But the Monday deal’s compensation may not be enough for the vast majority of homeowners to rebuild their lives.
Consumer advocates and some lawmakers are questioning the limitations of the settlement and wondering whether the amount is sufficient to truly help victims.
To unpack the details of the deal, here are a few key points:
Banks involved: There are dozens of mortgage servicing companies suspected of having automatically signed off on foreclosures with minimal review, but the latest agreement focuses on the 10 largest players. Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, Aurora and Wells Fargo have all signed the agreement, thus giving their clients affected shoddy mortgage loan reviews a chance to collect.
Bank regulators are working to reach a similar agreement with the other four mortgage servicing companies — including HSBC—who were named in the April 2011 consent order that required the firms to establish the review.
Who’s eligible: More than 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 will receive some form of compensation from those banks. Those borrowers will be contacted by the end of March and given details about their compensation. No additional action is required by borrowers. They will receive payment whether or not they filed a form requesting a review.
How much borrowers should expect: Mortgage servicing companies have agreed to pay roughly $3.3 billion directly to affected borrowers.
Not everyone will receive four- or five-figure checks. People who were charged improper fees during a foreclosure or charged higher rates than they should have will be entitled to a few hundred dollars. Borrowers whose homes were wrongfully seized and sold will be awarded up to $125,000.
The remaining $5.2 billion coming from the banks will be used for reducing loan payments or interest rates on mortgages. Banks will also offer forgiveness of deficiency judgments—the difference between the price the home sold for at the foreclosure sale and the total debt that was due under the mortgage.
The 10 servicers can use this portion of the settlement to help any of their customers who need aid to prevent a foreclosure.
Borrowers’ rights: Homeowners are not required to sign a waiver of any legal claims they may have against their servicers as a condition for receiving compensation. In other words, no one has to give up the right to sue the bank that helped take his or her house.