An estimated 17,000 Minnesota homeowners who went through foreclosure between 2008 and the end of last year could be eligible for some financial relief under the terms of a long-awaited deal announced Thursday.
The $25 billion settlement with Minnesota and 48 other states includes cash payments, refinancing and principal reductions for people who had home loans with Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial. Minnesota's portion of the bank-funded settlement is up to $280 million.
State Attorney General Lori Swanson said the settlement is a good deal for Minnesotans who lost homes during the financial crisis.
"Taxpayers of this country stepped forward for these banks and gave them bailouts," she said. "In turn, the poor homeowners were left with a lot of disregard, a lot of red tape, a lot of uncaring attitude."
SETTLEMENT INCLUDES NEW PROVISIONS, CASH
Swanson said the settlement aims to prevent future foreclosures by putting in place new, strict standards for loan servicers. Applications for loan modifications and short sales must be processed within 30 days. And banks can't start foreclosure proceedings on a borrower with a pending loan modification.
That was the situation for Hopkins resident Mary Myers, 50, and her husband, who lost their home to foreclosure last year.
Myers' husband was laid off in 2008. He eventually went back to work, but at a fraction of his former salary.
When they fell behind on their monthly mortgage payments, they tried to get a loan modification from their lender, Wells Fargo.
"We would call and try to talk to somebody and they'd say 'well you have to resubmit your paperwork, we can't find it,' " she said. "It was ridiculous. Nobody knew the file, nobody had ever heard of us. It got to be so frustrating we just gave up."
Because their home foreclosed before the end of last year, the family would be eligible for a $2,000 check under the settlement.
Myers, who's now living in a rental home, said the money will help.
"We still have bills we are trying to catch up on," Myers said. "It would be a help."
In a statement in support of Thursday's agreement, a spokesman for Wells Fargo said the company has invested in systems and staffing to implement the new servicing standards, and it's expanded existing programs to help struggling borrowers.
"Wells Fargo welcomes the establishment of servicing standards as part of this agreement," said Mike Heid, president of Wells Fargo Home Mortgage.
In addition to up to $77 million in cash refunds for Minnesota, the deal also includes other forms of relief:
• Some borrowers who owe more on their homes than their homes are worth can refinance if they are current on their mortgage, have no delinquencies in the last year and an interest rate of at least 5.25 percent.
• Borrowers who are 30 days behind on their loans, at risk of default and "underwater" on their mortgages are eligible for principal reductions.
• The deal also includes forbearance, short sale and other assistance valued by the federal government valued at up to $167 million.
• Under the settlement, the states said they won't pursue civil charges against the lenders for abuses related to document problems.
• Homeowners can still sue lenders in civil court on their own, and federal and state authorities can pursue criminal charges. Lenders that violate the deal could face $1 million penalties per violation and up to $5 million for repeat violators.
LENDERS DECIDE WHO GETS HELP
University of Minnesota law professor and former assistant Attorney General Prentiss Cox said the settlement stemmed from the mortgage meltdown and investigations into revelations that some banks had rushed foreclosures without proper documentation.
"This is the first time that we've forced the mortgage companies to pony up money to help solve the problems the mortgage industry created," Cox said. "In the past, we've had taxpayer-funded incentives to mortgage companies to do the right thing."
Cox is pleased the settlement lays out clear standards for loan modifications and communication with homeowners.
But he said the deal gives lenders too much leeway in deciding which homeowners to help — something previous foreclosure prevention programs have been criticized for.
"It'll be a decision that has to be made by the lender," he said. "The homeowner can't tell whether they are going to get help or not and that has been a fundamental problem through this whole process of trying to direct money to help homeowners."
Minnesota Attorney General Swanson is urging people who think they may be eligible for help from the settlement to contact her office.