Starting Friday, cash payments ranging from $300 to $125,000 will be sent to 4.2 million borrowers as part of a $3.6 billion settlement over foreclosure abuses reached between the government and 13 mortgage servicers, according to the Office of the Comptroller of the Currency and the Federal Reserve.
Borrowers will receive payments based on the level of damage caused. The largest checks, for $125,000, will go to 1,082 military service members whose homes were repossessed while they were on active duty, a violation of the Servicemembers Civil Relief Act, and to 53 borrowers who were current on their payments but were foreclosed on anyway.
Most borrowers, however, suffered other types of financial damage. In some cases, servicers charged them unfair fees or failed to modify their mortgage to more affordable terms.
The servicers participating in the agreement include Aurora, Bank of America, Chase, Citibank, Goldman Sachs, HSBC, MetLife Bank, Morgan Stanley, PNC Mortgage, Sovereign Bank, SunTrust, U.S. Bank and Wells Fargo. Payments from all of the servicers except Goldman Sachs and Morgan Stanley will go out starting this week and be completed by July. Details on when Goldman and Morgan Stanley will start issuing checks will be announced later.
When the deal was first announced in April 2011, the servicers had agreed to hire independent consultants to conduct foreclosure reviews for each borrower that might have been impacted by the robo-signing scandal. The independent reviews, however, proved too costly, said Bryan Hubbard, a spokesman for the OCC.
"They tried to do it case-by-case but that was slow and very expensive," said Hubbard.
In addition, only a fraction of borrowers stepped forward to apply for a review. Out of the nearly 4 million borrowers who will be receiving payments in the upcoming weeks, only about 439,000 had asked for a review.
To expedite the process, a revised settlement was reached in January that was open to all borrowers in default in 2009 and 2010, even those who ended up suffering no harm at all, according to Hubbard.
Borrowers who requested independent foreclosure reviews will get double the compensation in many cases. For example, a borrower who sought out a review of a mortgage modification request that was denied in 2009 or 2010 will get $6,000 back from their servicer, while someone who didn't ask for a review but received a similar denial will get $3,000.
A borrower who was supposed to be protected by bankruptcy laws but lost their home anyway, will receive $62,500 if they had requested a review and half that amount if they did not.
Compensation of $50,000 will go to former homeowners whose servicers failed to permanently modify their mortgages even though they had successfully completed a trial modification and then later asked for a foreclosure review.
Borrowers who accept a settlement check will not forfeit their right to pursue other legal claims against their servicer. They will not have to sign any waivers against further action.