Settlement nears in foreclosure abuse cases

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LOS ANGELES — Banks and regulators worked late Sunday to finalize a nearly $10 billion settlement that would end a much-maligned program to review foreclosures from the height of the housing crisis, according to people familiar with the talks.

At least 14 banks are involved. Since the reviews began in late 2011, the banks have paid $1.5 billion to consultants examining foreclosure records — but not a penny to aggrieved borrowers. Both bankers and regulators found that result untenable, officials have said.

The settlement would include $3.75 billion in cash payments to borrowers eligible for reviews, people familiar with the negotiations said.

The agreement could be announced as early as today by the Office of the Comptroller of the Currency, the arm of the Treasury Department that regulates banks with national charters, the people said.

Consumer advocates fretted that abandoning that process could mean there would be no such definitive accounting of the foreclosure mess. And they called for detailed disclosure of how the consultants had conducted reviews and how the nearly $10 billion would be spent.

Under the original plan devised by the comptroller and the Federal Reserve in April 2011, 4.4 million Americans whose homes were in foreclosure proceedings in 2009 and 2010 could request a free review. Only about half a million have done so.

Borrowers who never requested a review would get only a few hundred dollars under the proposed settlement. Those who requested reviews would get bigger payments. And those determined to have definitely or probably suffered harm from flawed foreclosures could be in line for much larger payments.

An additional $6 billion in “soft” aid would assist delinquent borrowers, mainly through loan modifications, relocation assistance and short sales, in which homeowners are allowed to sell their home for less than they owe on their mortgage. Some, but not all, of those borrowers are among those who had been eligible for the foreclosure reviews.

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