Ten major mortgage servicers including Bank of America, JP Morgan Chase, Citigroup and Wells Fargo entered into a $8.5 billion settlement Monday with federal regulators to settle claims related to mortgage foreclosure abuses.

Under the terms of the settlement with the Federal Reserve and the Office of the Comptroller of the Currency (OCC), $3.3 billion will be paid by banks directly to eligible mortgage borrowers.  Over $5.2 billion in other assistance – such as loan modifications and forgiveness of deficiency judgments – will also be available.

The agreement covers 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 with participating servicers.

The other lenders participating in the settlement are Aurora, MetLife Bank, PNC, Sovereign Bank, SunTrust and U.S. Bank.

By agreeing to the settlement, participating lenders can cease the Independent Foreclosure Review process mandated under an enforcement action entered in April 2011.

Regulators had determined that the foreclosure review process – which involved a case-by-case review of millions of loan files – was proving too expensive, time consuming and ineffective.

“When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury,” Chief Thomas Curry of the OCC stated in a written release.  “While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner.”

Monday’s deal follows a separate $26 billion mortgage settlement entered early last year in relation to the “robo-signing” scandal.

Only $1.5 billion of that settlement was in the form of direct cash relief to 750,000 borrowers.

Eligible borrowers under the latest settlement will receive compensation whether or not they filed a request for an independent foreclosure review and mortgage borrowers do not need to take further action to be eligible for compensation.

Borrowers are expected to be contacted by the end of March with specific payment details. They will not be required to execute a waiver of any legal claims that may exist against their servicer as a condition for receiving payment.

In addition, the servicers’ internal complaint process will remain available to borrowers.

“We have learned a great deal from the reviews that have been conducted to date. However, it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers. Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets,” Curry concluded.

Bill Lewis is the principal of William E. Lewis Jr. & Associates and host of “The Credit Report with Bill Lewis” — a daily forum for business and financial news, politics, economic trends and issues on AM 740 WSBR in south Florida.