Masto announced her plan late Thursday to join the national $25 billion joint federal-state settlement with the nation’s five largest mortgage services over foreclosure abuses and unacceptable mortgage servicing practices.
Mastro also settled a lawsuit with Bank of America that requires the lender to set aside $750 million for first and second mortgage principal reduction and short sales in the state. It requires Bank of America to suspend its foreclosures on any borrower eligible for the national Homeownership Retention program, solicit eligible homeowners, fund an aggressive outreach effort to ensure that borrowers are made aware of the relief available to them and pay $30 million to the state for consumer protection efforts.
“I fought for and consequently received additional coverage that is above and beyond what is included in the national multi-state settlement for Nevada homeowners who have been devastated by the foreclosure crisis,” Masto said. “My team and I have taken our time to surgically review and subsequently change the national settlement to ensure that it delivers adequate and immediate consumer relieve, without the associated years and risk of litigation.”
With the national settlement, Nevada borrowers will receive an estimated $1.3 billion in benefits from loan term modifications and other direct relief.
Those borrowers who lost their home to foreclosure from Jan. 1, 2008 to Dec. 31, 2011 and suffered servicing abuse would qualify for a share of $57 million in cash payments. The value of refinanced loans to underwater borrowers in the state would be about $42 million, Masto said.
The state will also get a direct payment of $60 million in addition to the $30 million settlement from Bank of America.
Nevada is continuing criminal prosecutions and civil investigations connected to the foreclosure crisis, Masto said. Thursday’s settlements do not prohibit Nevada from continuing to pursue criminal actions against banks.
The agreement also does not prevent homeowners or investors from pursuing individual, institutional or class-action civil cases against the five lenders.
The agreement also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases, Masto said. In 2010, Masto issued subpoenas to Fannie Mae and Freddie Mac to examine their role in the foreclosure crisis and her office will continue to pursue the matter, Masto said. Neither settlement includes Fannie Mae or Freddie Mac loans.
The deal requires five of the largest banks to reduce loans for about 1 million households at risk of foreclosure. The lenders will also send $2,000 checks to about 750,000 Americans who were improperly foreclosed upon. The banks will have three years to fulfill the terms of the deal.
The national settlement is the biggest agreement involving a single industry since a 1998 multi-state tobacco deal. Federal and state officials announced at a news conference that 49 states had joined. Oklahoma announced a separate deal with the five banks.
The announcement ended 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.
Under the deal, the 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.
Consumer advocates and housing activists said the deal is flawed because it covers only a fraction of at-risk homeowners. Critics note that the settlement will apply only to privately held mortgages issued from 2008 through 2011.
Banks own about half of all U.S. mortgages — roughly 30 million loans.
“Today’s settlement is a welcome step forward in our efforts to help struggling homeowners and hold big banks accountable for their abusive foreclosure practices across the country, especially in Nevada,” said Sen. Harry Reid, D-Nev., in a statement. “But we still have much more work to do to help homeowners get back on their feet. When Wall Street greed caused the economy to collapse, the housing market collapsed along with it, and no state has been hit harder than ours. I commend Nevada Attorney General Catherine Cortez Masto for the work she has done with this settlement and I am confident that it will bring relief to countless families across Nevada and the nation.”
Nevada’s settlement allows the state to summon Bank of America to state court. The settlement also include new servicing standards that stop many past foreclosure abuses, including improper documentation and lost paperwork, through new mortgage servicing standards and requires strict oversight of foreclosure processing, and mandates that mortgages servicers will have to evaluate homeowners for other loan mitigation options before foreclosures.
The rules restrict banks from foreclosing while the homeowner is being considered for a loan modification and creates a single point of contact for borrowers who seek information about their loans and adequate staff to handle calls. The new standards will be enforced by court order.
Rep. Shelley Berkley, D-Nev., issued a statement thanking Masto for her work.
“With the highest foreclosure rate in the nation, I hope that this settlement achieves the intended result for Nevada: providing relief for responsible homeowners and holding the Wall Street banks accountable for their reckless behavior. However, we must ensure this never happens again,which begins by rejecting Dean Heller’s agenda of allowing Wall Street banks to write their own rules and run roughshod over Nevada’s families,” Berkley said.
Others spoke out against the deal Thursday.
“The deal announced today is too small,” said Pico National Network, a faith-based group that is active on housing issues. “It falls far short of providing real justice for homeowners and American families.”
Economists also cited the size of the deal: Some said it was hardly enough to have much impact on the troubled housing market.
The 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.
About $10 billion of the settlement total will be used to reduce mortgage payments for underwater homeowners. Paul Diggle, an economist at Capital Economics, said that’s a “drop in the ocean,” considering that 11 million borrowers are underwater “to the tune of $700 billion.”
Mark Vitner, a senior economist at Wells Fargo Securities, said the settlement helps the housing market in the long run because it allows banks to proceed with millions of foreclosures that have been stalled. Many lenders have refrained from foreclosing on homes as they awaited the settlement.
“We’ve got a lot of issues to work our way through in the housing market,” Vitner said. “What this settlement does is allow that process to get started.”
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 roughly $4.2 billion. Citigroup will pay about $1.8 billion and Ally Financial will pay $200 million. Those totals do not include $5.5 billion that the banks will reimburse federal and state governments for money spent on improper foreclosures.
-- The Associated Press contributed to this story.