POSTED: Monday, January 7, 2013 - 1:45pm
UPDATED: Monday, January 7, 2013 - 1:49pm
NEW YORK, NY (CNNMONEY) — Federal regulators announced an $8.5 billion settlement on Monday involving 10 banks over alleged foreclosure abuses.
The deal -- termed an "agreement in principle" -- was brokered by the Federal Reserve and the Office of the Comptroller of the Currency. It includes $3.3 billion in direct payments to borrowers as well as $5.2 billion in other assistance, like loan modifications and forgiveness of deficiency judgments.
The firms involved in Monday's agreement are Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
The deal covers borrowers whose homes were in foreclosure in 2009 and 2010, and is distinct from the $26 billion foreclosure settlement announced last year. That settlement was negotiated by state attorneys general, not federal banking regulators, and involved only five major banks: Wells Fargo, Citigroup, Bank of America, JPMorgan and Ally Financial, formerly GMAC.
The settlement announced Monday arose from an enforcement action by the Federal Reserve and Office of the Comptroller of the Currency against 14 banks in 2011. That action required the banks to hire independent consultants to investigate alleged foreclosure abuses and compensate victims.
But this process, known as the Independent Foreclosure Review, has been slow going.
Federal officials extended the deadline for borrowers to apply to have their cases reviewed last year, but as of December 13, just 356,000 of the estimated 4.4 million eligible had done so, according to the OCC.
Reviews at the 10 banks involved in Monday's deal will now conclude as a result of the settlement. Regulators said the process will be replaced "with a broader framework allowing eligible borrowers to receive compensation significantly more quickly."
"When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury," Thomas Curry, the comptroller of the currency, said in a statement. "While today's announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner."
As for the four other banks ordered to take part in the Independent Foreclosure Review that weren't party to Monday's settlement, regulators said they are working "to reach similar agreements in principle." Those servicers are Ally, OneWest, EverBank and HSBC.