Big Mortgage Settlement Is Thin on Details

Updated with statements from all five mortgage servicers, detail on Federal Reserve and OCC monetary penalties, and market close information.

NEW YORK (TheStreet) -- The U.S. Justice Department on Thursday announced a broad foreclosure settlement between the largest mortgage servicers, federal regulators and 49 states' attorneys general. But how exactly the settlement will be enforced has yet to be revealed.

Oklahoma is the only holdout, with a separate settlement agreement being negotiated.

The provides a way for Bank of America (BAC) , JPMorgan Chase (JPM) , Wells Fargo (WFC) , Citigroup (C) , and Ally Financial to move beyond the "robo-signing" mess, nearly a year after federal regulators handed down cease and desist orders requiring myriad improvements in loan servicing and foreclosure processes.

JPMorgan Chase said in a Securities and Exchange Commission filing that its contribution to the settlement would total $5.3 billion, including $1.1 billion for "payments to borrowers," "approximately $500 million of refinancing relief to certain 'underwater' borrowers whose loans are owned by the Firm," and "approximately $3.7 billion of additional relief for certain borrowers, including reductions of principal on first and second liens, payments to assist with short sales, deficiency balance waivers on past foreclosures and short sales, and forbearance assistance for unemployed homeowners."

Wells Fargo said in a statement that its contribution would total $5.3 billion, including $900 for refinancing relief, "$3.4 billion in consumer relief programs," and "$1.0 billion paid directly to the federal government and the states for their use to address the impact of foreclosure challenges as they see fit."

Citigroup announced that its contribution to the mortgage settlement would total "approximately $2.2 billion," and the company said it expected that "that existing reserves will be sufficient to cover customer relief payments and all but a small portion of the cash payment called for under this settlement." The company also said it would "adjust its fourth quarter and full year 2011 financial results to reflect an additional $84 million (after tax) charge," along with an additional $125 million in after tax charges, "in connection with the resolution of related mortgage litigation."

Ally Financial said it had agreed to pay $310 million, "with $110 million in cash for federal and state payments and $200 million in borrower relief." The company said it "expects that the financial impact of the agreement will not be material on financial results for the first quarter of 2012 and future periods."

Bank of America said its "commitment under the agreements in principle is $11.8 billion," with approximately "$7.6 billion in borrower assistance, including targeted principal reduction," $1.0 billion for "refinancing assistance to customers in the participating states," up to $1 billion to settle FHA claims, and "approximately $2.25 billion in direct payments to state and federal governments and in borrower restitution, of which $1.9 billion would be an upfront cash payment," with the remaining $350 million only being paid if the company "failed to meet certain principal reduction thresholds over a three-year period."

Attorney General Eric Holder said the settlement was "the largest joint federal-state settlement ever obtained," and in addition to holding the servicers "accountable for abusive practices," would require the banks to "commit more than $20 billion towards financial relief for consumers."

Having nearly all the states sign on to the agreement, including California Attorney General Kamala Harris, New York Attorney General Eric Schneiderman, and Florida Attorney Genera Pam Bondi is quite a relief to the mortgage industry, and according to FBR analyst Paul Miller, ""marks the first time in several years that banks have been able to remove a material overhang."

The agreement requires the mortgage servicers "to implement comprehensive new mortgage loan servicing standards" and resolve "violations of state and federal law," including "use of 'robo-signed' affidavits, in foreclosure proceedings; deceptive practices in the offering of loan modifications; failures to offer non-foreclosure alternatives before foreclosing on borrowers with federally insured mortgages; and filing improper documentation in federal bankruptcy court."

The servicers will pay $5 billion in cash to the states and to the federal government, with $3.5 billion going "go to state and federal governments to be used to repay public funds lost as a result of servicer misconduct and to fund housing counselors, legal aid and other similar public programs determined by the state attorneys general," while $1.5 billion "will be used to establish a Borrower Payment Fund to provide cash payments to borrowers whose homes were sold or taken in foreclosure between Jan. 1, 2008 and Dec. 31, 2011, and who meet other criteria."

The Justice Department said that "the $5 billion includes a $1 billion resolution of a separate investigation into fraudulent and wrongful conduct by Bank of America and various Countrywide entities related to the origination and underwriting of Federal Housing Administration (FHA)-insured mortgage loans, and systematic inflation of appraisal values concerning these loans, from Jan. 1, 2003 through April 30, 2009."

At least $10 billion of the settlement money "will go toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth," with at least $3 billion going "toward reducing the principal on loans for borrowers who, as of the date of the settlement, are either delinquent or at imminent risk of default and owe more on their mortgages than their homes are worth."

Another $3 billion will be made available for borrowers who are current on their mortgages, "but who owe more on their mortgage than their homes are worth." This will be of special interest to borrowers whose loans were not sold to the government-sponsored mortgage giants Fannie Mae (FNMA) or Freddie Mac (FMCC) , since these borrowers are not covered under President Obama's expanded Home Affordable Refinance Program, or HARP, which allows borrowers with loans held by Fannie and Freddie to refinance at today's low rates, no matter how much the values of the homes have declined.

A new website was set up under the agreement, to provide guidance to consumers who lost their homes to foreclosure to apply for relief under the settlement, or for current borrowers to apply to pursue a refinance. However, on the page describing who may be eligible for assistance, consumers are told that "borrowers will not immediately know if they are eligible for relief."

Over the next 60 days, "settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance," while over the next six to nine months, "he settlement administrator, attorneys general and the mortgage servicers will work to identify homeowners eligible for the immediate cash payments, principal reductions and refinancing," with eligible consumers receiving letters.

Investors' reaction was muted.

Bank of America's shares were up a nickel, to close at $8.18. The shares have now returned 47% year-to-date, after falling 58% in 2011.

Shares of JPMorgan pulled back 1% to close at $37.87. The have returned 15% year-to-date, after dropping 20% last year.

Citigroup declined 2% to close at $33.66. The shares are up 28%, following last year's decline of 44%.

Shares of Wells Fargo were down a nickel, to close at $30.58. The shares have returned 11% year-to-date, after a 10% pullback in 2012.

Ominously for the mortgage servicers, the announced settlement "does not prevent any action by individual borrowers who wish to bring their own lawsuits," and the "state attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers."

Following up on its cease and desist orders against the "big four" U.S. bank holding companies last year, the Office of the Comptroller of the Currency announced later Thursday morning "penalties aggregating $394 million" for the group, but agreed "to hold in abeyance imposition of such penalties provided the servicers make payments and take other actions under the federal-state settlement with a value equal to at least the penalty amounts that each servicer acknowledges that the OCC could impose."

The OCC's penalty "amounts for each servicer are $164 million for Bank of America, $34 million for Citibank, $113 million for JPMorgan Chase, and $83 million for Wells Fargo. "

The Federal Reserve later announced $766.5 million in monetary sanctions against the servicers, included within the $25 billion settlement. The Fed's largest penalty is against JPMorgan Chase, for $275 million, followed by penalities of $207 million against Ally Financial, $175.5 million against Bank of America, $87 million against Wells Fargo, and a penalty of $22 million for Citigroup.

-- Written by Philip van Doorn in Jupiter, Fla.

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