WASHINGTON - Guard members and their families are among the Americans who will benefit from a "landmark" $25 billion foreclosure settlement between the government and banks, federal and state officials said Friday.
The federal government and 49 state attorneys general reached the agreement with the nation's five largest mortgage lenders to address mortgage loan servicing and foreclosure abuses.
This agreement includes substantial financial compensation for military homeowners - above and beyond the $25 billion - and sets up significant new protections for troops and their families for the future, officials told reporters during a conference call Friday.
"On my travels to military communities across the country during the past year, I have repeatedly heard about the devastating impact of the housing crisis on military homeowners," said Holly Petraeus, assistant director for the Consumer Financial Protection Bureau's Office of Servicemember Affairs. "I have spoken out about the unique challenges to service members caught in this current housing crisis, and I am pleased that this settlement addresses those challenges."
Petraeus, alongside Tom Perez, assistant attorney general for the Justice Department's civil rights division, and Delaware State Attorney General Beau Biden, who is also a Delaware Army National Guard member, explained how this settlement will affect distressed homeowners and, in some cases, all military members and their families in the days ahead.
To start, four lenders - JPMorgan Chase & Co., Wells Fargo & Company, Citigroup Inc. and Ally Financial Inc., formerly GMAC - have agreed to conduct a full review, overseen by the civil rights division, to determine whether any service members were foreclosed on in violation of the Servicemembers Civil Relief Act since Jan. 1, 2006, Perez explained.
The SCRA offers a wide range of financial protections to active duty and deploying service members in areas such as credit card debt and mortgage payments.
For violating the law, Wells Fargo, Citigroup and Ally will be required to provide any service member who was a victim of a wrongful foreclosure a minimum payment of $116,785, plus the service member's lost equity and interest, Perez said. The service member's payment could be higher as a result of the review conducted by banking regulators, he added.
To ensure consistency with an earlier private settlement, JPMorgan Chase will provide service members who were a victim of a wrongful foreclosure either their home free and clear of debt or the cash equivalent of the full value of the home at the time of sale. "In addition," Perez said, "service members will receive compensation for any additional harm suffered."
Citigroup, Wells Fargo and Ally also have agreed to conduct a review to determine whether service members - from Jan. 1, 2008, to present - were charged interest in excess of six percent on their mortgage after a valid request to lower the interest rate, in violation of the SCRA, Perez said.
Lenders will be required to provide these troops with a payment equal to a refund, with interest, of any amount charged in excess of 6 percent, plus triple the amount refunded or $500, whichever is greater.
JPMorgan Chase already has compensated service members charged interest in excess of six percent on their mortgage through the private settlement, Perez added.
All four lenders have agreed to numerous other measures, he said, including SCRA training for employees and agents. The lenders also will repair any negative credit report entries related to wrongful foreclosures and will not pursue any remaining amounts owed under the mortgages.
The settlement also involves expanded protections for service members and their families.
The SCRA prohibits foreclosures on service members without court orders on mortgages that were originated before military service began.
This settlement extends this protection to all service members, regardless of when their mortgage was secured, if they were receiving hostile fire or imminent danger pay and were stationed away from their home within nine months of the foreclosure, according to a Justice Department news release.
"The provisions relating to the Servicemembers Civil Relief Act in this agreement will help ensure that members of the military won't be denied critical consumer protections or face foreclosure when they are deployed to a war zone," Petraeus said.
The agreement also requires all five lenders to provide some service members ordered to relocate access to loan modifications without going into default, Perez said. If they must sell their home at a loss but are ineligible for funding through the Defense Department's Homeowners' Assistance Program, lenders must, in some cases, provide troops with short sale agreements and mandatory deficiency waivers.
"The cost of this program will not be paid by DOD and the taxpayers, but rather by the servicers," Perez added.
The banks had neglected to discuss options, such as short sale agreements, with military families faced with a mandatory move. As a result, these families often stayed behind when the service member moved, Biden said.
"We simply should not force families to be separated" due to a military move, he said.
Biden, a military lawyer and major in the Delaware Army National Guard, said he takes this settlement personally.
He served alongside troops affected by lenders' wrongdoing while deployed in Iraq for a year, he said. Troops and their families already serve and sacrifice and shouldn't have to bear another hardship, he said.
Petraeus lauded the settlement and said she hopes it will bring peace of mind to military families dealing with housing-related challenges.
"I urge financial institutions to pay heed to these provisions and ensure that our men and women in uniform have better options than accepting foreclosure or leaving their families behind when they go to their next multiyear assignment," she said.
The settlement, Perez added, will enable service members "to focus on the critical role they play in protecting our nation."
Service members and their families who believe their SCRA rights have been violated should contact the nearest Armed Forces Legal Assistance office. Additional information is available at http://www.servicemembers.gov.
Perez also invited service members who believe they're entitled to compensation under this settlement to directly contact the Justice Department at 1-800-896-7743.
However, he added, service members don't need to apply for this relief. The Justice Department will have access to information that will determine victims of wrongdoing and will contact these service members.
Perez declined to give a specific compensation deadline. "The investigative process of reviewing these records will take some time," he explained. But we are going to be working to ensure it's as little time as possible."
In remarks Thursday, President Barack Obama noted the significance of the $25 billion settlement.
"We have reached a landmark settlement with the nation's largest banks that will speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry, and begin to turn the page on an era of recklessness that has left so much damage in its wake," he said.
"No compensation, no amount of money, no measure of justice is enough to make it right for a family who's had their piece of the American Dream wrongly taken from them," Obama said.
"And no action, no matter how meaningful, is going to, by itself, entirely heal the housing market. But this settlement is a start. And we're going to make sure that the banks live up to their end of the bargain."