Banks to pay $8.5 billion to settle foreclosure flaws

Ten of the largest U.S. mortgage servicers will pay a combined $8.5 billion under an agreement that will end case-by-case reviews of foreclosure-abuse claims stemming from a 2011 deal with regulators.

Companies including JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. must provide $5.2 billion in mortgage assistance and $3.3 billion in direct payments to wronged borrowers, the Office of the Comptroller of the Currency and the Federal Reserve said in a statement today. The banks were among 14 servicers ordered to hire independent consultants to help clean up foreclosure practices amid claims they improperly seized homes in the wake of the subprime mortgage crisis.

“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,” Comptroller of the Currency Thomas Curry 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.”

JPMorgan, the biggest U.S. bank by assets, will pay $700 million for the cash portion of the deal in addition to other settlement costs, according to a person briefed on the matter who declined to be identified because a bank-by-bank breakdown hasn’t been announced.

Executives of New York-based JPMorgan “are pleased to have it now behind us,” said Amy Bonitatibus, a spokeswoman for the bank. “We have helped nearly one million homeowners avoid foreclosure over the last four years and will continue to help others who may be struggling,” she said.

Fannie Mae

Bank of America, which separately agreed today to pay $11.7 billion to resolve mortgage disputes with U.S.-owned Fannie Mae, said in a statement that the Charlotte, North Carolina-based lender was profitable in the fourth quarter after accounting for that cost and an additional $2.5 billion for expenses including litigation and a regulatory settlement.

“We support the new approach because it expands the number of borrowers who will receive payment, speeds the delivery of those payments, and will provide support for homeowners still struggling to make payments,” Dan Frahm, a Bank of America spokesman, said in an e-mail.

Citigroup, the third-biggest U.S. bank by assets, will show a $305 million pre-tax charge for the cash payment when it reports fourth-quarter results on Jan. 17, the company said in a statement. The New York-based lender’s $500 million share of the mortgage assistance will be absorbed by existing loan-loss reserves, according to the statement.

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