Jesse Hamilton, Bloomberg

A foreclosure-review system that failed to compensate mistreated borrowers has been mostly scrapped in an $8.5 billion agreement with the largest U.S. mortgage servicers.

U.S. regulators’ deal yesterday with 10 mortgage servicers replaces an almost two-year, case-by-case review of flawed foreclosures. The Independent Foreclosure Review process — agreed to by 14 servicers in a 2011 settlement — has so far cost the servicers more than $1.5 billion in fees to the consultants reviewing cases.

Companies including JPMorgan Chase & Co., (JPM) Bank of America Corp. and Citigroup Inc. (C) must now 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. This largest cash payout to those harmed by bad foreclosures during the subprime mortgage crisis is also meant to help people with current home- loan struggles.

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