Homeowners whose properties were wrongly foreclosed as well as
the entire housing sector can now breathe a sigh of relief. The
Office of the Comptroller of the Currency (OCC) and other banking
regulators have announced a foreclosure settlement deal with 10
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The banks -
), MetLife Bank, a unit of
Bank of America Corporation
JPMorgan Chase & Co.
Wells Fargo & Company
PNC Financial Services Group Inc.
SunTrust Banks, Inc.
), Aurora Loan Services and Sovereign Bank, unit of
Banco Santander, S.A.
) - have agreed to pay in aggregate $8.5 billion in settlement.
Yet, four banks -
HSBC Holdings plc
), Ally Financial,
EverBank Financial Corp.
) and OneWest Bank - are still in discussions with the
Out of the total, $3.3 billion will be utilized for direct
payments to eligible borrowers, while $5.2 billion will be used
for providing relief to troubled homeowners through principal
reductions and loan modifications. The deal will enable more than
3.8 billion homeowners, whose property was wrongly foreclosed in
2009-2010 by the abovementioned mortgage servicers to get cash
compensation, ranging from a few hundred dollars to maximum of
As a part of the deal, borrowers are expected to be contacted by
the end of March with details related to their payments. Further,
the regulators will form 11 categories of aggrieved borrowers and
the banks will categorize borrowers for payments.
Additionally, under the terms of the deal, the process initiated
by the OCC in 2011 - to review all the borrowers' files that were
wrongly foreclosed in 2009-2010 - would end. Under that proposal,
the banks were required to hire independent consultants to go
through the loan files and look for any faulty foreclosure
However, this was turning out to be costly and time-consuming
affair for the banks - having already spent nearly $1.5 billion
on the consultants hired. Therefore, they opted for a one-time
Yet, banks would have to take one-time charges related to the
settlement. Wells Fargo anticipates a pre-tax charge of about
$644 million in the fourth quarter of 2012 related to the deal,
whereas Citigroup expects to record a pre-tax charge of $305
Further, BofA anticipates its fourth-quarter results to be
adversely impacted by about $2.5 billion of pre-tax charge for
the settlement deal, litigation (primarily mortgage-related) and
other mortgage-related matters. For USB, the deal is anticipated
to lower its fourth-quarter earnings per share by 3 cents for the
cash part of the deal.
Though the settlement is expected to marginally dent the
companies' fourth-quarter results, in the long run it will be a
relief for the banks. Further, the distressed homeowners would
also be benefited. We are hopeful that like the earlier
foreclosure settlement deal, this one would also be a decisive
step in restoring confidence in businesses and rejuvenating the
sagging housing market.