Attorney General Jeffrey S. Chiesa announced today that New Jersey has joined a landmark $25 billion joint state-federal settlement that resolves a national investigation into alleged foreclosure abuses, fraud and unacceptable business practices by the country’s five largest mortgage servicers.
The proposed settlement provides an estimated $762 million in direct relief to New Jersey homeowners and reforms mortgage loan servicing practices. U.S. Attorney General Eric Holder, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and a bipartisan group of state attorneys general announced the national settlement today in Washington, D.C.
The five settling mortgage servicers are Ally Financial, Bank of America, Citi, JP Morgan Chase and Wells Fargo.
“This settlement is important because it will bring much-needed relief to New Jersey borrowers, and significant reform to the mortgage servicing industry,” said Chiesa. “Through the changes required by this settlement, we are putting a stop to the conduct that has harmed borrowers in the past and contributed to the mortgage problems in our state and across the country.”
“Today’s announcement about the multi-state mortgage servicing settlement is a step forward for consumers as they work hard to recover from the last recession,” said Commissioner of Banking and Insurance Tom Considine. “It is also a key step for mortgage servicers as improved performance helps them turn the corner toward a healthier marketplace.”
Under the terms of the settlement, New Jersey and its citizens will benefit in several important ways, Chiesa said:
- New Jersey borrowers will receive an estimated $660 million in benefits from loan term modifications and other direct relief.
- New Jersey borrowers who lost their home to foreclosure between January 1, 2008 and December 31, 2011, and suffered servicing abuse, will qualify for $12.5 million in cash payments.
- The value of refinanced loans to New Jersey borrowers who owe more on their mortgages than their homes are worth will be an estimated $89.5 million.
- The State will also receive a direct payment of $75.5 million, which will help pay for various State housing programs.
The unprecedented joint, state-federal settlement is the result of a massive civil law enforcement investigation and initiative that includes state attorneys general and state banking regulators across the country, and nearly a dozen federal agencies.
The New Jersey Division of Law’s Affirmative Civil Enforcement Group and the Division of Consumer Affairs, both part of the Attorney General’s office, conducted a joint investigation reviewing consumer complaints, court filings and other relevant documents. The Attorney General’s office also conducted interviews with New Jersey borrowers affected by the servicers’ conduct. The problems identified during New Jersey’s investigation mirrored those encountered in other states.
The settlement announced today holds banks accountable for past problems with mortgage servicing and foreclosure practices and provides relief to homeowners. With the backing of a federal court order and the oversight of an independent monitor, the settlement is designed to prevent such conduct in the future.
Under the terms of the settlement, the five servicers have agreed to pay $25 billion under a joint state-federal settlement structure. Nationally:
- Servicers commit a minimum of $17 billion directly to borrowers through a series of national homeowner relief effort options, including principal reduction. Based upon the structure of the settlement, servicers will actually provide up to an estimated $32 billion in direct homeowner relief.
- Servicers commit $3 billion to a mortgage refinancing program for borrowers who are current, but owe more than their home is currently worth.
- Servicers pay $5 billion to the states and federal government ($4.25 billion to the states and $750 million to the federal government). The states’ share includes funding for payments to borrowers harmed by the servicers’ actions.
- Homeowners receive comprehensive protections from new mortgage loan servicing and foreclosure standards.
- An independent monitor will ensure mortgage servicer compliance.
- Government can pursue civil claims outside the scope of the settlement, including securities cases and any criminal case; borrowers and investors can pursue individual, institutional or class action cases regardless of the settlement.
In deciding to join the settlement, Chiesa explained that the state factored in the five servicers’ cooperation during the investigation and their readiness to implement significant reforms concerning business practices and mortgage loan servicing standards.
“This settlement addresses breakdowns in the mortgage servicing industry, and allows us to pursue other mortgage-related misconduct,” said the attorney general. “While the settlement includes significant relief for homeowners, it also puts in place new protections for homeowners in the form of reformed mortgage servicing standards. That’s not something we’d see if we simply won a money judgment after trial.”
The final agreement, implemented through a consent judgment, will be filed in U.S. District Court in Washington, D.C., and will have the authority of a court order.
Due to the complexity of both the mortgage market generally and this settlement in particular, which will span a three-year period, participating mortgage servicers will in some cases contact borrowers directly regarding loan modification options. However, borrowers are urged to contact their mortgage servicers to obtain more information about specific loan modification programs and whether they qualify under terms of the settlement.
Settlement administrators or state attorneys general may also contact borrowers regarding certain aspects of the settlement. More information will be made available as the settlement programs are implemented.