Ten banks accused of improper mortgage and foreclosure practices—including U.S. Bancorp and Wells Fargo—have agreed to collectively pay more than $8.5 billion in the form of cash and other assistance to aid borrowers.
The payment is the result of a settlement reached between the banks and the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board.
Minneapolis-based U.S. Bancorp said in a Monday statement that its share of the settlement includes a pre-tax cash payment of $80 million, as well as roughly $128 million worth of other mortgage assistance such as loan modifications. The company expects the deal to reduce its fourth-quarter 2012 earnings per share by about 3 cents.
“U.S. Bancorp has long been committed to sound modification and foreclosure practices,” the company said in a statement. “We have always regarded foreclosure as a last resort and have helped thousands of borrowers over the past several years to stay in their homes through a variety of modification programs.”
San Francisco-based Wells Fargo—which employed about 20,000 workers in Minnesota as of June 1, making it one of the largest employers in the state—is also part of the settlement.
The company said Monday that its portion of the cash settlement will be $766 million. It will also commit an additional $1.2 billion to foreclosure prevention actions. Wells Fargo said it expects to record a pre-tax charge of approximately $644 million in the fourth quarter “to fully reserve for its cash payment portion of the settlement and additional remediation-related costs.”
“We are pleased that the regulators and servicers came together to reach this settlement, which will bring resolution to more borrowers in an expedited manner,” Mike Heid, president of Wells Fargo Home Mortgage, said in a statement. “This agreement allows us to move forward and continue our focus on doing all we can do to provide relief to our customers and restore stability to housing markets across the country.”
The other banks included in the settlement are Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, and Aurora.
The $8.5 billion settlement includes $3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance, such as loan modifications, the OCC and the Federal Reserve Board said Monday in a joint statement. The deal covers more than 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010, and eligible borrowers will receive compensation ranging from hundreds of dollars to $125,000.
The settlement ends a review process of foreclosure files that the banks were ordered to conduct under a 2011 enforcement action. When issuing that enforcement action, the Federal Reserve Board said that it was meant to “address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing.”
“These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions,” the Federal Reserve Board said at the time.
Monday’s deal will help banks eliminate potential liabilities stemming from the housing crisis, but some say the settlement allows banks to escape responsibility for damages that might have cost them much more, as wronged homeowners could receive less compensation than the actual damages they experienced, according to an Associated Press report.
The OCC and the Federal Reserve, however, said that they favored the deal because consumers will benefit more quickly. The deal replaces the previous case-by-case review process with what is described as a “broader framework allowing eligible borrowers to receive compensation significantly more quickly.”
Comptroller of the Currency Thomas Curry said in a statement that the settlement represents “a significant change in direction” from the previous review process, but it will best serve consumers and also “speed recovery in the nation’s housing markets.”
U.S. Bancorp is Minnesota’s largest bank-holding company based on assets, which totaled $349 billion as of September 30.