The Federal Government and 49 state attorneys general reached a landmark settlement with the nation’s five largest mortgage servicers that will provide $20 billion to help struggling homeowners.
The full $25 billion settlement, the largest ever of its kind, is the result of a joint effort between federal law enforcement and the states to investigate the abusive and irresponsible mortgage industry practices that led to the collapse of the housing market and cost more than 4 million American families their homes due to foreclosure.
These millions of families millions of Americans did the right thing and the responsible thing -- shopped for a house, secured a mortgage that they could afford, made their payments on time – lost their homes and their nest eggs due to the irresponsible actions of others: by lenders who sold loans to people who couldn’t afford them; by speculators who were looking to make a quick buck; by banks that took risky mortgages, packaged them up, and traded them off for large profits; by companies that used fake signatures and shortcuts to process foreclosures more quickly, sometimes on houses that hadn’t been verified as legitimate foreclosure cases to begin with.
These practices were plainly irresponsible, and President Obama refused to let them go unanswered. Under the terms of this settlement, America’s biggest banks -- banks that were rescued by taxpayer dollars -- will be required to right these wrongs. That means more than just paying a fee.
Of the $20 billion these banks will put toward relief for families across the nation:
- About $10 billion will be used to reduce principal for borrowers who owe more on their mortgages than their homes are worth, making it easier for them to avoid foreclosure.
- Another $3 billion will fund a refinancing program for underwater homeowners who are stuck in high interest rate mortgages.
- Up to $7 billion will go to other types of relief, like helping unemployed borrowers put their mortgages in forbearance, funding improvement projects for neighborhoods full of vacant houses, and provide benefits for service members who were forced to sell their homes at a loss when they were required to change bases.
In addition, another $5 billion will go to state and federal governments to provide cash payments to borrowers whose homes were sold or taken in foreclosure, and fund housing counselors, legal aid, and other programs at thediscretion of state attorneys general.
This settlement comes on the heels of President Obama’s plan to help responsible homeowners and our housing market, which he laid out last week. Learn more about the proposals in the plan here.