A group of 10 mortgage servicers agreed on Monday to pay a total of $8.5 billion to end a U.S. government-mandated case-by-case review of housing crisis foreclosures in an acknowledgement the program had proven too cumbersome and expensive.
Roughly 3.8 million borrowers who were foreclosed on within the time frame of the review will receive cash compensation ranging from hundreds of dollars up to $125,000, depending on the type of errors they experienced, the U.S. Office of the Comptroller of the Currency (OCC) said.
The reviews followed the "robo-signing" scandal that emerged in 2010 involving allegations banks pursued faulty foreclosures by using defective or fraudulent documents.
Bank of America Corp, Citigroup Inc, JPMorgan Case & Co, Wells Fargo & Co, MetLife Bank , and five others will pay $3.3 billion directly to eligible borrowers, and $5.2 billion in loan modifications and forgiveness, regulators said.
The OCC and the Federal Reserve Board said they accepted the agreement to get relief to consumers more quickly than through the reviews.
In April 2011, the government required the servicers to review foreclosure actions from 2009 and 2010 to determine whether borrowers had been unlawfully foreclosed on or suffered some other financial harm due to errors in the foreclosure process.
Comptroller of the Currency Thomas Curry said in a statement: "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."
The agreement announced Monday resolves matters left unsettled by a $25 billion deal that the top five servicers reached last February with the Justice Department, housing authorities and state attorneys general to end an investigation into foreclosure practises including robo-signing.
Those authorities had taken a broad approach to dealing with allegations of robo-signed documents and faulty foreclosures, while the bank regulators had initially opted for the more targeted, individual reviews.
Bank of America said it supports the new approach "because it expands the number of borrowers who will receive payment, speeds the delivery of those payments, and will provide support for homeowners still struggling to make payments."
MetLife said it was fully cooperating with the OCC review process and said its portion of the settlement was $37 million.
The other servicers did not immediately respond to a request for comment.
Regulators said the agreement replaces the case-by-case reviews with a "broader framework," but did not provide details.
The other banks involved in the settlement are: Aurora , PNC, Sovereign, SunTrust , and U.S. Bank.
At least one lawmaker expressed disappointment in the settlement. Elijah Cummings, the top Democrat on the House Committee on Oversight said he had serious concerns that the deal "may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered."
On Friday Cummings and Oversight Committee Chairman Darrell Issa sent a letter to the agencies requesting a briefing on the settlement.