In February of 2012, the attorney generals of 49 states (every state except Oklahoma) and the District of Columbia reached an agreement with five major banks and mortgage servicers — Ally Financial, Bank of America (NYSE:BAC), Citigroup (NYSE:C), Wells Fargo (NYSE:WFC), and JPMorgan (NYSE:JPM) — to create new servicing standards and provide relief to distressed homeowners. The agreement emerged from the economically-destructive fallout of the mortgage and credit crisis that, in the eyes of critics, was agitated by the abusive behavior of major financial institutions.
The five banks will be providing at least $25 billion in consumer relief. As detailed by the Office of Mortgage Settlement Oversight, the money will be distributed mostly to homeowners who are in danger of foreclosure in order to pay down mortgage principal ($17 billion), with the rest going toward the refinancing of underwater homes ($3 billion), direct payments to homeowners who lost their homes ($1.5 billion), and miscellaneous civil penalties.
But as with any massive regulatory effort, compliance with the terms of the settlement hasn’t been a perfectly smooth process. However, Joseph A. Smith, Jr. — who was elected as monitor of the settlement — reported a number of failures during the testing process. Let’s take a look.