Arizona will receive $1.6 billion of the purported $25 billion joint federal-state settlement with the nation’s five largest mortgage servicers for their role in wide-spread servicer and foreclosure abuses.  Arizona Attorney General Tom Horne’s decision to join the broad settlement also means that his office has reached an agreement with Bank of America over allegations that it has violated an earlier consent agreement that was reached with Countrywide and allegations that Bank of America has systematically violated Arizona’s Consumer Fraud Act. 

The agreement requires Bank of America to pay $10 million to the Arizona Attorney General to be used to: (1) avoid preventable foreclosure; (2) mitigate the effects of the mortgage and foreclosure crisis in Arizona; and (3) enhance law enforcement efforts to prevent and prosecute financial fraud or unfair or deceptive acts or practices, and/or provide compensation for harm resulting from conduct alleged in the lawsuit. The agreement also requires Bank of America to pay the Attorney General’s costs and attorneys’ fees incurred in the lawsuit.

Bank of America has also agreed to the following Arizona-specific provisions, which are not included in the broad federal-state settlement: (1) retain an unaffiliated third party to maximize the response rate for loss mitigation programs; (2) confirms that even borrowers who were previously denied for or defaulted on loss mitigation will not be prevented from applying again solely because of the previous denial or default; and (3) requires Bank of Ame to report Arizona-specific information about modifications and other assistance provided to Arizona borrowers.

Arizona’s estimated $1.6 billion share of the global settlement is broken down as follows: 

  • $1.3 billion principally for principal reduction, but also including a menu of other relief to homeowners (how this will actually be implemented obviously remains to be seen).
  • Arizona’s borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and suffered servicing abuse will be eligible for an estimated $110.4 million in cash payments to borrowers, estimated at approximately$2,000 per borrower.
  • The value of refinancing loans to Arizona’s current, underwater borrowers will be an estimated $85.8 million.
  • The state will receive a direct payment of approximately $102.5 million (yet no mention of what this $102.5 million will be used for).

While the global settlement does not grant any immunity from criminal offenses and will not affect criminal prosecutions, as far as allegations of servicer abuse, including robo-sigining and dual-tracking go, the five largest banks have the green light to push through many of the foreclosures that have been stalled while this agreement was hammered out.  The agreement also does not prevent homeowners or investors from pursuing individual, institutional, or class action civil cases against the five servicers. The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases, which may be the next big fish to land.

The final agreement will be filed in the form of a consent judgment in U.S. District Court in Washington, D.C. and will have the authority of a court order. The consent judgment will require that Arizona’s share of the state’s direct payment be used by the Attorney General to carry out the purposes of the settlement, including to avoid preventable foreclosures, to remedy the effects of the mortgage and foreclosure crisis, and to enhance law enforcement efforts to prevent and prosecute financial fraud and unfair or deceptive acts or practices.