement prevent dual tracking—the bank’s filing of a foreclosure action against a homeowner while a loan modification is pending?
Yes. This settlement puts an end to the so-called “dual tracking” issue where one part of the bank would be processing a loan modification for the borrower while at the same time another section of the bank was filing for foreclosure. To guard against dual tracking, the settlement requires each servicer to establish a single point of contact for each homeowner who seeks loss mitigation, so that homeowners are not shunted from one representative to another during the loan modification or foreclosure process. The servicers are also required to provide sufficient staffing levels and training to improve communication between the servicer and borrower and to avoid a foreclosure while a loan modification is being processed.
The settlement also prohibits the bank from referring a loan to foreclosure while a completed loan modification application is under review or while trial payments are being made. In addition, if a loan modification application is made after the foreclosure action is filed with the court, the bank is required to request that the court stay or suspend the foreclosure action while the loan modification is pending.
Does the settlement immunize banks from prosecution?
No. The settlement provides no criminal immunity whatsoever. This is a civil--not a criminal--settlement, and it does not prevent state or federal criminal prosecutions from going forward. In this action, state attorneys general are using their civil law enforcement authority to fight for homeowners. They are not immunizing any individuals or institutions from prosecution. Criminal prosecutions are an entirely separate matter from a civil legal matter.
Why reach a settlement rather than continue to litigate?
Floridians need relief now, not years from now, and all Americans deserve to have stability restored to the housing market.
This settlement will provide immediate relief to Florida’s homeowners. Contested litigation would result in years in court arguing this case and would prevent us from obtaining the relief we need now. Millions more homeowners would likely lose their homes long before the court battles would end. Moreover, even if protracted litigation were successful, it is unlikely that the recovery would exceed $25 billion and produce the major servicing reforms obtained in this settlement.
This settlement will be filed with the federal district court in the District of Columbia simultaneously with a lawsuit seeking the entry of the settlement as a Consent Order. The significance of the settlement as a Consent Order is that, if the servicers violate any material settlement term(s), the states and the federal government will have the right to go to the court and seek remedies appropriate to the violation of the agreement. Because of the banks’ consent to the terms of the judgment, there is no need to pursue a contested lawsuit in court to obtain the relief set forth in the settlement.
What does this settlement do about all the missing or sloppy loan documents that we have heard so much about?
This settlement imposes hefty monetary penalties on the banks for the past practices that created sloppy, inaccurate, and, in some instances, false documentation. The settlement requires that the banks correct, at their expense, faulty paperwork that has been filed in pending cases. In cases where a judgment has been entered but the sale has not occurred, the bank is to provide notice to the borrower or borrower’s counsel of the use of improperly executed documents in support of the judgment so that the borrower can seek relief from the court, if appropriate.
Going forward, the settlement requires the banks to ensure the accuracy of sworn statements, to train all employees in proper procedures for reviewing facts and records before completing an affidavit, and to ensure that proper notary procedures are followed.
In addition, the bank must send borrowers a statement, prior to referring a loan to foreclosure, that discloses the amount of delinquency and fees, the ownership of the note and mortgage, and what steps the bank has taken to contact the borrower about alternatives to foreclosure, and other important information.
Does this settlement let the lawyers off the hook?
No, lawyers are not parties to this settlement, and the banks are required to establish a certification process for law firms to ensure that the firms have the experience and competence necessary to provide the services in compliance with the law. The settlement also requires that records be kept by the firms of all notarizations of bank documents by law firm employees.
What about all the fraudulent lending practices engaged in by the banks?
Mortgage lending fraud is a criminal activity, and this settlement does not prevent criminal enforcement on any criminal activity.
What if Florida tried to pursue relief on its own, without the federal agencies?
Federal law and U.S. Supreme Court precedent hold that the state attorneys general have no authority to subpoena a national bank. The federal partnership in this investigation and settlement was crucial for Florida’s homeowners.
Did you conduct an investigation?
Yes. The states' robo-signing investigation began in October of 2010, as an investigation into the alleged false affidavits submitted in foreclosure proceedings. Its scope soon broadened to encompass a long list of mortgage servicing issues, such as lost paperwork, and long delays and missed deadlines for loan modifications. Long before they announced their investigation, attorneys general and state banking regulators across the country fielded thousands of mortgage servicing complaints from homeowners. Florida, as well as many other states, took part in mortgage-related working groups, launched foreclosure prevention efforts, and took action against subprime and predatory lenders. In Florida, we also are pursuing numerous investigations relating to the foreclosure crisis, including investigations of law firms, document preparation companies, process servers, and other agents of the servicing banks. We have reviewed thousands of pages of records, conducted witness interviews and depositions, and gathered information from many sources. Overall, State attorneys general probably have more front-line experience with mortgage servicing than any other governmental entity.
In addition to sharing investigative resources among themselves, the states also partnered with the U.S. Justice Department and DOJ’s bankruptcy trustee program, the Treasury Department, and the Department of Housing and Urban Development. Federal agencies provided the joint state-federal legal team with strong and detailed evidence concerning robo-signing and other servicing abuses. The state attorneys general also partnered with state banking commissioners who conducted thorough examinations of mortgage servicers under their jurisdiction. The level of cooperation among the states and between the states and federal government was unprecedented, and gave the joint state-federal negotiating team substantial leverage in this extraordinary settlement.
Will this settlement fix the entire mortgage industry breakdown?
No. This is a mortgage servicing settlement that addresses only a portion of the mortgage lending system. However, the settlement’s tough, new mortgage servicing standards will have a widespread impact on future mortgage loan servicing.
States and federal agencies that sign onto the agreement are not restricted from investigating and pursuing many other mortgage-related issues, including securities-related cases, criminal cases, and other matters connected to the mortgage crisis.
Why are you releasing the banks from some claims?
The release of claims relinquishes particular state and federal claims on issues addressed by the settlement. The release is narrow and is limited to mortgage servicing and origination claims. States participating in the settlement may still pursue other claims against the banks, such as securities and securitization claims.
The agreement does not affect any individual’s rights. A consumer may still bring an individual action, be a part of a class action, or seek further review/relief from the Office of the Comptroller of the Currency (OCC).
Why doesn’t this settlement address the banks’ conduct in securitizing loans?
This case has focused on getting relief for homeowners, not for hedge fund investors. Expanding the reach to securities and securitization would have slowed the case considerably and massively increased the complexity of an already complex situation. It would have pitted the interests of homeowners against powerful investment funds, insurance companies, and other private investors.
This case began with robo-signing and was later expanded to foreclosure conduct and other mortgage servicing abuses. These are major, complex issues in themselves. What the state attorneys general have received in return for releasing claims on these matters is huge – billions in loan modifications and other benefits for borrowers who have been harmed as well as significant new protections for homeowners.
Nothing in this settlement prevents entities from investigating, pursuing legal action, or seeking settlements related to securities.
How does this settlement affect members of the military?
The Servicemembers Civil Relief Act (SCRA) provides protections for active service members, including postponing or suspending certain civil obligations, such as mortgage payments and foreclosure. This settlement provides enhanced safeguards for military personnel that go beyond SCRA protections, including extending the window of protections for qualified service members, and not requiring service members to be delinquent to qualify for a short sale, loan modification, or other loss mitigation relief if the service member suffers financial hardship and is otherwise eligible for such loss mitigation.
What is a mortgage servicer and how do I know who services my loan?
A mortgage servicer administers mortgage loans, including collecting and recording payments from borrowers. A servicer also handles loan defaults and foreclosures, and may offer loss mitigation programs to assist delinquent borrowers.
The company that you make your monthly payment to is your mortgage servicer. Your mortgage servicer may or may not be a lending institution and may or may not own your loan. Many of the loans administered by servicers are owned by third-party investors.
This settlement involves the nation’s five largest mortgage servicers, including Ally/GMAC, Bank of America, Citi, JPMorgan Chase and Wells Fargo.
Loans owned by Fannie Mae or Freddie Mac are not covered by this settlement. You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac and to get more information about loan modification and refinancing programs being offered on these loans:
How will I know whether this settlement affects my situation?
Because of the complexity of the mortgage market and this agreement, which will be performed over a three-year period, borrowers may not immediately know if they are eligible for relief. For loan modifications and refinance options, there will be information available online and a dedicated toll-free number for each of the servicing banks. Service members may be contacted directly about refinance options. For payments to foreclosure victims, a settlement administrator designated by the attorneys general will send claim forms to eligible persons. Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer to see if you are eligible.
Borrowers may contact their mortgage servicers to obtain more information about specific loan modification programs and whether the borrower may be impacted by this settlement. More information will be made available as the settlement programs are implemented.
For more information on the settlement, visit:
Or call the Servicing bank at the dedicated line below:
- Ally: 1-800-766-4622
- Bank of America: 1-877-488-7814
- Citibank: 1-866-272-4749
- JPMorgan Chase: 1-866-372-6901
- Wells Fargo: 1-800-288-3212