On February 9, 2012, the federal government announced that it reached a settlement agreement with the five largest mortgage lenders in the country regarding the so-called "robo-signing" scandal of 2010. Authorities across the country alleged improprieties in foreclosure proceedings, such as inadequately documenting debt ownership, mass signing of foreclosure documents without sufficient review and other corner-cutting activities that caused some homeowners to lose their homes when they should not have. The settlement is supposed to rectify the damage these abuses did to homeowners, and Connecticut will see a significant portion of the settlement money.
After extensive negotiations, Ally Financial, Bank of America, Citibank, JPMorgan Chase and Wells Fargo reached a $25 billion agreement with the state and federal governments. The banks will pay $5 billion in cash to various state governments to help fund consumer protection agencies and state-level foreclosure prevention programs.
The lenders also agreed to reduce the mortgage principal amounts for homeowners with "underwater" mortgages by $17 billion over the next three years. The banks will also dedicate an additional $3 billion for refinancing so qualified homeowners can take advantage of the current low interest rates. Finally, the banks will pay $1.5 billion to homeowners upon whom the lenders improperly foreclosed.
The settlement agreement also included reform of mortgage servicing standards. The standards require lenders to have adequate staffing and training, establish a single point of contact for borrowers, follow standards for foreclosure documents and eliminate improper fees. State attorneys general will now also have oversight of national banks for the first time, as the settlement included provisions requiring lenders to prove compliance to an independent monitoring agency that reports to state attorneys general.
Connecticut will see about $147 million of the settlement money, with homeowners receiving about $120 million for the losses they suffered from the lenders' foreclosure improprieties. About 7,500 Connecticut homeowners are eligible for payments, and experts estimate they each will receive about $1,500. The state government will get the remaining $27 million to help fund foreclosure prevention and counseling programs.
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Critics of the settlement note that the $17 billion principal reduction addresses only about 2.4 percent of the negative equity in the U.S. housing market. According to Capital Economics in London, approximately 11 million homeowners in the U.S. are underwater in their mortgages for a total of about $700 billion. The settlement cannot help all struggling homeowners. If you are facing foreclosure, talk to an experienced Connecticut foreclosure prevention lawyer who can discuss your options with you.