The foreclosure deal involving the five largest U.S. mortgage lenders, including Citigroup, was released on Monday when the government filed court papers for the $25 billion foreclosure settlement. Documents from the agreement provide new details regarding how settlement payments will be distributed to borrowers, as wells as federal and state governments.
Foreclosure Settlement Background
A foreclosure settlement has been in the works between the federal government, state officials and the five largest U.S. mortgage lenders involved: Citigroup, JPMorgan Chase, Ally Financial, Bank of America and Wells Fargo.
These banks were required to settle claims that they participated in a “robo-signing” scandal, which resulted in wrongful foreclosures. To resolve the issue, the banks agreed to provide relief to homeowners with underwater mortgages, as well as borrowers in danger of losing their homes.
On Monday, the government filed court papers related to the settlement; however, it won’t be made official until it receives the approval of a federal judge in Washington, D.C.
This foreclosure settlement is the largest settlement involving a single industry since the multi-state tobacco deal in 1998, which was worth $206 billion.
Citigroup Payments Distributed among 49 States
As a part of the settlement, Citigroup and the other banks have agreed to pay roughly $20 billion to help borrowers avoid foreclosure. More specifically, banks will reduce mortgage loans for about 1 million of the 11 million U.S. households that owe more than their homes are worth.
The remaining $5 billion will be paid in cash to federal and state governments. About one-third of that cash will be placed into a fund used for sending $2,000 checks to roughly 750,000 Americans who were improperly foreclosed upon from 2008 to 2011.
Bank of America, which has the largest financial obligation at $11.8 billion, struck a side deal with government officials allowing BofA to reduce some of its penalties if the bank agreed to reduce borrowers’ owed principal loan amounts to their homes’ current market values.
The five banks have agreed to complete 75 percent of their loan-relief requirements within two years and 100 percent within three years. During that time, they will not be allowed to foreclose on a homeowner who is being considered for a loan modification.
A total of 49 states will participate in the settlement; Oklahoma is excluded because it negotiated a separate deal with the banks.
Since the banks didn’t admit wrongdoing as a part of the settlement, federal and state law officials can still pursue criminal charges against the banks. Individuals will also be able to sue the banks in civil lawsuits if they believe they were wronged.