By Vicki Needham - 03/12/12 05:32 PM EDT
The Housing and Urban Development Department explained that those payments do not prevent borrowers from pursuing additional compensation for their losses from banks, with no limits, separately from the settlement.
In addition, the agreement requires servicers to implement new standards for mortgage loan servicing and foreclosure practices and fix the problems that led to the violations uncovered during the joint federal-state investigation.
The new servicing standards make foreclosure a last resort by requiring servicers to evaluate homeowners for other loss mitigation options first.
Servicers will be restricted from foreclosing while the homeowner is being considered for a loan modification and homeowners will have the right to appeal denials. Servicers will also be required to create a single point of contact for borrowers seeking information about their loans and maintain adequate staff to handle calls.
Joseph Smith, an independent settlement monitor, will track the banks' progress in helping consumers and upgrading their practices, issue quarterly statements on where banks stand and seek fines if the servicers fail to meet their targets to help consumers.
If a servicer violates the requirements it could be subject to penalties of up to $1 million per violation or up to $5 million for certain repeat violations.
Unlike prior settlements banks cannot meet their obligations simply by offering help to homeowners, according to HUD.
They will only get credit by actually delivering principal reductions or other help. If they don't, requirements will convert to cash payments and will result in penalties of an additional 25-40 percent, according to HUD.
The servicers are required to complete 75 percent of their consumer relief obligations within two years and 100 percent within three years.
The government filed the settlement — the largest federal-state civil settlement ever obtained and is the result of extensive investigations by federal agencies — in U.S. district court for Washington, D.C.
The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers.
Oklahoma Attorney General Scott Pruitt was the only state official who didn't sign on to the agreement because he said it was an overreach by states.