Court filing next step in formalizing mortgage deal

Jessica M. Karmasek Mar. 12, 2012, 2:15pm



WASHINGTON (Legal Newsline) - A group of 49 state attorneys general and the U.S. Department of Justice filed a complaint Monday, alleging misconduct by the nation's five largest mortgage servicers.

The civil complaint, filed in the U.S. District Court for the District of Columbia, is the next step in formalizing the settlement reached last month with Wells Fargo & Co., JPMorgan Chase & Co., Citigroup Inc., Ally Financial Inc. and Bank of America Corp.

The deal, finally reached between federal officials, the state attorneys general and the banks after many months, is worth $25 billion but only covers those mortgages held by the five banks, not Fannie Mae or Freddie Mac.

Monday's complaint alleges that the servicers' misconduct "resulted in the issuance of improper mortgages, premature and unauthorized foreclosures, violation of service members' and other homeowners' rights and protections, the use of false and deceptive affidavits and other documents, and the waste and abuse of taxpayer funds."

On Friday, the attorneys general and federal officials also submitted a series of proposed consent judgments, which would formalize the settlements with each servicer.

"This important step will help set the stage for what we anticipate will be a series of federal court orders," Indiana Attorney General Greg Zoeller said in a statement Monday.

Washington Attorney General Rob McKenna agreed.

"These powerful, court-enforceable orders will assure the direct relief we negotiated in this settlement," he said in a statement Monday. "This is an important step toward the loan modifications, principal reductions and other benefits many borrowers will receive."

According to the Justice Department, the mortgage servicers are required to collectively dedicate $20 billion toward various forms of financial relief to borrowers.

At least $10 billion will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth.

At least $3 billion will go toward refinancing loans for borrowers who are current on their mortgages but who owe more on their mortgage than their homes are worth.

Borrowers who meet basic criteria will be eligible for the refinancing, which will reduce interest rates for borrowers who are currently paying much higher rates or whose adjustable rate mortgages are due to soon rise to much higher rates.

Up to $7 billion will go towards other forms of relief, including forbearance of principal for unemployed borrowers, anti-blight programs, short sales and transitional assistance.

Mortgage servicers are required to fulfill these obligations within three years.

To encourage servicers to provide relief quickly, there are incentives for relief provided within the first 12 months. Servicers must reach 75 percent of their targets within the first two years.

Servicers that miss settlement targets and deadlines will be required to pay "substantial" additional cash amounts, federal officials say.

From Legal Newsline: Reach Jessica Karmasek by email at

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