updated: 2/9/2012 12:23:16 PM

Indiana Part of Federal Mortgage Industry Settlement

InsideINdianaBusiness.com Report

Indiana is among states joining a federal settlement with five major mortgage lending banks. The agreement is related to the banks nationwide mortgage servicing practices, which helped cause the housing crisis of 2008. The state's estimated share of the national settlement is about $145 million.

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February 9, 2012

News Release

INDIANAPOLIS, Ind. – Indiana Attorney General Greg Zoeller announced today that Indiana would be one of 49 states joining in the federal government’s settlement with the five major mortgage lending banks and servicing institutions.

The settlement with Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo will provide a minimum of $26 billion in relief to distressed borrowers and direct payments to states and the federal government. The agreement stems from the banks’ foreclosure abuses and fraud, and unacceptable nationwide mortgage servicing practices.
“This national settlement offers immediate help to many people in Indiana and also allows an opportunity for the national housing market to recover from the crisis of 2008, hopefully sooner rather than later,” Zoeller said. “The prolonged recession has caused great financial hardship in the form of mortgage foreclosures, bankruptcies and unemployment. This resolution, while not everything we had wanted, speeds help to Hoosiers and for the economy as a whole. Our office has aggressively taken actions against foreclosure rescue scams and credit consolidation companies. I will continue to advance these efforts beyond this national agreement.”

The unprecedented joint federal-state settlement is the result of a civil law enforcement investigation and initiative that includes state attorneys general and state banking regulators across the country, and nearly a dozen federal agencies. Investigations revealed these loan servicers routinely signed foreclosure-related documents outside the presence of a notary public and without knowing whether the facts they contained were correct – an action known as robo-signing.

The settlement provides benefits to borrowers whose loans are owned by the settling banks as well as to many of the borrowers whose loans they service. Zoeller said the settlement will result in reduced loans to benefit homeowners who are behind on their payments and who are “underwater” or owe more than their homes are worth.

The state’s estimated share of the settlement is about $145 million which will be broken down in four parts:
• Indiana’s borrowers will receive an estimated $30 million in benefits from loan term modifications and other direct relief;
• As many as 13,000 Indiana borrowers who lost their home to foreclosure from Jan. 1, 2008 through Dec. 31, 2011 and suffered servicing abuse could qualify for about $26.3 million in cash payments;
• The value of refinanced loans to Indiana’s underwater borrowers would be an estimated $43 million;
• The Indiana Attorney General’s Office will receive a direct payment of about $45 million to help fund consumer protection, state foreclosure prevention efforts and related programs; and
• The Department of Financial Institutions will receive an estimated $1 million.

“We will be dedicating more resources to our homeowner protection unit and consumer protection divisions while also providing guidance to the legislature on programs that additional settlement funds can comply with the spirit of the mortgage settlement,” Zoeller 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 enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases. According to the agreement, the states will not pursue further investigations against the banks in civil court.

The settlement also calls for new servicing standards which 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.

“The settlement with the nation’s largest banks is a step toward securing meaningful reform in the mortgage lending industry,” Zoeller said. “The involvement by federal agencies provides greater authority for reforms that states do not possess.”

The final agreement, through a consent judgment, will be filed in U.S. District Court in Washington, D.C., and will have the authority of a court order.

Because of the complexity of the mortgage market and this agreement, which will span a three year period, in some cases participating mortgage servicers will contact borrowers directly regarding loan modification options. However, borrowers should contact their mortgage servicer to obtain more information about specific loan modification programs and whether they qualify under terms of this settlement:
• Bank of America: 1-877-488-7814
• Citi: 1-866-272-4749
• Chase: 1-866-372-6901
• GMAC: 1-800-766-4622
• Wells Fargo: 1-800-288-3212

Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. Individuals can visit www.fanniemae.com/homeaffordable or www.freddiemac.com/avoidforeclosure to see if their loan is owned by either group.

Individuals can soon visit a newly created website, www.NationalForeclosureSettlement.com, to find out more information.

Other organizations will also be launching helpful information on their websites including:
• Indiana Attorney General’s Office www.in.gov/attorneygeneral;
• U.S. Department of Housing and Urban Development www.HUD.gov; and
• U.S. Department of Justice www.justice.gov.

During the past year, the Indiana Attorney General’s office investigated practices in Indiana and worked with the courts seeking ways to protect homeowners facing foreclosure. After a formal petition by the Attorney General, the Indiana Supreme Court issued a “best practices” order that was later crafted into legislation that passed the 2011 Indiana General Assembly.

Among other things, the new law strengthens borrowers' rights to a settlement conference, where the distressed homeowner and lender can attempt to work out a loan modification - and perhaps negotiate a repayment plan so foreclosure can be avoided, or arrange a "short sale" or deed in lieu of foreclosure so that the homeowner can give up the house and move on without protracted litigation. The new law also allows trial judges to hold lenders accountable through civil penalties and sanctions for violating borrowers' legal rights.

Source: Office of the Indiana Attorney General

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