Kansas homeowners eligible for $50 million of $25 billion foreclosure-abuse settlement

Kansans are expected to receive about $50 million as the state’s share of a $25 billion deal with the nation’s biggest mortgage lenders over foreclosure abuses after the housing bubble burst.

Four thousand Kansas homeowners who lost their homes, and an unknown number of others struggling to keep theirs, may be eligible for relief under the national settlement, State Attorney General Derek Schmidt said in a statement.

“This settlement will not help every homeowner who suffered foreclosure during the Great Recession, nor does it resolve every claim of misconduct against lenders or mortgage servicers,” Schmidt said. “But it’s a dramatic step forward that will help many Kansans and will hold major financial institutions that played fast and loose with people’s lives accountable for their actions.”

Schmidt noted that although the agreement settles civil claims by the state, it does not forestall any potential criminal prosecutions. Homeowners and investors who believe they were victimized by improper mortgage practices will still be able to pursue their own civil actions against the banks.

Federal and state officials announced the deal Thursday. It is the biggest settlement involving a single industry since a 1998 multistate tobacco deal.

Under the agreement, five major banks — Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — will reduce loans for nearly 1 million households. They will also send checks of $2,000 to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.

“Under the terms of this settlement, America’s biggest banks, banks that were rescued by taxpayer dollars, will be required to right these wrongs. And that means more than just paying a fee,” President Obama said.

Obama stressed that the settlement dealt only with problems in the servicing of mortgages, and that his administration continues to investigated alleged fraud in the origination of mortgages and their packaging as mortgage-backed securities.

Homeowners who are still in their homes, but whose property value is less than they owe on the mortgage, may be eligible for loan modifications or reduction of the principal on their loan, said Jeff Wagaman, Schmidt’s deputy chief of staff.

Such benefits will only be available to those with mortgages financed by the five banks named in the settlement, Wagaman said.

Homeowners who believe their mortgages are underwater, or who lost their homes due to foreclosure, can call the attorney general’s consumer hotline at 800-432-2310 for information on their eligibility for benefits from the settlement.

The five banks involved in the settlement have set up their own hotlines for borrowers who have questions about the settlement:

The settlement ends a painful chapter that emerged from the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents. Some employees signed papers they hadn’t read or used fake signatures to speed foreclosures — an action known as robo-signing.

Okla. inks own deal

All but one of the 50 states agreed to the deal. The only holdout was Oklahoma, which reached a separate settlement with the lenders.

Oklahomans are expected to receive less than half as much as Kansans, about $18.6 million.

In a statement, Oklahoma Attorney General Scott Pruitt criticized the multistate settlement, which was primarily negotiated by the states and the U.S. Justice Department, as government over-reach.

“We had concerns that what started as an effort to correct specific practices harmful to consumers morphed into an attempt by President Obama to establish an overarching regulatory scheme, which Congress had previously rejected, to fundamentally restructure the mortgage industry in the United States,” Pruitt said. “This (separate) settlement will provide damages to those Oklahomans who did fall victim to unfair and unlawful misconduct of mortgage servicing companies, while not exceeding the appropriate role and authority of state attorneys general.”

Unlike Kansans, Oklahomans who now owe more on their mortgages than their homes are worth won’t be able to take advantage of provisions in the national settlement requiring lenders to modify loans and in some cases reduce the principal owed, a spokeswoman for Pruitt confirmed.

The national settlement

The national agreement includes:

The conditions of the national settlement will be overseen by Joseph A. Smith Jr., North Carolina’s banking commissioner. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.

Under the deal, 49 states said they won’t pursue civil charges related to these types of abuses. Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges.

“There were many small wrongs that were done here,” said U.S. Housing and Urban Development Secretary Shaun Donovan. “This does not resolve everything. We will be aggressive about going after claims elsewhere.”

Bank of America will pay the most to borrowers as part of the deal — nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase will pay roughly $4.2 billion, Citigroup will pay about $1.8 billion, and Ally Financial will pay $200 million. This does not include $5.5 billion in federal and state payments.

The deal also ends a separate investigation into Bank of America and Countrywide for inflating appraisals of loans from 2003 through most of 2009. Bank of America acquired Countrywide in 2008.

“The settlement includes far reaching relief that will help many of our customers and complement our already extensive efforts to improve our borrower assistance efforts and servicing processes,” JPMorgan Chase said in a statement.

The banks and U.S. state attorneys general agreed to the deal late Wednesday after 16 months of contentious negotiations.

Those who lost their homes to foreclosure are unlikely to get their homes back or benefit much financially from the settlement.

The settlement would apply only to privately held mortgages issued from 2008 through 2011. Banks own about half of all U.S. mortgages — roughly 30 million loans. Those owned by mortgage giants Fannie Mae and Freddie Mac are not covered by the deal.

Contributing: Dion Lefler of The Eagle; McClatchy Newspapers; Associated Press

This story was originally published February 9, 2012 at 5:00 AM with the headline "Kansas homeowners eligible for $50 million of $25 billion foreclosure-abuse settlement ."