$25B Mortgage Foreclosure Settlement: Lawyers Weigh In

We’re beginning to see insightful legal commentary on the $25 billion foreclosure fraud settlement formally filed on March 12, 2012 between the federal government, 49 state attorneys and the five largest mortgage servicers: Bank of America, JP Morgan Chase, Wells Fargo, Citigroup, and Ally Financial.

[Update, March 19, 2012: see below for a video interview with Neil Barofsky, former Inspector General in the US Treasury Department, who calls the settlement “hype” and says it won’t help as many people as suggested…]

Of particular note is K&L Gates’ Global Foreclosure Settlement: The Success of Herding Cats, an in-depth analysis of the settlement, how it will assist financially distressed homeowners, the mortgage-servicing standards it imposes on the banks, and other relevant details of the agreement:

“In exchange for a release against certain federal and state civil and administrative claims, the servicers generally agree to pay billions of dollars in consideration, to be paid through a combination of cash and in-kind contributions for consumer relief, including in the form of permanent principal forgiveness on delinquent loans and refinancings of current borrowers on ‘underwater loans’ (for which borrowers owe more than the current value of the property). The Settlement Agreement also includes an agreement of the five servicers to adopt comprehensive servicing standards for residential mortgage loans. There are enforcement mechanisms, including the appointment of a monitor, to ensure servicer performance.” (Global Foreclosure Settlement: The Success of Herding Cats by K&L Gates LLP)

For your reference, here is a brief roundup of legal advisories on the foreclosure fraud settlement. We will continue to post additional commentary as it comes in:

Barofsky: Don’t Believe Hype About $25B Mortgage Settlement (Bloomberg Law)

“…joined by Matthew Stoller, a fellow at the Roosevelt Insitute, who says the government and banks delayed filing details of the settlement to give investors less time to challenge the deal in court.”

WashPost Columnist: Mortgage Settlement Makes “Fraud a Business Expense” (Bloomberg Law)

“Barry Ritholtz, CEO for Fusion IQ and founder of The Big Picture blog, talks about the recently announced settlement between 49 state attorneys general and a number of banks regarding improper foreclosure practices. Ritholtz contends that this settlement represents a choice by the Department of Justice to ignore long-settled property laws.”

Federal and State Officials Announce Mortgage Servicing Settlement (BuckleySandler LLP)

“The settlement’s terms require a commitment of approximately $20 billion in financial relief for homeowners. In addition, the servicers will pay $5 billion in cash to the state and federal governments, including $1.5 billion to establish a Borrower Payment Fund that will provide payments to qualifying borrowers whose homes were sold or foreclosed on between January 1, 2008 and December 31, 2011. The $25 billion agreement includes more than $766.5 million in monetary sanctions assessed by the Federal Reserve Board.” Read the full update»

Federal and State Officials File Settlement with Nation’s Five Largest Mortgage Servicers (BuckleySandler LLP)

“Under the Settlement, the Servicers must adopt policies and processes to oversee and manage third-party vendors (Third-Party Providers), such as law firms, foreclosure trustees, subservicers, and other independent contractors. These policies and processes must, among other things, include procedures for reviewing and addressing customer complaints lodged against Third-Party Providers.” Read the full update»

$25 Billion Foreclosure Settlement Announced with the Nation’s Five Largest Mortgage Services Providers (Francis Riley)

“Once finalized, the implementation of this settlement agreement will be overseen by an independent monitor, who will publish regular reports and who may impose penalties of up to $1 million per violation. The purported settlement agreement does not preclude state and federal authorities from pursuing criminal enforcement actions related to this and other conduct by the servicers and does not prevent individual borrowers from bringing their own lawsuits against these mortgage servicers.” Read the full update»

Does the Robo-Signing Settlement Go Far Enough? (Lawyers.com)

“… consumer advocates and attorneys argue that the settlement agreement is not proportional to the amount of damage the banks have caused homeowners. ‘Some say, “Look how far we are going. At least we are doing something that would benefit those who were impacted by the banks’ actions,”’ says Graig Zappia, a real estate lawyer at Tully Rinckey. ‘Others say the settlement is basically letting the banks off the hook.’” Read the full update»


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