Banks pay borrowers $3.8 billion for bad foreclosures
If you're one of the 3.8 million borrowers whose home was in foreclosure in 2009 and 2010, you might be seeing a payday fairly soon.
Ten mortgage-servicing companies have agreed to pay $8.5 billion to settle charges that they wrongfully foreclosed on millions of homeowners after the 2008 financial crisis.
The abuses by the banks include "robo-signing," in which banks automatically signed off on foreclosures without properly reviewing documents.
This new settlement with the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board (FRB) brings an end to the Independent Foreclosure Review, which was established to determine whether eligible homeowners suffered financial injury due to errors or other problems during the foreclosure mess.
In a joint news release, the OCC and FRB said the new agreement will allow eligible borrowers to receive compensation more quickly than they would have received under the review process.
About $3.3 billion of the money will go to homeowners in the form of direct payments. The other $5.2 billion will be used to reduce mortgage bills and forgive the outstanding principal on home sales that generated less than borrowers owed on their mortgages.
To be eligible, your home would have had to have been in foreclosure between Jan. 1, 2009, and Dec. 31, 2010, under one of 10 participating mortgage servicers.
The participating banks are: Aurora Bank, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo.
If you're eligible, you'll receive compensation whether or not you've filed a request for review form. You don't need to do anything else to be eligible for compensation, according to the press release.
How much will you get?
Payments could range from hundreds of dollars up to $125,000, depending on the type of servicer error, notes the news release.
And while it didn't lay out the full details, we think the payment structure will be similar to that of the Independent Foreclosure Review.
If you were wrongly denied a home loan modification, you'll receive a smaller payment. But if your home was seized and sold unfairly, you could be eligible for a bigger piece of the pie.
For example, let's say you weren't in default when the foreclosure occurred or that you were in default as a direct result of a servicer error. You'd be eligible to receive $125,000 if your foreclosure is complete and it's not possible for you to reclaim your home, according to the previous Independent Foreclosure Review payment structure.
Of course, there's no telling how much everyone will actually receive under the new deal just yet.
Eligible borrowers are supposed to be contacted by a payment agent on behalf of the servicer by the end of March.
You can see a full breakdown of the previous Independent Foreclosure Review payment structure here: http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/financial-remediation-framework.pdf