On Tuesday, the Board of the Federal Reserve and the Office of the Comptroller of the Currency released a joint statement announcing that as of April 12, 4.2 million borrowers whose homes were being foreclosed on in 2009 and 2010 by 13 of the nation’s largest banks would begin receiving compensation payments.
The payments total about $3.6 billion, and are being paid out by the following institutions: Aurora, Bank of America (BAC), Citibank (C), Goldman Sachs (GS), HSBC (HSBC), JP Morgan Chase (JPM), MetLife Bank (MET), Morgan Stanley (MS), PNC (PNC), Sovereign Bank, SunTrust (STI), U.S. Bank (USB), and Wells Fargo (WFC). The payments will begin on April 12 with an initial distribution of 1.4 million checks, and should conclude with a final wave of payments by mid-July of the year.
Those whose mortgages were serviced by either Goldman Sachs or Morgan Stanley will have to wait for a separate announcement regarding payouts from those institutions. Additionally, the statement indicated that the Independent Foreclosure Review process is still ongoing for OneWest, Everbank (EVER), and GMAC Mortgage.
The payments will range anywhere from $300 to $125,000, and do not preclude borrowers from taking their own legal action against any of the banks should they so desire.
The amount of money allocated to each of the 4.2 million borrowers is determined by the June 2012 financial remediation matrix, based on both the stage at which the borrower was in the foreclosure process, as well as the type of “error” committed in the servicing of the mortgage.
Many of these same banks got credit on Monday from Fed Chairman Ben Bernanke for much greater preparedness in the event of another period of economic turmoil. Fourteen of the nation’s 18 biggest banks met the Fed’s capitalization thresholds for their share purchasing and dividend payout plans that were the subject of the most recent set of stress tests. Tuesday’s official announcement was understated by comparison.
The announcement did not directly mention any of the reasons for the settlement aside from “possible servicer error.” These reasons include “robo-signing”, one of the more unpleasant revelations about the foreclosure crisis that occurred subsequent to the collapse of the housing bubble. “Robo-signing” involved large quantities of foreclosure affidavits being processed by bank employees who in many cases signed off on documents about whose contents they knew little or nothing.