U.S. Senator Richard Shelby questioned the fairness of a $25 billion mortgage servicing settlement, saying it “appears to come up short” for borrowers who wrongfully lost their homes.
The top Republican on the Senate Banking Committee spoke at a hearing today on the state of the housing industry.
Earlier this month, five banks agreed to pay at least $25 billion to end a nationwide investigation of abusive foreclosure practices after the collapse of the housing bubble.
Homeowners whose loans were improperly foreclosed will receive about $2,000, Shelby said in his opening remarks.
“Although having the settlement compensate as many people as possible may make sense politically, settlement funds should compensate homeowners who suffered actual harm and deter future violations of law,” the Alabama senator said.
“Homeowners who were wrongfully foreclosed upon will still likely have to pursue the remainder of their claims in court or through financial regulators,” Shelby said. “In contrast, many homeowners who suffered no legal harm appear to be eligible for compensation as well.”
Shaun Donovan, secretary of the Department of Housing and Urban Development, said details of the settlement will be filed in court this week.
The settlement is similar to a class action agreement in that it was designed to aid as many victims as possible as quickly as possible, Donovan said.
Earlier this month, the nation’s five largest mortgage servicers -- Bank of America, JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc. -- reached a settlement with state and federal prosecutors over flawed foreclosure practices.
The deal was announced more than a year after attorneys general from all 50 states began an investigation into banks’ use of faulty documents to seize homes, a practice known as robo-signing.