WASHINGTON - U.S. banks have taken another step to clear away the wreckage of the 2008 financial crisis by agreeing to pay $8.5 billion to settle charges that they wrongfully foreclosed on millions of homeowners.
The deal announced Monday could compensate hundreds of thousands of Americans whose homes were seized because of abuses such as "robo-signing," when banks automatically signed off on foreclosures without properly reviewing documents.
The agreement will also help eliminate huge potential liabilities for the banks.
But consumer advocates complained that regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families and fueled an exodus from neighborhoods across the country.
The settlement ends an independent review of loan files required under a 2011 action by regulators.
Bruce Marks, CEO of the advocacy group Neighborhood Assistance Corp. of America, noted that ending the review will cut short investigations into the banks' practices.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay about $3.3 billion to homeowners to end the review of foreclosures.
The rest of the money - $5.2 billion - will be used to reduce mortgage bills and forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.
A total of 3.8 million people are eligible for payments under the deal announced by the Office of Comptroller of the Currency and the Federal Reserve. Those payments could range from a few hundred dollars to up to $125,000.
Homeowners who were wrongly denied a loan modification will be entitled to relatively small payments. By contrast, people whose homes were unfairly seized and sold would be eligible for the biggest payments.
The companies involved in Monday's settlement also include Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
B of A ALSO settles with Fannie Mae
Also on Monday, Bank of America reached an $11.6 billion settlement with government mortgage agency Fannie Mae to settle claims resulting from mortgage-backed investments that soured during the housing crash, bringing it a step closer to clearing up its legacy of bad home loans.
The Associated Press