SAN FRANCISCO – In light of a recent $8.5 billion settlement between federal bank regulators and 10 big banks, 3.8 million homeowners can expect to get a check in the mail.
The agreement, announced Monday, calls for $3.3 billion in direct payments to eligible homeowners – people who had home loans with one of the 10 banks in the agreement and who were in some stage of foreclosure in 2009 and 2010. Another $5.2 billion is set aside for other forms of relief to homeowners, including loan modifications.
The Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board crafted the deal with the banks, which includes Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
The settlement ends the regulators’ much-touted Independent Foreclosure Review program that allowed foreclosed homeowners to potentially recoup money from their bank for wrongful foreclosure by requesting a review of their file by a consultant. The OCC and Federal Reserve Board publicized the program for more than a year, and as of the Dec. 31 deadline, nearly half a million homeowners had requested a review.
Instead of a review and the possibility of compensation for some, lump sum payments will go out to a larger pool of millions of homeowners.
“All 3.8 million eligible borrowers serviced by these 10 companies will receive a check,” said OCC spokesman Bryan Hubbard, adding that the settlement provides “the largest cash payout to borrowers affected by foreclosure to date.” The payments range from “a few hundred dollars to $125,000.”
Hubbard said that the “lump sum is determined by the type of error that could have occurred during the borrower’s foreclosure,” and borrowers will be segregated based on the “characteristics of their loan.” For example, those eligible for the highest level of compensation are active duty military members and homeowners who were never delinquent whose homes were foreclosed on, he said.
People who previously filed a request for review would receive “higher payments” in each category, Hubbard said.
The foreclosure review process came out of enforcement actions by federal regulators in the wake of the “robo-signing” controversy, when it was revealed that banks wrongfully foreclosed on homeowners without verifying the underlying documents. The April 2011 consent decree required banks to overhaul their foreclosure practices and set up a process for redress to borrowers who suffered financial harm.
Debby Goldberg, special projects director with the National Fair Housing Alliance, said the recent settlement “jettisons the idea that they [regulators] have the ability to find the harm” done to homeowners. It offers compensation to a greater number of people, but “the amount of money on the table is not enough,” she said.
If each borrower were to receive the same amount, it would work out to less than $900 per person, she said, but in reality, “some people will get more and some people will get less.”
Housing advocates and counselors agree that the foreclosure review process was flawed. News reports revealed the program was biased toward the banks and expensive, with consultants reaping billions of dollars. Regulators had pushed back the deadline several times and beefed up their outreach because of low participation.
Goldberg said efforts to publicize the foreclosure review program were inadequate, with “little targeted outreach to communities of color hardest hit by the foreclosure crisis.”
“The flawed outreach raises a real concern whether prioritizing people who filed requests for review is appropriate,” said Goldberg, noting that it could reinforce inequities in the process.
Cheyenne Martinez-Boyette, housing counselor lead for the San Francisco-based Mission Economic and Development Agency, said he found the foreclosure review program troubling from the beginning.
“What I think happened is that there were a number of discrepancies and issues with the independence of these consultants and the process,” Martinez-Boyette said. “And the regulators and the banks just took the easy way out.”
Going forward, Goldberg said, oversight of the settlement terms are needed to ensure accountability.
Housing and consumer rights organizations are calling for an independent monitor to oversee the process. Goldberg said regulators should incentivize banks to offer assistance that will help homeowners remain in their homes; for example, giving more credit for loan modifications with principal reductions than for short sales.
Goldberg said half of the 3.8 million borrowers eligible for relief under the settlement are still in their homes.
Martinez-Boyette said relief has been slow to trickle down to homeowners.
“Funds [from the settlement] are also supposed to go toward modifications, but how can we track that and make sure it is reaching the people who were affected by the reason this process was put in place to begin with—which is the robo-signing scandal?” he said.
Hubbard, the OCC spokesman, said an analysis of the files reviewed under the program found that “6.5 percent had incurred a compensable error.”
Without the settlement, Hubbard adds, the “total pot of money would have been less.”
Hubbard said borrowers would be contacted by March with details about payment.
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