Secretary Donovan spoke of the important role that General Madigan and her staff played in the extensive negotiations, while General Madigan noted that the negotiations could not have come to fruition without the help of the HUD Secretary. Both thanked the Illinois groups who have been working hard on these issues and they emphasized that the settlement is just the beginning of years of work that will be required to fully implement all terms of the settlement.
Although many terms of the settlement were disclosed in February, the long-awaited filing of the settlement did not occur until March 12, 2012. The settlement documents filed in the federal court provide additional details regarding the relief that will be available to homeowners and to state and federal agencies and regarding enforcement of the terms of the settlement.
As previously reported, the settlement requires Ally, Bank of America, JPMorgan Chase, Citi, and Wells Fargo to provide significant relief to borrowers in all states except Oklahoma, which did not sign the settlement, including principal reduction and refinancing for certain underwater homeowners and other relief such as forbearance for unemployed borrowers, anti-blight programs, short sales and transitional assistance, and benefits for service members. The servicers will receive monetary incentives and cash penalties to encourage provision of relief quickly and will receive partial to full credit for dollars spent on required activities. Servicers also agreed to extensive new mortgage servicing standards.
Not every bank settlement is identical. For example, Bank of America agreed to do more extensive principal reductions than the other banks agreed to. The central website includes details regarding each bank’s settlement agreement and contact information, plus: (A) the new servicing standards, (B) the distribution of the settlement funds; (C&D) borrower payment amounts and consumer relief requirements; and, (E) enforcement terms.
The terms of the settlement require banks to complete activities within three years. Joseph Smith, the former banking commissioner for North Carolina, is the independent monitor charged with implementing the settlement and filing quarterly progress reports with the court. The court retains jurisdiction to enforce the terms of the settlement for three and a half years.
The participating 49 states will receive varying amounts based on need and will use the funds for various purposes. Illinois, for example, will receive $105,806,405 in settlement funds. General Madigan has sole discretion to allocate the Illinois funds and has pledged to use them primarily for programs to avoid foreclosure, ameliorate the effects of the foreclosure crisis, and support law enforcement efforts to prosecute financial fraud and unfair, deceptive or abusive financial practices. Unfortunately, some states have opted to use the settlement funds for purposes unrelated to the foreclosure crisis. Woodstock Institute encourages advocates in other states to urge policymakers to use the settlement funds for their intended purposes.
While our state and federal leaders and local advocates work to implement the national mortgage servicer settlement, significant work also remains to be done outside of the settlement process, including prosecuting bad actors that were involved in or allowed the abusive practices, and obtaining principal reduction for homeowners with Fannie Mae or Freddie Mac-backed mortgages. I look forward to working with you to help our neighbors, strengthen our neighborhoods, and clean up our financial system.