Background

The settlement between state attorneys general, the federal government and the five leading bank mortgage servicers will result in significant monetary sanctions and relief nationally. The settlement agreement includes enhanced loan modifications, principle reductions and refinancing packages. It will also fund payments to victims of unfair foreclosure practices.

In addition to the monetary allocations, the settlement requires comprehensive reforms of mortgage loan serving. The new, mandated standards will cover all aspects of mortgage servicing, from consumer response to foreclosure documentation.

Financial relief for homeowners

• Aid to homeowners needing loan modifications now , including first and second lien principal reduction. The servicers are required to work off up to $152 million in principal reduction and other forms of loan modification relief in Rhode Island.
• Aid to borrowers who are current, but underwater. Borrowers will be able to refinance at today’s historically low interest rates. Servicers will have to provide up to $7.2 million in refinancing relief in Rhode Island.
• Payments to borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process. The settlement allots $3.1 million for direct payments to those who lost their homes to foreclosure.
• Payments to signing states $8.9 million to the State of Rhode Island to help fund consumer protection and state foreclosure protection efforts.

The settlement follows months of intensive negotiations between the participating banks and a collation of state attorneys general and federal agencies, including the US Dept. of Justice, Treasury and Housing and Urban Development (HUD).

While robo-signing received the most attention, the investigation identified other servicer-related problems, including deceptive practices in the offering of loan modifications (i.e. telling consumers that a loan modification was imminent while simultaneously foreclosing). The performance failures resulted in more than just poor customer service. Unnecessary foreclosures occurred due to failure to process homeowners’ requests for modified payments and shoddy documentation leading to protracted delays.

While the proposed settlement does not put total blame on the five bank mortgage servicers, or mortgage servicers in general, for the nation’s housing crisis, the misconduct by these servicers threatened the integrity of the legal system and had a significant negative impact on communities and the housing market.

What issues does the mortgage foreclosure settlement agreement address?

The proposed settlement primarily seeks to:

• Provide immediate relief to enable struggling homeowners to avoid foreclosure
• Bring badly needed reform to the mortgage servicing industry
• Ensure that foreclosures are lawfully conducted
• Penalize the banks for past misconduct

What mortgage service providers are subject to this settlement?

This settlement involves the nation’s five largest mortgage servicers, including Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo.

How do know if I am eligible for one of the programs offered by the settlement agreement?

Distressed homeowners and Rhode Islanders who have gone through the foreclosure process may be eligible for assistance if their mortgage service provider is a party to the multistate agreement.

There are many details that still need ironing out. In the very near future, mortgage service providers will set up a toll free number and a website to assist homeowners through the process.

Nationwide reforms to servicing standards

These servicing standards require single point of contact, adequate staffing levels and training, better communication with borrowers, and appropriate standards for executing documents in foreclosure cases, ending improper fees, and ending dual-track foreclosures for many loans.

Treating homeowners fairly

• Stops many past foreclosure abuses, such as robo-signing, improper documentation and lost paperwork through new mortgage servicing standards.
• Requires strict oversight of foreclosure processing.
• Mortgages servicers will have to evaluate homeowners for other loan mitigation options first, making foreclosures a last resort.
• Restricts banks from foreclosing while the homeowner is being considered for a loan modification
• Sets procedures and timelines for reviewing loan modification applications, and gives homeowners the right to appeal denials.
• Creates a single point of contact for borrowers seeking information about their loans and adequate staff to handle calls.
• These tough new standards will be enforced by court order and overseen by an independent monitor.

How does this settlement hold the banks accountable?

The banks will be subject to a federal court order enforceable by a federal judge. In addition, a special independent monitor will have the authority to oversee the banks and require their compliance. Federal agencies and state attorneys general can enforce compliance if there are violations.

The agreement and its release preserve legal options for others to pursue. Governmental entities and private parties are aggressively pursuing securities cases against the banks. A joint federal-state task force has been formed to investigate and prosecute those responsible for the collapse of the mortgage lending and investment markets.

Will this settlement fix the entire mortgage industry breakdown?

No. This is a mortgage servicing settlement that addresses only a portion of the mortgage lending system. However, the settlement’s new mortgage servicing standards will have a widespread impact on future mortgage loan servicing.

State and federal efforts to investigate wrongdoing in the housing market continue. On January 27, 2012, 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.

In addition, this agreement does not release any institution for claims related to securitization of mortgage instruments. Attorney General Kilmartin has met and discussed this issue with the Attorneys General of New York and Delaware who are leading investigations into those claims, and will continue to monitor those developments closely to determine if Rhode Island should become party to their respective actions.

Why don’t you sue the banks and try to get even more money?

If Rhode Island did not sign on, we would give up all the funds designated specifically for their state and its citizens who were foreclosure victims. In addition, homeowners of those states would also only qualify for a significantly reduced amount of loan modification and other benefits being distributed as part of the settlement’s national programs.

While Rhode Island would be free to pursue our own legal actions against mortgage service providers, litigation could take years with no guarantee of success or relief for homeowners.

Moreover, there are significant legal hurdles Rhode Island would have to overcome. First, federal law and US Supreme Court precedent hold that a state attorney general cannot subpoena a national bank. Investigating these banks without federal help would be very difficult.

Second, many of these acts are beyond the jurisdiction of the Office of Attorney General in that our authority under the Deceptive Trade Practices Act has been severely limited by the Rhode Island Supreme Court under the Piedmont decision. In addition, potential claims that are being released could be barred by the statutes of limitations or be against entities that no longer exist.

Will taxpayers ultimately pay for this settlement?

No, the settlement is not funded by taxpayer dollars.

Does this immunize banks from prosecution?

No. This settlement does not release any bank from criminal acts. It does not release any institution for claims related to securitization of mortgage instruments. Attorney General Kilmartin has met and discussed this issue with the Attorneys General of New York and Delaware who are leading investigations into those claims, and will continue to monitor those developments closely to determine if Rhode Island should become party to their respective actions.

In addition, state and federal efforts to investigate wrongdoing in the housing market continue. On January 27, 2012, 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.

Why doesn’t this settlement deal with the banks’ conduct in securitizing loans?

Nothing in this settlement prevents attorneys general or others from investigating, pursuing legal action, or seeking settlements related to securities.

How will I know whether this settlement affects my situation?

Because of the complexity of the mortgage market and this agreement, which will be performed over a three year period, borrowers may not immediately know if they are eligible for relief. For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. For payments to foreclosure victims, a settlement administrator designated by the attorneys general will send claim forms to eligible persons. Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer to see if you are eligible.

In any event, borrowers may contact their mortgage servicer to obtain more information about specific loan modification programs and whether the borrower may be impacted by this settlement. More information will be made available as the settlement programs are implemented.

As information is made available, we will do our best to post it on the office website at www.riag.ri.gov.

For more information on the National Mortgage Settlement, please visit:

www.NationalMortgageSettlement.com

Mortgage Servicing Standards

To contact your mortage service provider with questions:

Bank of America: 1-877-488-7814

Citi: 1-866-272-4749

Chase: 1-866-372-6901

Ally (GMAC): 1-800-766-4622

Wells Fargo : 1-800-288-3212