The U.S. government released the fine print of its landmark $25 billion mortgage settlement, and promised to closely police the banks' pledges to bring widespread housing relief, even while letting them dodge admission of wrongdoing.
The deal, announced last month and filed on Monday in federal court in Washington, D.C., requires five major U.S. banks to help struggling borrowers to settle accusations they pursued faulty foreclosures and misled borrowers who sought loan modifications.
The banks did not admit to the accusations laid out in the complaint, but the government said its intention was to "remediate harms allegedly resulting from the alleged unlawful conduct."
A judge still has to approve the settlement, and any hearing on the deal would likely be contentious.
The Association of Mortgage Investors on Monday promised to intervene in court, saying that investors in mortgage-backed securities were excluded from settlement talks, and could be financially harmed by mortgage writedowns or modifications.
The group said in a statement that it planned to ask the court to place a cap on modifications for investor-owned loans and seek other changes.
The Obama administration has heavily promoted what it characterizes as an historic settlement to provide some relief to about 1 million struggling homeowners.
The deal will be spread out over three years and requires the five banks - Bank of America, Citigroup, JPMorgan Chase, Wells Fargo, and Ally Financial - to cut mortgage debt amounts and restructure troubled loans.
They are also paying $5 billion in cash to the federal and state governments, including $1.5 billion to fund $2,000 payments to borrowers who lost their homes to foreclosure.
While the Obama administration's previous efforts to jumpstart a housing recovery have not lived up to their initial promises, officials believe this time may be different.
The settlement includes an independent monitor who will ensure banks comply with the new mortgage payment processing standards through a "very specific" sampling process, test questions, and error thresholds, an Obama administration official said in a briefing with reporters on Monday.
The results will be publicly reported, said the official, who declined to be named.
Consumer advocates supported the idea that the new settlement could go further than past efforts.
"The bank servicers have really done a terrible job of servicing homeowners' mortgages," said Ira Rheingold, executive director of the National Association of Consumer Advocates.
The settlement "gives them direction on how they are to behave" and includes "pretty strong penalties," he said.
Throughout the talks, critics questioned whether the government was aggressive enough in pursuing the alleged misconduct. On Monday the U.S. Department of Housing and Urban Development again defended its efforts in a memo entitled "Myth vs. Fact."
State and federal negotiators also described the talks as akin to herding cats, with so many parties involved. The 99-page official complaint, for example, includes 51 pages of signatures.
The settlement documents - filed as one lawsuit and five separate consent judgments with the banks - provide little detail about the misdeeds government investigations uncovered.
Instead, the documents devote hundreds of pages to detailing how different types of relief will count toward the banks meeting their obligations under the settlement.
The settlement benefits are spread over 3-1/2 years, but includes incentives for much of the assistance to go out in the first year of the settlement.
Banks are required to provide 30 percent of the relief in the form of cutting mortgage debt for borrowers who owe more than their homes are worth, but the banks receive different amounts of credit for different scenarios.
Banks only get credit for reducing debt for homes where the borrower owes up to 175 percent of the current value, for example.
They get full credit if they own the loan, but 45 cents of credit for every dollar of reduction on a loan they service for a separate investor.
Banks are expected to bring a borrower's monthly payments to within 31 percent of a borrower's income, and establish a new loan value that is no greater than 120 percent of the value of the home.
According to the settlement documents, the banks are also paying tens of millions of dollars to resolve whistleblower lawsuits alleging lenders defrauded the government in seeking federal mortgage insurance for some risky loans.
The banks are paying $95 million, for example, to settle a case brought by Lynn Szymoniak, a homeowner who was featured on CBS' "60 Minutes" last year for uncovering details about banks' so-called robo-signing of foreclosure documents. Szymoniak will get $18 million from the settlement.
ALLY GETS ITS OWN MODIFICATION
Some banks negotiated separate requirements.
Ally Financial, for example, negotiated a steep discount on the fine part of its settlement, based on an inability to pay it, according to people familiar with the matter.
It was expected to pay some $250 million, but the Justice Department cut it to around $110 million, these people said.
In exchange, it committed to solicit all borrowers in its own loan portfolios and to offer to cut principal for delinquent borrowers down to 105 percent of the home's value. It also offered to refinance underwater borrowers who are current on their payments.
A spokeswoman for Ally, Gina Proia, said Ally had modified 28 percent of its servicing unit's portfolio since 2008, and agreed to implement a "broader menu of consumer relief options."
Bank of America, which had the largest exposure to the settlement due to its 2008 purchase of the troubled subprime lender Countrywide Financial, also agreed to offer deeper cuts for its underwater borrowers.
The bank has agreed to contact more than 200,000 borrowers and will potentially cut their debt to the current value of the home. In exchange, Bank of America can avoid up to $850 million in payments.
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