U.S., states near settling with more mortgage servicers on abuses

WASHINGTON Tue Feb 12, 2013 3:53pm EST

WASHINGTON Feb 11 (Reuters) - Federal and state officials are close to entering another round of settlements to resolve robo-signing and other foreclosure abuses by mortgage servicers, according to government officials familiar with the matter.

The advancement in the settlement discussions comes one year after the Justice Department and state attorneys general announced a related $25 billion deal with five major banks.

Talks with three additional servicers are at an advanced stage and announcements could come in the next month or two, said the officials, who asked not to be named. They would not disclose which servicers are close to settling.

Another half-dozen servicers could eventually settle for a combination of cash and relief to distressed homeowners, bringing the total for the remaining servicers up to $5 billion, though it could be less depending on how many servicers authorities decide to go after.

The talks are progressing on separate tracks with each servicer, and will likely not be announced as a group, one of the sources said.

The settlements would mean another round of consumer relief could go to troubled borrowers whose mortgages are serviced by institutions beyond the five largest.

The servicers expected to eventually resolve federal and state charges include those that recently settled related allegations from their regulators: Aurora Bank, HSBC, MetLife Bank, PNC, Sovereign, SunTrust, and U.S. Bank.

Last year, SunTrust said it began preliminary discussions in January 2012 and set aside $120 million for a possible settlement. US Bancorp has also reported $130 million in related reserves.

HSBC spokesman Neil Brazil said the bank remained in discussions. Representatives of the other banks either declined comment or did not respond to a request for comment.

A Justice Department spokeswoman declined comment.

RELIEF IMPACT

Last February the Justice Department, the Department of Housing and Urban Development and 49 states accused five big banks -- Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial -- of unlawfully cutting corners when dealing with the deluge of foreclosures triggered by the financial crisis.

The bulk of the $25 billion settlement was slated to be provided in the form of relief to homeowners, including principal reductions or loan modifications for delinquent borrowers facing foreclosure.

The banks have reported that much of the money from the settlement has already gone out the door, but some housing advocates have said they seen limited results.

"Instead what we found, unfortunately too often, it has allowed business to continue as usual for mortgage servicers," said Brian Kettenring, who leads watchdog group Campaign for a Fair Settlement, on a media call last week to discuss the settlement's impact.

The monitor overseeing the deal, Joe Smith, is expected to release later this month updated numbers about the consumer relief provided by the banks. Smith's first report of audited figures is not due until later this spring.

REGULATORY REVIEWS

The ongoing talks are separate from those conducted by bank regulators to resolve similar issues. Last month more than a dozen banks agreed to pay more than $9 billion to end case-by-case reviews of past home foreclosures.

The Office of Comptroller of the Currency and the Federal Reserve Board ordered the servicers in 2011 and 2012 to review individual loan files and compensate harmed borrowers, after widespread mistakes were discovered in the way they had processed home seizures.

Those reviews proved slow and expensive, and regulators decided last month to enter into a series of settlements to provide cash and other support to certain foreclosed borrowers and end the reviews.

Those settlements helped restart talks with the states and the Justice Department, sources said.

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