Thanks to a federal program, homeowner Pretti Hilton could be getting just what she needs to resolve her longstanding foreclosure case: a referee.
Under the Independent Foreclosure Review program, eligible homeowners can request a review of their foreclosure file by a third-party consultant. If the independent auditor finds that the bank made errors in processing their foreclosure, the homeowner can recoup money – from $500 to as much as $125,000.
For Hilton, who has been fighting foreclosure of her home for nearly four years, the program offers a ray of hope.
So far, her attempts to work with her lender, Bank of America, on modifying her home loan to produce a lower monthly mortgage payment, have failed. In fact, the bank tried to auction off her property several times. If she were to lose her two-bedroom home in Moreno Valley, California, says Hilton, she and her two sons -- a 15-year-old and a disabled 27-year-old – would be on the street.
“The stress is astronomical,” she says, adding that she is taking medication for hypertension, something she’d never done before. “I don’t believe I was blessed with a house in order to lose it…. I will not go down without a fight.”
A home health worker, Hilton says her income took a hit with state budget cuts to programs that subsidize in-home care. When she got back on her feet, she resumed making mortgage payments, which by then included late fees. But even after paying off the late charges, she says, her bank did not lower the monthly payment back to the original amount. Because of that discrepancy and others, Hilton says she hasn’t paid her mortgage for three years, and her case is still in limbo.
Then Hilton received a letter in the mail about the Independent Foreclosure Review program run by the Federal Reserve Bank and the Office of the Comptroller of the Currency (OCC). Hilton applied for the program two months ago, and says she’s “expecting to hear something soon.”
But the wait could be longer than Hilton originally expected.
More than a year after its launch, the program has yet to pay out any compensation, and just a fraction of the requested reviews have been completed.
Last April, federal regulators ordered the nation’s biggest banks to overhaul their foreclosure procedures in the wake of the “robo-signing” scandal – when it came to light that banks were approving foreclosures without verifying the underlying documents. As a result, the banks were required by the government to offer third-party reviews of foreclosure cases to their customers who request it, and hire independent consultants to do the work.
Of the more than 4.4 million homeowners who were potentially eligible for the program who were sent letters, about 250,000 requested a review. Banks were also ordered to “look back” at a representative sample of cases, accounting for another 159,000 homeowners, bringing the total number of reviews to more than 400,000.
Bryan Hubbard, a spokesman for the OCC, says about 260,000 reviews are underway. According to an interim report released in June, consultants had completed just 11,000 reviews.
“No compensation has been approved yet because we have not reached that point in the review process,” Hubbard says.
In June, regulators came up with a compensation pay scale, attaching dollar amounts or other remedies to a list of about a dozen possible errors made by the banks. If consultants determine that a homeowner suffered financial harm, they will recommend what type and amount of relief should go to the borrower. The banks then need to submit a “remediation plan” to regulators, and then the checks can go out, Hubbard says.
“We hope that remediation will begin in the fourth quarter of this year, but continue through 2013,” he says. As of yet, the banks have not submitted those plans to regulators.
The most common complaints prompting a request for review, Hubbard says, involve denials of loan modifications, improper and incorrect fees, timeliness of payments and disputes in amounts owed.
In Hilton’s case, if a review of her file found she was wrongfully denied a loan modification, the foreclosure would be halted and the bank would have to grant or deny her application, and compensate her either $2,500 or $10,000.
Compensation to individual homeowners is capped at $125,000, but the total amount the banks would have to pay out to all homeowners is “unlimited,” Hubbard says.
The independent review program contrasts with a parallel but separate restitution program instituted earlier this year as a result a multi-state lawsuit. The National Mortgage Settlement promised homeowners who were financially harmed by bank errors a “one-size-fits-all” check of about $2000. It set a “low bar to get some benefit,” according to Paul Leonard, director of the Center for Responsible Lending’s California office. The compensation would shrink as more homeowners tap the fund.
In contrast, the federal program, says Leonard, is a complement to that.
“[It] takes a fine-tooth-comb approach to really identity specific borrowers harmed and how much harm they actually suffered,” Leonard says.
Although it doles out stiffer penalties for errors, and mandates that those deficiencies in each bank’s foreclosure process be fixed, recent revelations have come to light that the independent reviews may be flawed. ProPublica revealed cozy ties between the banks and the third-party consultants that were hired to conduct the reviews, resulting in bank employees trying to influence the outcome of reviews.
News reports also revealed that the third-party consultants are reaping record profits through their contracts with the banks.
“The purpose of this [independent review process] was to remedy financial harm to borrowers; it wasn’t meant to be ‘The Consultants Full-Employment Act,’” Leonard says. “The irony is, it appears that they [the banks] are going to spend a lot more money [on] paying for the consultants…[than] providing remedies to borrowers.”
He adds, “Nobody knows for sure [how much money will be paid to homeowners]. No money has been put into the pocket of borrowers yet.”
With the deadline to file a request for review under the federal program looming (Dec. 31), housing counselors say more effort is needed to publicize the program to eligible homeowners. Any homeowner whose primary residence was in any stage of foreclosure in 2009 or 2010, and whose mortgage was serviced by participating loan servicers, is eligible to request a review.
Maria Cabildo, president of East LA Community Corporation, says her organization has helped just a handful of people apply for the program. Unfortunately, she adds, many homeowners may have simply tossed the letter from federal regulators informing them of the program, thinking it was a scam. She says many of her clients have been inundated by mailings from mortgage scammers.
Hubbard, the OCC spokesman, says mailings about the program were sent out in English and Spanish, with a note about translation services in other languages.
Cabildo says homeowners have been hearing about numerous programs meant to provide different forms of relief to homeowners, but those remedies have been slow to materialize.
“It’s been disappointing. I feel that there have been tools that were created that should have worked really well,” she says, referring to HAMP (the loan modification program that formed the cornerstone of the Obama administration’s efforts to stem the foreclosure crisis).
HAMP didn’t live up to its billing, says Cabildo, partly due to banking practices such as “dual-track,” which is when banks carry out foreclosure proceedings before a decision is given on a loan modification application.
In the meantime, some banks have started to offer relief to homeowners, but “not the forms of assistance most of us had in mind,” says Maeve Elise Brown, who directs Housing and Economic Rights Advocates (HERA).
She says, so far, the majority of relief for homeowners under the settlement has come in the form of wiping out second mortgages (rather than offering loan modifications) that were uncollectible anyway – a move that provides little real relief to homeowners.
“When I look at the universe of opportunities for assistance available to [homeowners] now, the opportunities are still a little more limited than they need to be,” she says, adding that homeowners need to be pro-active about taking advantage of all available programs. “The Independent Foreclosure Review process is a little pinpoint of light, and it could be a year before people will see any money, but it would be good for them to eventually see it.”
Peggy Mears of Fontana, Calif., applied for the federal “independent review” program in April, and is still waiting to find out if she’ll receive any compensation.
“We were on a so-called trial modification, which is three months [long],” Mears says. “We paid for nine months and all of a sudden we were being foreclosed upon.”
Mears, who now advocates on behalf of homeowners as an organizer for Alliance of Californians for Community Empowerment, says the bank should have stopped charging them after the third month and switched them from a trial to a permanent modification.
Mears eventually struck a deal with her lender OneWest Bank (formerly IndyMac Bank) to lower her monthly mortgage payment to a level, she says, that is only “slightly lower” than what she had been paying.
The long wait for resolution under the federal program is not daunting, Mears says, because after going through the lengthy and frustrating process to modify her home loan with her bank, she says “ nothing they do surprises me.”
Photo credit: Joseph Rodriguez
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