The largest US banks are close to a $10bn settlement with regulators to resolve claims
JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and others are expected to sign
The deal replaces an earlier 2011 settlement for foreclosure rule-breaking
The largest US banks are close to a $10bn settlement with regulators to resolve claims that they broke rules when seizing the homes of customers who defaulted on their mortgages.
People involved in the talks said on Sunday evening that agreement was close on the size and scope of the settlement, which could be announced on Monday.
JPMorgan Chase, Bank of America, Citigroup, Wells Fargo and 10 other mortgage servicers are expected to sign up to the agreement, which will see them pay about $3.5bn in cash to homeowners who were evicted from their properties and separately reduce the loan balances on homeowners who are currently struggling with their mortgage payments.
The deal replaces an earlier 2011 settlement for foreclosure rule-breaking, which saw the 14 banks agree to review loan files to check whether any customer lost their home unfairly as a result of shortcuts and other wrongdoing in banks’ processes.
In 2011, regulators including the Federal Reserve and Office of the Comptroller of the Currency found “critical weaknesses” in the procedures of the 14 mortgage servicers – including so-called “robosigning” of legal documents – leading to “unsafe and unsound practices and violations of applicable federal and state law and requirements”.
They instructed the banks to set up independent reviews of loan documents. Although the reviews have not found evidence of widespread harm to homeowners as a result of banks’ practices, they are costly to carry out and banks and their regulators decided too much money is ending up with consultants without any benefit to customers.
Both sides have wrangled over the “hard dollar” and “soft dollar” split of the $10bn total before closing in on a deal limiting the hard, cash payment to less than $4bn, with about $6.5bn on the soft, mortgage modification element.
A late stumbling block emerged when Fed officials argued for a bigger amount, according to people familiar with the talks.
Members of Congress have signalled they will scrutinise any deal. On Friday Darrell Issa, the Republican chairman of the House oversight committee, and Elijah Cummings, the panel’s senior Democrat, wrote to Ben Bernanke, Fed chairman, and Tom Curry, head of the OCC, to ask for a briefing on the settlement.
“We would like more information about how the potential settlement amount is to be determined in light of potential wrongdoing identified to date, how such aid may be distributed and in what form, and what may happen to homeowner files that are still awaiting review,” they wrote.