In 2012, the Federal Reserve and the Office of Comptroller of the Currency (OCC) ordered 14 US mortgage banks to begin individual file reviews, citing reports of servicing abuses in up to 30% of foreclosures, including illegal foreclosures, modification problems, dual-tracking issues, improper fees and other violations. Almost half a million reviews were requested. Since the scope quickly became much too large for the Fed or the OCC to oversee, the banks hired their buddies at large consulting firms to do the job — at up to $250 an hour.
In January 2013, the Independent Foreclosure Review process was abruptly halted, because it was taking an astronomical amount of time and money to complete. In exchange for a $9.3 billion financial settlement, regulators agreed to stop probing into older foreclosures and send a one-time payment to impacted borrowers instead. The settlement amount included $3.6 billion in cash payments and $5.7 billion in credit for non-cash assistance such as loan modifications, short sales, deeds in lieu, and forgiveness of deficiency judgments. This settlement is a failure on almost every level possible. Here are just ten examples.
- Short eligibility window. The settlement only dealt with foreclosures on primary residences from a two-year timeframe, 2009 to 2010. Anyone caught in the initial wave of recession-induced foreclosures in 2007-2008 is SOL, as are the people who managed to hang on a little longer.
- The review was shut down early, when only a tiny fraction of reviews had been performed. From this point on, accounts were classified only on how far they had gotten in the foreclosure process.
- Inadequate documentation. The files that were reviewed did not contain sufficient information to determine harm. Is the number of times our paperwork was lost documented? Is there a record of the number of different people at CitiMortgage we talked to, who all provided conflicting information? Is it documented that they claimed we had to be at least 3 months behind on the mortgage before any changes could even be considered? I strongly doubt it.
- The settlement was not based on actual damage to borrowers, but instead on what the banks were willing to pay. The OCC made the decision not to find harm, and accepted the settlement amount, the methods used in determining the criteria for the payouts, and the amounts of the individual payments. However, the OCC has since refused to provide information on how these decisions were reached.
- Banks were given too much credit for too little work. The non-cash part of the settlement was structured so the amount of credit lenders received for modifications matched full value of the loan. For example, a $10,000 principal reduction on a $650,000 mortgage earns them $650,000 in credit. So the lenders focused their non-cash relief efforts on bigger mortgages, since it took them fewer loan mods (and thus less work) to meet that goal. In addition, this effectively benefits wealthy communities and ignores the working class.
- Criminals determined their own punishment. The lenders were allowed to specify how much they’d pay their own victims, classifying their own wrongdoing under various degrees of harm. There is no independent review of the banks’ analysis, although the the OCC said it “spot checked” a tiny fraction (10,000) of the nearly 4 million cases.
- Consultants were paid for not working. The 7 outside consultants hired by the banks were expected to cost $5-$8 million. In reality, actual consulting fees totaled closer to $2 billion. Pricewaterhouse Coopers alone collected $425 million in fees, and Deloitte & Touche won’t disclose the amount they were paid. Consultants got paid these fees despite the fact that they did not determine who was entitled to how much compensation, nor provide any review of that process.
- Banks didn’t honor their own definitions. The guidelines outlining the dollar amounts don’t appear to actually apply. This document indicates that our part of the settlement could be anywhere from $1k-$15k, plus corrected credit reports and possibly rescission of foreclosure. Our actual compensation? Just $300.
- Checks bounced. Payouts began in mid-April. The first set of checks sent out were returned for NSF, due to a bank error. Can you imagine taking that insultingly tiny check to the bank and having it bounce?
- Settlement checks can’t begin to repair the damage. The settlement will do little to mitigate the long-standing effects on consumers of being placed into foreclosure, such as damaged credit. Banks can notify credit bureaus independently about any changes to a borrower’s credit history, but aren’t required to do so as part of the settlement.
It’s this last point that is most critical: This settlement can’t begin to replace what was lost. We didn’t ask to have our income cut in half, but we proactively tried to work with what we had. We were willing and able to save our home via modification, but due to our lender’s ineptitude, lost it instead to foreclosure. We lost a lot of time and money in the legal process and moving expenses. We lost our good credit rating, which will take years to rebuild. We also lost the mortgage interest deduction on taxes, since we are renting now (paying someone else’s mortgage). And because the lender took an extra year after our bankruptcy to foreclose, we have to wait another 2-5 years before buying another house. The emotional factors are the worst, although I can’t begin to put a dollar amount on them. And there were literally millions of other people affected, many in worse situations than ours.
Seriously. How can the mortgage lenders think that $300 (or even $1,000) is sufficient compensation for the damage inflicted by their shatteringly incompetent, and sometimes illegal, practices? How can the Fed and the OCC agree with them?