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Schuette Joins 40 AGs In Foreclosure Settlement To Help Housing Crisis; Banks To Pay About A Half-Billion Dollars To Assist Michigan Citizens
February 7, 2012
LANSING -Michigan Attorney General Bill Schuette today announced Michigan will join at least 40 other states in a multi-billion dollar nationwide settlement with five of the nation's largest banks/mortgage servicers in response to allegations of faulty foreclosure processes and poor servicing of mortgages that harmed Michigan homeowners. Schuette said that Michigan residents will receive approximately a half-billion dollars, including a $101 million fund provided directly to the State of Michigan. The settlement is anticipated to be the second-largest financial recovery ever achieved for affected citizens by attorneys general, with the 1998 Master Tobacco Settlement being the largest.
"States across America have worked hard to present a united front in the fight to help stabilize the housing market in the aftermath of harmful mortgage lending and foreclosure practices," said Schuette. "As a result, Michigan residents who were hit hard by this crisis will now receive assistance."
Schuette's criminal investigation of LPS/Doc-X remains ongoing, and the settlement does not preclude him from pursuing additional criminal probes of the mortgage lending/servicing industry.
"Importantly, we retain the right to file criminal charges when the evidence calls for them. We will continue to follow any evidence of criminal activities, wherever it leads us."
Attorney General Tom Miller (D-Iowa), Chairman of the Multi-State Attorney General Workgroup that led the negotiations, added, "This monitored settlement holds the banks accountable, it provides badly needed relief to borrowers, and it helps fix a badly broken mortgage servicing system through tough but fair new servicing standards."
Michigan Office of Financial and Insurance Regulation Commissioner Kevin Clinton also commented on the settlement. "I want to commend Attorney General Schuette and his staff for their hard work on this nationwide agreement. It not only brings much-needed reforms to the mortgage service industry, but it provides immediate relief for many Michiganders struggling to avoid foreclosure. Our consumer assistance staff is ready to help every eligible homeowner take advantage of this important settlement."
Approximately A Half-Billion In Benefits Anticipated For Michigan Residents
Of the total half-billion anticipated to benefit Michigan citizens, Schuette expects the funds will be distributed to Michigan citizens affected by foreclosure in the following areas:
1) Borrower Payments - A national settlement administrator will distribute cash payments to borrowers in Michigan who went through foreclosure from 2008-2011. More information will be forthcoming detailing who will be eligible for benefits and how they can apply. Receipt of payments will not preclude borrowers from taking future legal action, if warranted.
2) Refinance Program - Servicers will fund a refinancing program for borrowers who are current with their mortgage payments but owe more than their homes are worth due to declining property values. These so-called "underwater loans" will allow affected homeowners to refinance and achieve relief through lower interest rates.
3) Federal Menu Benefits - A federal spend-down fund will require banks to provide principal balance reductions, short sales, deeds in lieu of foreclosure and other relief for homeowners currently struggling with foreclosure
Schuette Proposes Michigan Homeowner Protection Fund - $101 Million
Approximately $101 million of the half-billion in funds anticipated to benefit Michigan citizens will come directly to the State of Michigan via the legislature. With these funds, Schuette called for the creation of the Michigan Homeowner Protection Fund to direct the monies towards the following six initiatives to ensure Michigan families, children and veterans affected by the foreclosure crisis receive the maximum benefit from the settlement funds.
"We can't go back in time to undo the impact of the foreclosure crisis in Michigan, but these funds will go a long way toward repairing the damage for Michigan families," said Schuette. "The Homeowner Protection Fund will provide much-needed counseling services, restitution for victims of foreclosure rescue scams, and assistance for homeless children and our veterans."
1) Foreclosure Counseling for Homeowners - $20 Million. The Michigan State Housing and Development Authority would use these funds to continue their much-needed, free homeowner counseling services for citizens seeking to avoid foreclosure
2) Foreclosure Rescue Scam Restitution - $10 Million. Many Michigan residents have fallen prey to foreclosure rescue scam artists who offered to help citizens save their homes. In the end, victims were out thousands in illegally-collected upfront fees and, in some cases, even lost their homes. Many of these victims never received any restitution because criminals spent the money before they were convicted. Eligibility criteria to determine qualifying cases will be established at a later date.
3) Payments to Borrowers Who Suffered Foreclosure - $35 Million. These funds will provide support to certain homeowners who already lost their piece of the American dream and are struggling to get back on their feet. Eligibility criteria will be determined at a later date.
4) Veteran's Assistance - $5 Million. The men and women who served our country also have been affected by poor mortgage practices, and these funds will provide targeted relief for servicemembers unable to qualify for other existing programs.
5) Aid for Children Made Homeless by Foreclosure - $25 Million. According to the Michigan Department of Education, during the 2010-2011 school year, more than 31,000 school children were homeless, an increase of 42% from the previous year. These funds will be used to help those children with needed services, including shelter, transportation, supplies and additional aid to help keep their education on track.
6) Michigan Attorney General Home Protection Unit - $6 Million. These funds will allow Schuette's office to ramp up investigation and prosecution of foreclosure-related crimes. A portion of the funding would go toward consumer protection education and assistance.
Schuette noted he looks forward to working with the Michigan legislature to secure the necessary appropriations for the Homeowner Protection Fund.
Additional Settlement Benefits
In addition to the funds paid by the banks to address foreclosure-related issues, Schuette said an important part of the settlement includes critical reforms to the mortgage loan servicing industry. New standards will cover all aspects of mortgage servicing including account accuracy, document production processes, foreclosure practices and information provided to borrowers. Compliance will be overseen by an independent monitor and professional staff who will report to attorneys general and the Court.
"These reforms to the mortgage industry are long overdue. The left hand must know what the right hand is doing, so consumers won't be foreclosed upon by one part of a bank while being offered a loan modification by another."
Criminal Investigation Continues
Schuette noted the settlement does not preclude Michigan, or any other state, from filing criminal charges in the future. The settlement also does not preclude further action against third-party administrators currently facing allegations of improper mortgage practices, including MERS and LPS/Doc-X. In fact, Schuette's criminal investigation of LPS/Doc-X remains ongoing. The settlement also does not preclude other governmental units or individual homeowners from pursuing their own claims.
"We will continue our efforts to thoroughly investigate allegations of criminal misconduct by individuals and companies connected to faulty mortgage foreclosure processes," said Schuette.
The anticipated parties to the settlement will include Michigan, 39 other states, the federal government, and five of the nation's leading mortgage servicers: Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo, and GMAC/Ally.
Consumers with mortgage lending services with the affected banks will be provided with toll-free hotlines for more information about the settlement, once the agreement is formally approved. To become effective, the agreement must be submitted to a federal judge for final approval.
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