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Monday, February 4, 2013

Oversight and Legal Enforcement of the National Mortgage Settlement

David H. Carpenter
Legislative Attorney

In Autumn 2010, all 50 state attorneys general, the attorney general for the District of Columbia, the Conference of State Bank Supervisors, the U.S. Department of Justice (DOJ), the U.S. Department of Housing and Urban Development (HUD), and the U.S. Department of the Treasury (Treasury Department) initiated an investigation into foreclosure-related state and federal law violations by the nation’s top five mortgage servicers: Ally Financial, Inc. (formerly GMAC, Inc.); Bank of America, Corp.; Citigroup, Inc.; JP Morgan Chase & Co.; and Wells Fargo & Co. On February 8, 2012, these state and federal officials, with the exception of Oklahoma’s attorney general, announced a “National Mortgage Settlement” of certain legal claims with these five institutions. The settlement is to result in the servicers providing about $25 billion of relief, primarily to homeowners and individuals who recently lost their homes through foreclosure. In financial terms, it constitutes the second largest legal settlement ever reached by the attorneys general, behind only the 1998 settlement with tobacco companies.

The agreements stipulate that, in exchange for a release of liability for legal claims that otherwise could have been raised against the servicers by the participating regulators, these five mortgage companies will provide five distinct forms of relief. Under the agreements, the mortgage companies shall

  • comply with specified servicing standards going forward; 
  • provide various forms of mortgage-related consumer relief to current borrowers whose mortgages are owned and serviced by the five servicers (“Consumer Relief” component); 
  • provide relief to servicemembers who may have been harmed by violations of the Servicemembers Civil Relief Act (SCRA) and to improve the servicing of soldiers’ mortgages to prevent future SCRA violations (“SCRA” component); 
  • provide compensation to certain individuals whose homes were previously foreclosed by the five servicers (“Borrower Payment” component); and 
  • make direct payments to federal and state governments to cover the resolution of legal claims (“Direct Settlement Payment” component). 

With the exception of the Direct Settlement Payment component, the agreements also provide explicit mechanisms by which compliance of each distinct relief component will be overseen and enforced. The agreements establish an independent monitor with the primary authority to conduct oversight of the servicers’ compliance with Consumer Relief and Servicing Standards of the settlement, while the enforcement powers primarily are provided to a Monitoring Committee that is composed of representatives of the state and federal regulators that are parties to the agreements. Primary oversight and enforcement of the SCRA terms reside with the DOJ. A Special Administrator is charged with identifying individuals who qualify for monetary relief under the Borrower Payment terms and with distributing those funds, while the state members of the Monitoring Committee have the authority to oversee the Special Administrator’s operations.

Individual homeowners are not parties to the agreements, and the terms of the agreements do not provide individual borrowers a private right of action to enforce the agreements. Similarly, the settlement agreements do not, in any way, limit any enforcement power held by state or federal regulators that are not parties to the agreements, including the authorities of the federal banking regulators.

Date of Report: January 9, 2013
Number of Pages: 18
Order Number: R42919
Price: $29.95

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