A Message from the Attorney General
I made the decision for Kentucky to participate in the $25 billion settlement with five of the nation's largest banks because it provides significant relief for consumers while preserving the rights of states to pursue criminal and civil actions against the banks.
I was one of a handful of Attorneys General who refused to sign a settlement unless those provisions were included. Our efforts made a difference, and I will use a significant portion of the money that Kentucky receives from the banks to continue going after them on behalf of Kentucky homeowners. In fact, I recently subpoenaed MERS (Mortgage Electronic Registration System Inc.), which I believe may have circumvented Kentucky law by failing to properly record mortgage assignments and pay filing fees with county clerks throughout the Commonwealth.
Of the $25 billion settlement, Kentucky will receive $58.75 million;
- $12 million available in direct relief to homeowners, which includes loan-term modifications and principal write-downs.
- $10.8 million in direct payments from the banks to consumers who were foreclosed upon using "robo-signed" documents from January 1, 2008 through December 31, 2011. Each borrower would be eligible for up to a $2,000 direct payment from the banks. The amount of the payment will depend upon how many borrowers participate. "Robo-signing" is a practice where banks did not properly review and prepare foreclosure paperwork and applied automatic or electronic signatures to court documents. Borrowers will not have to release any legal claims they may have in order to participate.
- $15.9 million in refinancing for borrowers who are current on their mortgage payments, but hold mortgages that exceed the value of their homes.
- $20.1 million in a direct payment to the Commonwealth of Kentucky for consumer protection programs.
The five banks included in the settlement are: Bank of America, JP Morgan Chase, Wells Fargo, Citi, and Ally/GMAC. In order for consumers to receive direct assistance from this settlement, they must have a mortgage that is or was held by one of these banks.
A website has been established to provide consumers with information about the settlement at NationalMortgageSettlement.com. Banks will also be directly contacting consumers who qualify for payments or assistance. If consumers have questions, they may call.
- Bank of America — 877-488-7814
- JP Morgan Chase — 866-372-6901
- Wells Fargo — 800-288-3212
- Citi — 866-272-4749
- Ally/GMAC — 800-766-4622
The Office of the Attorney General has set up this web page with information and answers to frequently asked questions about the settlement.
This is a first step in holding banks accountable for the mortgage foreclosure crisis that's affected every community in our country and our Commonwealth. I am committed to utilizing these resources to assist consumers and continue investigating banks' involvement in MERS and their bundling of mortgage-backed securities that have cost institutional investors billions of dollars.
Frequently Asked Questions
What is this settlement about?
This settlement is about the practices of five of the nation's largest mortgage loan servicers. Typically, these are the lenders borrowers pay their monthly mortgage payments to. This settlement is designed to correct practices which violate Kentucky law and provide some remedies for those harmed due to unfair practices in the foreclosure process.
What benefits does this settlement provide?
This is a nationwide settlement which provides for $25 billion dollars in monetary benefits, making it one of the largest reached by state Attorneys General in history. It reforms the mortgage servicing process by requiring proper preparation and submission of affidavits and other documents used in the foreclosure process; provides for effective loan modifications and loan refinance; payments to borrowers foreclosed upon between January 1, 2008 and December 31, 2011; creates a single point of contact at each covered servicer; and enhances overall customer service for those struggling with mortgage loan issues.
How do I know if I am eligible for assistance under this settlement?
This settlement is a complex legal settlement which contains several component parts and potentially affects millions of Americans. The terms of the settlement will take three and a half years to complete. First, banks working with our settlement administrator must undertake the task of record searches to identify eligible borrowers. In some cases, this may take up to nine months. Second, borrowers deemed potentially eligible for loan modifications and/or refinance options under the settlement may be contacted directly by one of the five mortgage servicers. Third, for those eligible borrowers who were foreclosed between January 1, 2008 and December 31, 2011, a settlement administrator retained by the attorneys general will send claim forms and instructions.
What if I am not contacted but believe I am eligible?
If your loan is serviced by one of the five settling banks, you should contact them directly to determine if you are eligible. Be patient, it may take some time–between six and nine months before you are contacted. You can contact the five covered lenders at the following telephone numbers:
Does this settlement cover all mortgage loans and the lenders that service loans?
No. First, loans owned by Government Sponsored Entities (GSE) which include Fannie Mae and Freddie Mac loans are not covered. Secondly, the five lenders covered by this settlement handle about 60% of the servicing marketplace. Attorneys General will continue work with other servicers in the marketplace to have them implement measures to correct deficits found in their servicing practices.
If I accept a cash payment do I give up my legal right to sue?
No. Acceptance of a cash payment does not require you to release the bank from any other claims. However, any monetary relief you might receive in the future would be reduced by the amount you are awarded under this settlement.
Is the Attorney General giving up the option to investigate and seek legal remedies regarding other banking practices?
No. The Attorney General is only releasing these five banks from potential civil liability which is explicitly covered by the terms of this settlement. There is no release from or immunity from criminal prosecution. Nor is the Attorney General precluded from investigating and prosecuting conduct that is not covered by this settlement covering servicing and foreclosure practices.
Where can I get more detailed information?
This Q and A provides more detailed information below. After reviewing this document, you may get more details as the programs are being developed. Check this website on a regular basis. You can also find more information on this settlement by visiting NationalMortgageSettlement.com
To determine if your loan is owned by Fannie Mae or Freddie Mac contact:
What is a mortgage servicer and how do I know who services my loan?
A mortgage servicer administers mortgage loans, including collecting and recording payments from borrowers. A servicer also handles loan defaults and foreclosures, and may offer loss mitigation programs to assist delinquent borrowers.
The company that you make your monthly payment to is your mortgage servicer. Your mortgage servicer may or may not be a lending institution and may or may not own your loan. Many of the loans administered by servicers are owned by third-party investors.
This settlement involves the nation's five largest mortgage servicers, including Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo. Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac:
How does this settlement hold the banks accountable?
This is a settlement that primarily addresses the banks' servicing of loans, including their handling of foreclosures. One of the primary areas of attention was the practice known as "robo-signing" where the banks submitted foreclosure documents that were not properly reviewed or notarized. This settlement holds the banks accountable for their servicing violations through substantial financial penalties and extensive consumer relief.
This is the second largest civil settlement ever obtained by the state attorneys general. It's second only to the tobacco settlement that has spread payments to the states over 25 years. The settlement will cost the nation's five largest mortgage servicers, which control about 60 percent of the mortgage servicing market, an estimated $25 billion to $32 billion.
The settlement will require the banks to accomplish a massive undertaking – changing their broken system of servicing loans into one that is functional. The banks will reduce the principal on many of their loans – something that they have resisted for years – to allow homeowners to keep their homes. They will also refinance loans for "underwater" borrowers who have been unable to refinance due to negative equity. They will pay billions of dollars to the states, and, most importantly, commit billions more to consumers.
The banks will be subject to a federal court order enforceable by a federal judge. In addition, a special independent monitor will have the authority to oversee the banks and require their compliance. Federal agencies and state attorneys general can enforce compliance if there are violations.
The agreement holds the banks accountable for their wrongdoing on robo-signing and mortgage servicing. This settlement does not seek to hold them responsible for all their wrongs over the past five years.
The agreement and its release preserve legal options for others to pursue. Governmental entities and private parties are aggressively pursuing securities cases against the banks. A joint federal-state task force has been formed to investigate and prosecute those responsible for the collapse of the mortgage lending and investment markets.
Did you conduct an investigation?
Yes. The robo-signing investigation began in October of 2010, as an investigation into the alleged false affidavits submitted in foreclosure proceedings. Its scope soon broadened to encompass a long list of mortgage servicing issues, such as lost paperwork, and long delays and missed deadlines for loan modifications. Long before they announced their investigation, attorneys general and state banking regulators across the country fielded thousands of mortgage servicing complaints. Many states including Kentucky took part in mortgage-related working groups, launched foreclosure prevention efforts, and took action against subprime and predatory lenders. Attorneys general have probably had more front-line experience with mortgage servicing than any other governmental entity.
After the states began their investigation in this case, they partnered with the U.S. Justice Department, the Treasury Department, and the Department of Housing and Urban Development. Federal agencies provided the joint state-federal legal team with strong and detailed evidence concerning robo-signing and other servicing abuses. The state attorneys general also partnered with state banking commissioners who conducted thorough examinations of mortgage servicers under their jurisdiction. The level of cooperation among the states and between the states and federal government was unprecedented, and gave the joint state-federal negotiating team substantial leverage in this extraordinary settlement.
Will this settlement fix the entire mortgage industry breakdown?
No. This is a mortgage servicing settlement that addresses only a portion of the mortgage lending system. However, the settlement's tough, new mortgage servicing standards will have a widespread impact on future mortgage loan servicing.
States and federal agencies that sign onto the agreement are not restricted from investigating and pursuing many other mortgage-related issues, including securities-related cases, criminal cases, and other matters connected to the mortgage crisis.
On January 27, 2012, U.S. Attorney General Eric Holder along with Housing and Urban Development (HUD) Secretary Shaun Donovan, Securities and Exchange Commission (SEC) Director of Enforcement Robert Khuzami and New York Attorney General Eric Schneiderman announced the formation of the Residential Mortgage-Backed Securities Working Group. The working group will investigate those responsible for misconduct contributing to the financial crisis through the pooling and sale of residential mortgage-backed securities.
Why don't you sue the banks and try to get even more money?
Litigation takes time, it carries substantial risks, and it expends significant resources. While legal cases drag on, homeowners in desperate need of relief are left to watch and wait for an uncertain outcome.
Millions more homeowners would likely lose their homes long before the court battles ended. The outcomes of litigation, win or lose, are anything but certain. Even if the cases were successful, it is unlikely that the recovery would exceed $25 billion and produce the major servicing reforms obtained in this settlement.
And a money judgment could not realistically include principal reduction requirements, refinancing for underwater borrowers, and many of the other significant components of this agreement that will directly benefit affected consumers.
A majority of mortgages are unaffected by this settlement.
When will you work to obtain relief for other homeowners?
This settlement primarily affects mortgages that are owned and held by the nation's largest bank servicers. Those homeowners may receive benefits such as modifications, principal reductions or direct payments from lenders.
Two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, control a majority of the nation's mortgage loans. GSE loans are not eligible for parts of this settlement because of positions their regulator, FHFA, has taken.
However, homeowners with GSE-controlled mortgages who won't directly benefit from settlement-related programs – that's most of us – will still see benefits through dropping foreclosures, stabilizing home values and significant new mortgage servicing standards and consumer protections.
This settlement, in addition to recent federal efforts to modify Freddie and Fannie loans, means that the majority of distressed borrowers might qualify for some level of help.
Will there be payments to foreclosure victims?
Yes. Approximately $1.5 billion of the settlement funds will be allocated as compensation to borrowers who were foreclosed on after January 1, 2008. These borrowers will be notified of their right to file a claim. Borrowers who were not properly offered loss mitigation or who were otherwise improperly foreclosed on will be eligible for a uniform payment, which will be approximately $2000 per borrower depending on level of response. Borrowers who receive payments will not have to release any claims and will be free to seek additional relief in the courts. Borrowers may also be eligible for a separate restitution process administered by the federal banking regulators which may permit the borrower to recover additional money.
Is there a review process for people who think they were wrongfully foreclosed?
Yes. The Board of Governors of the Federal Reserve and the Office of the Comptroller of the Currency have independently required each of the five servicers covered by this settlement to be subject to Independent Foreclosure Reviews conducted by an independent consultant to identify borrowers who were harmed financially due to errors, misrepresentations or other problems during the foreclosure process. This independent review is free. Borrowers eligible for this independent review were sent a letter by December 31, 2011 along with a Request form which must be completed and returned by April 30, 2012.
To qualify for an Independent Foreclosure Review:
- Your mortgage loan was serviced by one of the participating mortgage servicers.
- Your mortgage loan was active in the foreclosure process between January 1, 2009 and December 31, 2010.
- The property was your primary residence
You can call 1-888-952-9105 if you have questions about this review process, need a form by mail, or need help completing the form sent to you. There is also information available at IndependentForeclosureReview.com.
What about those of us who keep making our mortgage payments?
Borrowers who are current in their payments but are "underwater" on their mortgages may qualify for refinancing relief under the settlement.
Beyond that, the mortgage servicers involved in this settlement broke the law, the conduct harmed borrowers, and this settlement addresses that conduct. If the mortgage servicers followed the law, many foreclosures likely could have been prevented. Foreclosure has a profound impact beyond the borrower and the creditor. A foreclosure affects homeowners, families, neighborhoods, communities, the housing market and our overall economy.
When a house is subject to foreclosure, it creates a ripple effect that lowers the value of nearby single-family homes and other properties. In 2009, the Center for Responsible Lending projected that homeowners living near foreclosed properties, on average, would lose $7,200 in property value, and projected a four-year increase in losses to $20,300 per household.
Foreclosures contribute to unstable family and social environments. They increase stress on homeowners, their families and their neighbors. These deteriorating, neglected properties and neighboring property value losses create neighborhood blight, cut a community's tax base, and can contribute to crime. Displaced homeowners put other stresses on communities, including the need for shelter and social services.
Foreclosures affect everyone and affect our economy – even those who play by the rules and pay their monthly mortgage on time.
Why force banks to forgive large portions of peoples' loans?
The states and federal agencies established that the servicers have done wrong – through improper lending practices, improper foreclosures, etc. – and in response the banks have agreed to a settlement that helps many homeowners who have been hurt by misconduct in the marketplace.
Some banks have already acknowledged that principal reduction can be effective tool in stabilizing the housing market and have already been forgiving portions of some loans. The idea is to keep people in their homes. The banks lose, on average, about $60,000 on each foreclosure. It is a win-win proposition for the banks to give up some principal – instead of that $60,000 cost of each foreclosure – and allow people to remain in their homes. As a matter of pure economics, principal reduction is often better for the bank than the massive losses associated with foreclosure.
The huge number of foreclosures impacts all of us: our nest eggs erode, we may no longer borrow against our homes, and we can't sell them when we need to. Principal reduction is one of the tools we've negotiated to help keep more people in their homes and help stabilize the housing market — which helps all of us. It's true that principal forgiveness at this level is extraordinary. But so is the mortgage crisis, which affects families, our neighborhoods and our economy. Big problems require big solutions.
Will investors in mortgage-backed securities ultimately pay for part of this settlement?
Participating banks own the vast majority of the mortgage loans that this settlement is expected to affect. The settlement could affect some investor-owned loans, depending on existing agreements servicers have with those investors.
When banks weigh which mortgage loans to modify as part of this settlement, they will do so based on first analyzing the costs and the benefits of minimizing their losses. If a loan modification, including principal reduction, is projected to cost the creditor or investor less than foreclosure, the creditor will earn more on that loan.
In other words, this settlement will not force investors to incur losses. That's because any loan modification tied to this settlement will result in more of a financial return for an investor than a foreclosure would.
Will taxpayers ultimately pay for this settlement?
No, the settlement is not funded by taxpayers.
Why are you releasing the banks from some claims?
The release of certain claims relinquishes particular state and federal claims on issues addressed by the settlement. The release is narrow and is limited to mortgage servicing and origination claims. States that sign on may still pursue other claims against the banks, such as securities and securitization claims. States could also sue financial institutions that are not part of the settlement.
States that opt not to sign the agreement are free to pursue their own legal actions. However, those states would give up all the funds designated specifically for their state and its citizens who were foreclosure victims. Homeowners of those states would also only qualify for a significantly reduced amount of loan modification and other benefits being distributed as part of the settlement's national programs.
The agreement does not affect any individual's rights. A consumer may still bring an individual action, be a part of a class action, or seek further review/relief from the Office of the Comptroller of the Currency (OCC).
Does this immunize banks from prosecution?
No. There's no criminal immunity whatsoever. State attorneys general are using their civil law enforcement authority to fight for homeowners. They are not immunizing any individuals or institutions from prosecution. Criminal prosecutions are an entirely separate matter from a civil legal matter. This is a civil, not a criminal, settlement, and this settlement does not prevent state or federal prosecutions.
How will this settlement protect consumers in the future?
The banks have agreed to major reforms in how they service mortgage loans. These new servicing standards require lenders and servicers to adhere to a long list of rights for those facing foreclosure. For example, borrowers will have the right to see all of their loan documents to make sure any potential foreclosure is legal; they will be given every opportunity to first modify their loan before facing foreclosure; lenders and servicers will be required to have an appropriate number of well-trained staff members to promptly respond to the needs of distressed borrowers; and finally, borrowers will have the right to deal with a reliable, single point of contact so they have consistent access to a person from whom to obtain information throughout the process. This is very important because, throughout the foreclosure crisis, borrowers have lodged widespread complaints about their frustrations in trying to work with their lenders. They've complained about unresponsive employees, lost documents, and conflicting information.
Why doesn't this settlement deal with the banks' conduct in securitizing loans?
This case began with robo-signing and was later expanded to foreclosure conduct and other mortgage servicing abuses. These are major, complex issues in themselves. What the state attorneys general have received in return for releasing claims on these matters is huge – billions in loan modifications and other benefits for borrowers who have been harmed as well as significant new protections for homeowners.
This case has focused on getting relief for homeowners, not for hedge fund investors. Expanding the reach to securities and securitization would have slowed the case considerably and massively increased the complexity of an already complex situation. It would have pitted the interests of homeowners against powerful investment funds, insurance companies and other private investors.
Nothing in this settlement prevents attorneys general or others from investigating, pursuing legal action, or seeking settlements related to securities.
How can we be assured that the banks will comply with the new servicing standards?
This settlement is backed by a federal court order. State attorneys general and the U.S. Department of Justice can seek redress if the banks don't follow the settlement terms.
The settlement also includes an independent monitor. The monitor, who will work from a strict set of objective measuring standards, will oversee the carrying out of this agreement and will report to the states and federal agencies on the banks' compliance. There are significant penalties if the banks violate the court judgment. A court ordered settlement is very different from the voluntary, foreclosure prevention efforts that have been tried to date.
How does this settlement affect members of the military?
The Servicemembers Civil Relief Act (SCRA) provides protections for active service members, including postponing or suspending certain civil obligations, such as mortgage payments and foreclosure. This settlement provides enhanced safeguards for military personnel that go beyond SCRA protections, including extending the window of protections for qualified service members, and not requiring service members to be delinquent to qualify for a short sale, loan modification, or other loss mitigation relief if the service member suffers financial hardship and is otherwise eligible for such loss mitigation.
How will I know whether this settlement affects my situation?
Because of the complexity of the mortgage market and this agreement, which will be performed over a three year period, borrowers will not immediately know if they are eligible for relief. For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. For payments to foreclosure victims, a settlement administrator designated by the attorneys general will send claim forms to eligible persons. Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer to see if you are eligible.
In any event, borrowers may contact their mortgage servicer to obtain more information about specific loan modification programs and whether the borrower may be impacted by this settlement. More information will be made available as the settlement programs are implemented.