Fed, banks agree to pay $1.5 billion for mortgage servicing

Fed, banks agree to pay $1.5 billion for mortgage servicing

Federal regulators have agreed to pay nearly $1 billion to the banks and mortgage servicing companies that were at the center of the biggest mortgage-fraud scandal in history, as well as other firms and individuals involved in the process.

The settlement, announced Friday by the U.S. Commodity Futures Trading Commission, includes $1,000,000 to the Mortgage Settlement Fund, and another $2.5 million to the Office of Thrift Supervision, the federal agency that manages the Federal Housing Administration’s mortgage-backed securities program.

The banks and other mortgage servicers that were the subject of the fraud, as the agency called it, will each receive an additional $1 million, and other companies and individuals will each be reimbursed $300,000.

“This is a significant step forward in stemming the crisis, and I’m pleased that the Commodities Futures Commission has agreed to take significant action to protect the financial stability of Americans and the American taxpayer,” said SEC Chairwoman Mary Jo White.

“Mortgage servicing fraud has been a source of immense concern for the American people and the Commins are committed to addressing this issue through these actions.”

The fraud was uncovered when the mortgage-lending giant Countrywide Financial, which had ties to the fraudsters, was found to have misled regulators and borrowers about its practices.

A group of mortgage servicer companies called Fannie Mae and Freddie Mac have been hit with the biggest civil penalties in the history of the Commissions civil fraud unit.

The SEC settlement will ensure that other firms are not implicated in the frauds.

The companies have agreed not to seek any additional remedies, and to give regulators the information needed to identify the frauders.

The $1-billion payment will be split among all the servicers involved.

Countrywide will receive $350 million, while Freddie Mac will receive an amount of $275 million.

CountryWide, which was also a target of the Justice Department’s civil fraud investigation, has agreed not take any further action.

Freddie Mac is still under investigation by the SEC and Justice Department for its role in the foreclosure crisis, but it’s unclear whether the fraud was a direct factor in the company’s collapse or if the fraud itself had an impact.

The U.N. International Monetary Fund estimates that nearly $4 trillion in assets under the control of private-sector lenders have been lost to fraud.

The mortgage-reform program The settlement will also require the companies to ensure that borrowers are notified of the terms and conditions of the loans and their payments, and will give them the opportunity to review and correct the fraud before the mortgage payment is made.

“The settlement provides for the compensation of approximately $1 trillion in direct and indirect compensation to borrowers,” said Fed Chairwoman Stephanie Schriock.

“We will use the funds to ensure the financial health of the housing markets and help ensure that these frauds are not repeated in the future.”

In its announcement, the Commsaid it has set up a program to give eligible homeowners the chance to participate in the program.

Under the program, the Fed will use its $1B fund to help pay down outstanding mortgage loans for low-income households.

Under this program, borrowers will be able to access the funds for a period of up to two years after the end of the program’s terms.