Prepared Remarks of Secretary Shaun Donovan at a Press Conference Announcing the
Mortgage Servicing Settlement

Department of Justice
Thursday, February 9, 2012

Thank you, Eric. I want to thank you and the whole bipartisan coalition who made this settlement possible -- one, as you mentioned, only second in size to the tobacco settlement. And I want to thank Iowa's Attorney General Tom Miller as well.

This historic settlement will provide immediate relief to homeowners -- forcing banks to reduce the principal balance on many loans, refinance loans for underwater borrowers, and pay billions of dollars to states and consumers.

And it comes not a moment too soon for homeowners, for our housing market and for our economy.

We all know how the housing bubble burst -- how lenders sold loans to people who couldn't afford them and how they packaged those mortgages up to make profits that turned out to be nothing more than a mirage.

And we know these actions hurt millions of families -- families who did the right thing but still lost their house or saw their home prices drop.

But as the banks acknowledge with this settlement--and as HUD, state attorneys general and banking regulators across the country heard from consumers across the country--those abuses didn't stop there. They continued long after people got the keys to their new homes.

We know this because in the summer of 2010, HUD initiated a large-scale review of the Federal Housing Administration's largest servicers.

Devoting thousands of hours to reviewing servicing files for thousands of FHA-insured loans, the scope of this review encompassed a long list of mortgage servicing issues, such as lost paperwork, long delays and missed deadlines for loan modifications.

As HUD's Office of the Inspector General found, the country's five largest loan servicers routinely signed foreclosure related documents without really knowing whether the facts they contained were even correct.

In effect, many of the very same financial institutions responsible for so much of this crisis were actually making it worse -- harming families, neighborhoods and our economy.

This settlement holds those institutions accountable for their actions, to the tune of $25 billion -- $30 billion if all 14 servicers join, and possibly billions more in relief for homeowners.

But this isn't just about punishing the banks for their irresponsible behavior.

It's also about requiring them to help the people they harmed -- by funding to efforts to help homeowners stay in their homes.

And that's precisely what this settlement delivers, reducing the overall loan balance for approximately a million families who owe more on their mortgages than their homes are worth.

Principal reduction at this scale will not only help these underwater homeowners start building equity again -- but also their neighbors, many of whom have watched their own property values plummet by $5,000-10,000 simply because they live on the same block as a foreclosed home.

The settlement will also help unemployed homeowners to catch up on late mortgage payments. It funds housing counseling services to connect at risk families to the help they need. And it helps communities struggling with vacant properties that drag down neighborhood home values.

And by instituting tough penalties and stringent timelines enforced by an independent monitor, banks have a strong incentive to provide this help quickly and effectively.

The settlement also provides cash payments to homeowners who were victims of deceptive servicing practices.

We all recognize that you cannot undo the pain of this crisis by writing a check. But these payments provide victims with welcome and needed relief.

One of the most important ways this settlement helps homeowners is that it forces the banks to clean up their acts and fix the problems uncovered during our investigations. And it does that by committing them to major reforms in how they service mortgage loans.

These new customer service standards are in keeping with the Homeowners Bill of Rights recently announced by President Obama -- a single, straightforward set of commonsense rules that families can count on. And they require lenders and servicers in this settlement, which service nearly 2 out of every 3 mortgages, to follow a long list of rights for those facing foreclosure.

No more lost paperwork. No more excuses. No more runaround.

And this is just the first step. Indeed, last month, Attorney General Holder and I announced an investigation into the conduct of financial servicers that broke the law and led to the crash of the housing market, including securities- and origination-related cases.

So, while it isn't designed to address all the issues of the housing crisis, it is a historic agreement -- and a very big victory for those who it harmed the most.

And combined with the broad-based refinancing plan President Obama announced to help homeowners last month, it provides a path toward stability for our housing market and our broader economy.

Banks and mortgage servicers expect that homeowners will meet their obligations under a mortgage. Homeowners should have the same expectation of them.

Holding the banks accountable is what this servicing settlement is about -- and it's why I'm proud to join my partners in announcing it today.

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