Mortgage Fraud Settlement FAQ

What is a mortgage servicer and how do I know who services my loan?

A:

A mortgage servicer administers mortgage loans, including collecting and recording payments from borrowers. A servicer also handles loan defaults and foreclosures, and may offer loss mitigation programs to assist delinquent borrowers.

The company that you make your monthly payment to is your mortgage servicer. Your mortgage servicer may or may not be a lending institution and may or may not own your loan. Many of the loans administered by servicers are owned by third-party investors.

This settlement involves the nation’s five largest mortgage servicers and you may reach them at the Web sites and phone numbers below:

Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac:

These sites will also include information about mortgage and foreclosure programs you may be eligible to access.

How will I know whether this settlement affects my situation?

A:

Only homeowners in the states who joined the settlement are eligible for benefits under this settlement. Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement.

Because of the complexity of the mortgage market and this agreement, which will be performed over a three year period, borrowers from the settlement states will not immediately know if they are eligible for relief.

For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers.

For borrowers who lost their home to foreclosure between Jan. 1, 2008 and Dec. 31, 2011, a settlement administrator designated by the attorneys general will send claim forms to persons eligible for cash restitution.

Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer to see if you are eligible.

In any event, borrowers may contact their mortgage servicer to obtain more information about specific loan modification programs and whether the borrower may be impacted by this settlement. You may reach them at the Web sites and phone numbers below:

For more information on the settlement:

A majority of mortgages are unaffected by this settlement. How do we obtain relief for the vast majority of homeowners?

A:

This settlement primarily affects mortgages that are owned and held by the nation’s largest bank servicers. Those homeowners may receive benefits such as modifications, principal reductions or direct payments from lenders.

Two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, control a majority of the nation’s mortgage loans. GSE loans are not eligible for parts of this settlement because of positions their regulator, the Federal Housing Finance Administrator (FHFA), has taken.

However, homeowners with GSE-controlled mortgages who won’t directly benefit from settlement-related programs – that’s most homeowners – will still see benefits through reduced foreclosures, stabilizing home values and significant new mortgage servicing standards and consumer protections.

This settlement, in addition to recent federal efforts to modify Freddie and Fannie loans, means that there’s an outside chance that the majority of distressed borrowers might qualify for some level of help.

Will there be payments to foreclosure victims?

A:

Yes. Approximately $1.5 billion of the settlement funds will be allocated to compensation to borrowers who were foreclosed on after January 1, 2008 and before Dec. 31, 2011.  These borrowers will be notified of their right to file a claim.  Borrowers who were not properly offered loss mitigation or who were otherwise improperly foreclosed on will be eligible for a uniform payment, which will be approximately $2000 per borrower depending on level of response.  Borrowers who receive payments will not have to release any claims and will be free to seek additional relief in the courts.  Borrowers may also be eligible for a separate restitution process administered by the federal banking regulators.

What about those of us who keep making our mortgage payments?

A:

Borrowers who are current in their payments but are “underwater” on their mortgages may qualify for refinancing relief under the settlement.

Beyond that, the mortgage servicers involved in this settlement broke the law, the conduct harmed borrowers, and this settlement addresses that conduct. If the mortgage servicers followed the law, many foreclosures likely could have been prevented. Foreclosure has a profound impact beyond the borrower and the creditor. A foreclosure affects homeowners, families, neighborhoods, communities, the housing market and our overall economy.

When a house is subject to foreclosure, it creates a ripple effect that lowers the value of nearby single-family homes and other properties. In 2009 the Center for Responsible Lending projected that homeowners living near foreclosed properties, on average, would lose $7,200 in property value, and projected a four-year increase in losses to $20,300 per household.
Foreclosures contribute to unstable family and social environments. They increase stress on homeowners, their families and their neighbors. These deteriorating, neglected properties and neighboring property value losses create neighborhood blight, cut a community’s tax base, and can contribute to crime. Displaced homeowners put other stresses on communities, including the need for shelter and social services.

Foreclosures affect everyone and affect our economy – even those who play by the rules and pay their monthly mortgage on time.

Why force banks to forgive large portions of peoples’ loans?

A:

The states and federal agencies established that the servicers have done wrong – through improper lending practices, improper foreclosures, etc. – and in response the banks have agreed to a settlement that helps many homeowners who have been hurt by misconduct in the marketplace.

Some banks have already acknowledged that mortgage resets can be effective tool in stabilizing the housing market and have already been forgiving portions of some loans. The idea is to keep people in their homes. The banks lose, on average, about $60,000 on each foreclosure. It is a win-win proposition for the banks to give up some principal – instead of that $60,000 cost of each foreclosure – and allow people to remain in their homes. As a matter of pure economics, principal reduction is often better for the bank than the massive losses associated with foreclosure.

The huge number of foreclosures impacts all of us: nest eggs erode, families may no longer borrow against their homes, and they can’t sell them when they need to. Mortgage resets is one of the tools they AsG negotiated to help keep more people in their homes and help stabilize the housing market — which helps everybody. It’s true that mortgage resets at this level is extraordinary. But so is the mortgage crisis, which affects families, our neighborhoods and our economy. Big problems require big solutions.

If I have not yet been foreclosed, do I have to live in the house to be eligible for the Consumer Relief portion of the settlement?

A:

No.  To qualify for the Consumer Relief portion of the settlement, the home must be occupied but there is no requirement that the owner of the home be the occupant.  This is different from past settlements.

Why are they releasing the banks from some claims?

A:

The release of claims relinquishes particular state and federal claims on issues addressed by the settlement. The release is narrow and is limited to mortgage servicing and origination claims. States that sign on may still pursue other claims against the banks, such as securities and securitization claims. States could also sue financial institutions that are not part of the settlement.
States that opt not to sign the agreement are free to pursue their own legal actions.

Does this immunize banks from prosecution?

A:

No. There’s no criminal immunity whatsoever.  State attorneys general are using their civil law enforcement authority to fight for homeowners.  They are not immunizing any individuals or institutions from prosecution.  Criminal prosecutions are an entirely separate matter from a civil legal matter.  This is a civil, not a criminal, settlement, and this settlement does not prevent state or federal prosecutions.

How will this settlement protect consumers in the future?

A:

The banks have agreed to major reforms in how they service mortgage loans.  These new servicing standards require lenders and servicers to adhere to a long list of rights for those facing foreclosure.  For example, borrowers will have the right to see all of their loan documents to make sure any potential foreclosure is legal; they will be given every opportunity to first modify their loan before facing foreclosure; lenders and servicers will be required to have an appropriate number of well-trained staff members to promptly respond to the needs of distressed borrowers; and finally, borrowers will have the right to deal with a reliable, single point of contact so they have access to a person from whom to obtain information throughout the process.  This is very important because, throughout the foreclosure crisis, borrowers have lodged widespread complaints about their frustrations in trying to work with their lenders.  They’ve complained about unresponsive employees, lost documents, and conflicting information.

How can we be assured that the banks will comply with the new servicing standards?

A:

This settlement is backed by a federal court order. State attorneys general and the U.S. Department of Justice can seek redress if the banks don’t follow the settlement terms.

The settlement also includes an independent monitor. The monitor, Joseph A. Smith, Jr. appointed on March 12, 2012, works from a strict set of objective measuring standards, oversees the carrying out of this agreement and reports to the states and federal agencies on the banks’ compliance. There are significant penalties if the banks violate the court judgment. A court ordered settlement is very different from the voluntary foreclosure prevention efforts that have been tried to date.

How does this settlement affect members of the military?

A:

The Service members Civil Relief Act (SCRA) provides protections for active service members, including postponing or suspending certain civil obligations, such as mortgage payments and foreclosure. This settlement provides enhanced safeguards for military personnel that go beyond SCRA protections, including extending the window of protections for qualified service members, and not requiring service members to be delinquent to qualify for a short sale, loan modification, or other loss mitigation relief if the service member suffers financial hardship and is otherwise eligible for such loss mitigation.

Are banks accountable for other claims not covered by this settlement?

A:

Yes! This agreement holds the banks accountable for their wrongdoing on robo-signing and mortgage servicing. This settlement does not seek to hold them responsible for all their wrongs over the years and the agreement and its release preserve legal options for others to pursue. Specifically, this settlement does not:

  • Release any criminal liability or grant any criminal immunity.
  • Release any private claims by individuals or any class action claims.
  • Release claims related to the securitization of mortgage backed securities that were at the heart of the financial crisis.
  • Release claims against Mortgage Electronic Registration Systems or MERSCORP.
  • Release any claims by a state that chooses not to sign the settlement.
  • End state attorneys general investigations of Wall Street related to financial fraud or the financial crisis.

The agreement settles only some aspects of the banks conduct related to the financial crisis (foreclosure practices, loan servicing, and origination of loans) in return for the second largest state attorneys general recovery in history and direct relief to distressed borrowers while they can still use it.

State cases against the rating agencies and bid-rigging in the municipal bond market, for example, continue. Claims and investigations against MERS and how Wall Street packaged mortgages into securities also continue.

On January 27, 2012, U.S. Attorney General Eric Holder along with Housing and Urban Development (HUD) Secretary Shaun Donovan, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami and New York Attorney General Eric Schneiderman announced the formation of the Residential Mortgage-Backed Securities Working Group. The working group will investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.