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Hawaii joins $25B state-federal mortgage servicing settlement


Attorney General David M. Louie on Thursday formally joined a landmark $25 billion joint federal-state agreement with the nation’s five largest mortgage servicers over foreclosure abuses and fraud, and unacceptable nationwide mortgage servicing practices.

The banks involved in the agreement are: Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup, Inc., and Ally Financial, Inc. (Ally is the parent of GMAC Mortgage). In all, 49 states and the District of Columbia are part of the agreement; Okalahoma is the missing state.

“This agreement is a very good deal for Hawaii’s homeowners. It provides real relief and real money to help struggling homeowners in our state,” Louie said. “Importantly, this puts a stop to the bad practices of many banks, and puts into place a comprehensive set of reforms for how banks must treat homeowners with mortgages.”

Kealii Lopez, the Director of Commerce and Consumer Affairs, said of the agreement: “This settlement for the affected homeowners is long overdue. The state did not wait for this settlement before we addressed the mortgage problems plaguing Hawaii homeowners. Hawaii addressed some of the key provisions in today’s settlement last year with the Mortgage Foreclosure Dispute Resolution Program and Act 48.”

Thousands of Hawaii homeowners will benefit from the agreement, which provides an estimated more than $8.2 million in direct relief to Hawaii homeowners and addresses future mortgage loan servicing practices.

U.S. Attorney General Eric Holder, U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan and a bipartisan group of state attorneys general announced the national settlement Thursday in Washington, D.C.

The state’s estimated share of the settlement is more than $71 million. Hawaii’s borrowers will receive an estimated $60 million in benefits from loan term modifications and other direct relief, including principal reductions and deficiency waivers.

This includes:

* $9.3 million to address refinancing for Hawaii’s underwater borrowers
* More than $3.2 million paid directly to Hawaii homeowners who were improperly foreclosed on between Jan. 1, 2008 through Dec. 31, 2011

* Hawaii’s borrowers who lost their homes to foreclosure from Jan. 1, 2008 through Dec. 31, 2011 and suffered servicing abuses would qualify for up to $2,000 in cash payments. Borrowers will be able to apply for such relief with no requirement to prove financial harm, and they can accept the money without having to release their individual claims against the servicers or the right to participate in the Office of the Comptroller of the Currency (OCC) review process. Borrowers will be contacted by the banks regarding loan modifications and principal reduction.

* The state will receive a direct payment of $8.2 million. These monies will be administered by the Department of the Attorney General, held in trust to provide benefits to Hawaii homeowners.
Reaction to the settlement locally has been positive.

According to the Reverend Bob Nakata, former legislator and board member of Faith Action for Community Equity (FACE) Hawaii, “Attorneys General across the country were able to get all the big banks to agree to a common standard for servicing the troubled loans – and this is a game changer for families trying to navigate the maze of loan modification rules and policies.”

Added FACE’s Lead Organizer, Drew Astolfi, “the law is catching up to the sweeping changes in the banking industry made in the 90’s, and this settlement moves the ball down the field towards fairness – AG Louie and his team have done the state’s struggling homeowners a real service.”

Local residents were also pleased by the news. Melba Amaral of Oahu said of the settlement, “There are strong provisions in here that would have helped me and my family when we were struggling to get out of foreclosure.”

Mitizi Toro, a Maui resident added, “I feel like the Attorney General must really be listening to families like mine – when I read about the new standard for tracking documents, and giving homeowners a single person to talk to I was really proud of Hawaii!”

The unprecedented joint state-federal settlement is the result of a massive civil law enforcement investigation and initiative that includes state attorneys general and state banking regulators across the country, and nearly a dozen federal agencies.

The settlement holds banks accountable for past mortgage servicing and foreclosure fraud and abuses and provides relief to homeowners. With the backing of a federal court order and the oversight of an independent monitor, the settlement stops future fraud and abuse.

Under the agreement, the five servicers have agreed to provide $25 billion under a joint state-national settlement structure.


* Servicers commit a minimum of $17 billion directly to borrowers through a series of national homeowner relief effort options, including principal reduction. Given how the settlement is structured, servicers will actually provide up to an estimated $32 billion in direct homeowner relief.

* Servicers commit $3 billion to a mortgage refinancing program for borrowers who are current, but owe more than their home is currently worth.

* Servicers pay $5 billion to the states and federal government ($4.25 billion to the states and $750 million to the federal government). The state payments include funding for payments to borrowers for mortgage servicing abuse.

* Homeowners receive comprehensive new protections for new mortgage loan servicing and foreclosure standards.

* An independent monitor will ensure mortgage servicer compliance.

* States can pursue civil claims outside of the agreement, such as any criminal cases. Borrowers and investors can pursue individual, institutional or class action cases regardless of the agreement.

* Borrowers and investors can pursue individual, institutional, or class action cases regardless of the agreement.

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 also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases and MERS (Mortgage Electronic Registration Systems) claims.

On Jan. 27, 2012, U.S. Attorney General Eric Holder along with HUD Secretary 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.

“This agreement addresses breakdowns in the mortgage servicing industry, and allows us to pursue other mortgage-related misconduct,” Louie said.

“While this settlement includes significant relief for homeowners, it also puts in place new protections for homeowners in the form of mortgage servicing standards,” Louie said. “That’s not something we’d see if we simply won a money judgment in a trial.”

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.

This enforcement action targets one segment of the nation’s vast and complex mortgage market, though the new servicing standards will apply to all mortgage loans serviced by the settling banks.

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. Settlement administrators or state attorneys general may also contact borrowers regarding certain aspects of the settlement.

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Akaka’s statement on state-federal mortgage servicing settlement

U.S. Sen. Daniel K. Akaka, a member of the Committee on Banking, Housing, and Urban Affairs, issued the following statement Thursday:

“This national settlement with five of America’s largest banks will provide immediate and urgently needed relief to distressed homeowners in Hawaii and throughout our country, while demanding strict reforms on how mortgage lenders service their borrowers. As with all settlement agreements, the terms agreed to are a compromise and may not a perfect solution for all parties concerned, but I am pleased this settlement further protects homeowners from unfair lending practices as we continue to develop initiatives to restore our country’s housing market.”

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