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February 10, 2012

I’m pleased to announce that 49 state attorneys general and the federal government reached agreement on a historic joint state-federal settlement with the country’s five largest loan servicers-- Ally, Bank of America, Citi, JPMorgan Chase and Wells Fargo. The settlement will provide as much as $25 billion in relief to distressed borrowers and direct payments to states and the federal government—including nearly $650 million for Washington state. It’s the largest civil settlement reached by the Attorneys General since the tobacco settlement.

The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure-related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct.  Both of these practices violate the law. The settlement provides benefits to borrowers whose loans are owned by the settling banks, as well as to some of the borrowers whose loans they service.


  • Approximately $483 million for programs to help borrowers: The banks will spend $17 billion – up to about $483 million for Washington state – on a variety of programs to help beleaguered borrowers. The participating banks will receive credit toward the $25 billion settlement for relief programs they implement to benefit homeowners. The centerpiece programs involve loan modifications and principal reductions for qualifying delinquent borrowers. These programs will help those who cannot afford their current payment but have a reasonable chance of succeeding with a reduction in the amount they owe. 
    • The settlement provides powerful financial incentives for the banks to provide loan modifications as quickly as possible—starting immediately. Mortgage servicers have three years to reach loan modification targets and fulfill refinancing commitments.  Servicers must reach 75 percent of their targets within the first two years or pay substantial cash penalties. There are additional cash penalties for failing to meet the third and final year targets.
    • The settlement also lends a hand to those borrowers whose homes can’t be saved: it encourages short sales by cushioning the impact of such transactions and providing a dignified way out. Some borrowers will receive money to help them relocate to an affordable home. Others will be forgiven the difference between what they owe and the short-sale price of their home. The settlement includes special assistance for members of the military facing foreclosure.
    • Because of the way this part of the settlement is structured—banks in some cases will receive less than a dollar credit for each dollar of consumer relief they provide—the total value to consumers is much greater than the $25 billion settlement value.
  • $84 million for borrowers who are current on their mortgage payments: The servicers will also spend at least $3 billion, an estimated $84 million for Washington state, to refinance homes worth less than the amount owed.  Borrowers who qualify must be current on their mortgage payments on a mortgage owned by one of the five servicers.
  • $24 million in payments to foreclosure victims: Borrowers who were not properly offered loss mitigation or who were otherwise improperly foreclosed on will be eligible for a uniform payment of approximately $2,000. These payments will be paid to borrowers who were foreclosed on between Jan. 1, 2008 through Dec. 31, 2011.  Qualifying borrowers will be notified of their right to file a claim and are not required to release any liability in exchange for a payment. Those who believe they were harmed beyond the scope of the settlement may still seek an independent foreclosure review from the U.S. Office of the Comptroller of the Currency or may pursue an individual or class action lawsuit. 
  • $45 million for foreclosure relief programs: The state will receive a nearly $57 million cash payment: approximately $10 million for civil penalties and attorney general’s office fees, $1 million for DFI and the remaining $45 million for foreclosure relief and housing programs. The Attorney General’s Office has used funds from previous mortgage settlements to fund foreclosure prevention hotlines, free legal assistance and foreclosure mediation services. McKenna proposes a committee made up of state legislators from both parties, a representative from the Department of Financial Institutions (DFI) and housing industry and consumer advocate groups to decide the best way to distribute the funds.
  • First ever nationwide reforms to servicing standards; something that no other federal or state agency has been able to achieve. These servicing standards require single point of contact, adequate staffing levels and training, better communication with borrowers, and appropriate standards for executing documents in foreclosure cases, ending improper fees, and ending dual-track foreclosures for many loans.
  • State AG oversight of national banks for the first time.  Something no court could award. 
    • National banks will be required to regularly report compliance with the settlement to an independent, outside monitor that reports to state Attorneys General.
    • Servicers will have to pay heavy penalties for non-compliance with the settlement, including missed deadlines.
  • Banks are still accountable for other claims not covered by this settlement. The agreement holds the banks accountable for their wrongdoing on robo-signing and mortgage servicing.  This settlement does not seek to hold them responsible for all their wrongs over the past five years and the agreement and its release preserve legal options for others to pursue. 
    • Governmental entities and private parties are aggressively pursuing securities cases against the banks. 
    • A joint federal-state task force has been formed to investigate and prosecute those responsible for the collapse of the mortgage lending and investment markets.
    • Individuals may still pursue private claims.
    • This settlement includes absolutely no criminal immunity for any individual who violated the law.


  • Over the next 30 to 60 days, settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance.
  • Over the next six to nine months, the settlement administrator, attorneys general and the mortgage servicers will work to identify homeowners eligible for the immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.
  • This settlement will be executed over the next three years.


Because of the complexity of the mortgage market and this agreement, which will be performed over a three-year period, borrowers will not immediately know if they are eligible for relief.

For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. Keeping in mind the timeline above, you may contact the banks directly if you need additional information:

Even if you are not contacted, if your loan is serviced by one of the five settling banks, you are encouraged to contact your servicer at the numbers above to see if you are eligible. 

For payments to foreclosure victims, a settlement administrator designated by the attorneys general will send claim forms to eligible persons.  If you believe you are eligible for relief under this settlement but are concerned you will be difficult to locate, please contact our office or complete this form: We will collect and forward your information to the appropriate person to ensure you are contacted if you are eligible.

More information will be made available as the settlement programs are implemented.

Loans owned by Fannie Mae or Freddie Mac are not directly impacted by this settlement.  You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac: 

These sites will also include links to information about other mortgage and foreclosure programs, and homeowners seeking assistance can also call 1-888-995-HOPE (4673).

For more information on this settlement, including frequently asked questions and an executive summary, please visit: or the Washington AGO Web site on this settlement: 

I hope you find this information helpful.


Rob McKenna
Attorney General

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