Illinois to get $1 billion in mortgage settlement

Illinois is expected to receive about $1 billion in a multi-state settlement with the nation's five largest mortgage lenders, Attorney General Lisa Madigan announced Thursday.

Madigan joined with attorneys general in others states and federal officials to announce the roughly $25 billion settlement in Washington.

The settlement involves allegations of widespread “robo-signing” of foreclosure documents and other fraudulent practices that occurred after the housing bubble burst. Robo-signing means having employees sign papers they hadn't read or using fake signatures to speed foreclosures.

The five major banks are Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial.

The settlement money would reimburse American homeowners and help overall standards to prevent future abuses.

The deal is the biggest involving a single industry since a 1998 multistate tobacco deal. It would force the five banks to reduce loans for about 1 million households. The reduced loans would benefit homeowners who are behind on their payments and owe more than their homes are worth.

“While the settlement is a big step forward in our efforts, it is not the end. In Illinois, we will continue to take strong legal action against lenders, banks, servicers and others who contributed to the housing and economic collapse,” she said in a statement.

Madigan's office — which first announced its role in the multi-state investigation in 2010 — said the money will be used to help Illinois residents who've lost their homes, are at risk of defaulting on their mortgages or owe more than their homes are worth.

“This settlement will help those most affected by the housing crisis, and will establish new rules for mortgage lending that will be easier to understand and enforce,” said Illinois Gov. Pat Quinn in a statement.

There are still a number of questions about who can qualify for a portion of the settlement.

Julie Jaloszynski's husband died six years ago, works two jobs to keep her family in their Lombard home, and hopes the settlement will allow her to refinance her mortgage.

“The problem I keep having is they say I don't make enough money to pay for a loan modification, but I have been paying my mortgage,” she said Thursday. “It's as if they (the banks) won't even work with me.”

The 49-year-old mother of two is a breast cancer survivor and was forced to switch to a lower-paying job to receive health care benefits although she still pays more than $500 a month for her family's plan.

“A couple times I have come close to foreclosure,” she said.

Jaloszynski said any amount of relief would change her life “incredibly.”

“I can't seem to fit into any of the pockets that give anyone help,” she said. “It would be amazing.”

The bulk of the money will go to California and Florida, two of the states hardest hit by the housing crisis and the ones with the most underwater homeowners. The two states stand to receive roughly 75 percent of the settlement funds.

Of the five major lenders, Bank of America will pay the most to borrowers: nearly $8.6 billion. Wells Fargo will pay about $4.3 billion, JPMorgan Chase roughly $4.2 billion, Citigroup about $1.8 billion and Ally Financial $200 million.

The settlement ends a painful chapter of the financial crisis, when home values sank and millions edged toward foreclosure. Many companies processed foreclosures without verifying documents.

Some employees signed papers they hadn't read or used fake signatures to speed foreclosures an action known as robo-signing.

President Barack Obama praised the settlement, saying it will “speed relief to the hardest-hit homeowners, end some of the most abusive practices of the mortgage industry and begin to turn the page on an era of recklessness that has left so much damage in its wake.”

• Daily Herald staff writer Paul Biasco contributed to this report.

How bank deal helps

<b>What it involves</b>

• Total settlement is $26 billion, but could grow to $45 billion depending on how many mortgage servicers participate.

• It's a response to charges of widespread “robo-signing” of foreclosure documents and other fraudulent practices.

• Expected to help about 1 million homeowners nationwide by reducing the debt they have on property or by refinancing.

• The settlement will overhaul standards to prevent future abuses.

Who is helped here

• Deal will include more than $1 billion in assistance to former and current Illinois homeowners.

• Former borrowers who lost their property to foreclosure from January 2008 to last year could be eligible for as much as $2,000. Those affected must complete forms stating they were the victims.

• Delinquent borrowers struggling to make mortgage payments could be eligible for decreases in the outstanding amounts owed, modifying their mortgages.

• Borrowers who are up to date on mortgages but can't refinance because they owe more than the market value of the home will be eligible to refinance at lower rates. Rates might not be lowest available.

<b>Who isn't helped</b>

• Former homeowners cannot get back property lost to foreclosure, even if there was wrongdoing by loan servicers.

• Not all homeowners who owe more than their property value will qualify for help.

• Property owners with mortgages held by Fannie Mae or Freddie Mac do not qualify.

Sources: News reports, U.S. Department of Housing and Urban Development, National Association of Attorneys General, Illinois Attorney General