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February 9, 2012

Miller Announces $25 Billion Joint State-Federal Mortgage Servicing Settlement on Foreclosure Wrongs

State share of national settlement estimated at $40 million

(WASHINGTON, D.C.)  After leading a 16-month nationwide investigation and settlement negotiations involving the nation’s five largest mortgage servicers, Attorney General Tom Miller Thursday announced a landmark $25 billion national joint federal-state accord over mortgage foreclosure abuses and fraud, and unacceptable nationwide mortgage servicing practices.

The proposed agreement provides an estimated $40 million in direct relief to Iowa homeowners and addresses future mortgage loan servicing practices.  U.S. Attorney General Eric Holder, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and a bipartisan group of state attorneys general announced the settlement at a news conference at the U.S. Department of Justice in Washington, D.C.

“This agreement is very significant in how it addresses the fraud that these banks committed against many homeowners across Iowa,” said Miller.  “This agreement not only provides badly needed relief to Iowa borrowers, but it also puts a stop to many of the bad behaviors that contributed to the mortgage mess throughout Iowa and across the country.  This agreement will protect homeowners and ensure they’re treated fairly.”

Iowa’s estimated share of the settlement is $40,235,321.

  • Iowa borrowers will receive an estimated $5,899,449 in benefits from loan term changes.
  • Iowa borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and encountered servicing abuse would qualify for $7,402,512 in payments to borrowers.
  • The value of refinanced loans to Iowa’s underwater borrowers would be an estimated $11,602,880.
  • The state will receive a direct payment of $15,330,480.

The unprecedented joint state-federal settlement began with a massive civil law enforcement investigation that included state attorneys general and state banking regulators across the country, and several federal agencies.  The settlement holds banks accountable for past mortgage servicing and foreclosure fraud and abuses and provides significant relief to homeowners.  With the backing of a federal court order and the oversight of an independent monitor, the settlement stops future fraud and abuse.

Under the agreement, the five servicers have agreed to a $25 billion penalty under a joint state-national settlement structure. 


  • Servicers commit a minimum of $17 billion directly to borrowers through a series of national homeowner relief effort options, including principal reduction.  Servicers will likely provide up to an estimated $32 billion in direct homeowner relief.
  • Servicers commit $3 billion to an underwater mortgage refinancing program.
  • Servicers pay $5 billion to the states and federal government ($4.25 billion to the states and $750 million to the federal government).
  • Homeowners receive comprehensive new protections from new mortgage loan servicing and foreclosure standards.
  • An independent monitor will ensure mortgage servicer compliance.
  • Government can pursue civil claims outside of the agreement, any criminal case; borrowers and investors can pursue individual, institutional or class action cases regardless of agreement.

“One of the hardest battles I fought over the last 16 months was over principal reduction,” Miller said.  “At first the banks tried to tell us that was a non-starter.  We kept fighting back, and now I’m very proud to say that we got it across the finish line.”  Miller said that targeted principal reduction will be one of the keystones of the agreement, and will help keep many families in their homes and out of foreclosure.  “People will see that this works, it’ll result in lower re-default rates, and I think it’ll be a catalyst for more,” Miller said.

The settlement does not grant any immunity from criminal offenses and will not affect criminal prosecutions.  The agreement does not prevent homeowners or investors from pursuing individual, institutional or class action civil cases against the five servicers.  The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases.

On January 27 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.

“This agreement addresses breakdowns in the mortgage servicing industry, and it clears the way for pursuing other mortgage-related misconduct,” said Miller.

Scope of Settlement
This enforcement action targets one segment of the nation’s vast and complex mortgage market, the Held for Investment (HFI) market, which encompasses loans held by the banks for the foreseeable future or maturity.  The U.S. Department of Housing and Urban Development (HUD) estimates that HFI mortgages comprise about 20 percent of the U.S. mortgage market.

“While this settlement provides significant relief for Iowa borrowers, it also puts in place new protections for homeowners in the form of mortgage servicing standards,” Miller said.  “That’s not something we’d see if we simply won a money judgment in a trial.”

The final agreement, through a series of consent judgments, will be filed in U.S. District Court in Washington, and will have the authority of a court order.  The agreements are expected to be filed later this month.

Because of the complexity of the mortgage market and this agreement, which will span a three year period, borrowers in some cases may be contacted directly by one of the five included mortgage servicers regarding loan modification offers, may be contacted by a settlement administrator or their state attorney general, or may need to contact their mortgage servicer to obtain more information about specific programs and whether their loan qualifies.  More information will be made available as the settlement programs are implemented.

For more information on the proposed agreement:

Bank of America: 1-877-488-7814
Citi: 1-866-272-4749
Chase: 1-866-372-6901
Ally: 1-800-766-4622
Wells Fargo: 1-800-288-3212

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