Independent Foreclosure Review: Are Victims Getting a Raw Deal?

Independent Foreclosure Review: Are Victims Getting a Raw Deal?Last year, bank regulators overseeing a review of foreclosures from 2009 and 2010 outlined potential compensation for wronged homeowners that ran up to $125,000 if a foreclosure could not be rescinded.
But that lucrative scenario may be in jeopardy as regulators are working on converting the so-called Independent Foreclosure Review” into a $10 billion settlement with 14 banks, as reported recently by The New York Times.
The Times’ initial report said borrowers who had lost their homes because of improprieties would receive a total of $3.75 billion in cash. An additional $6.25 billion would be put toward principal reduction for homeowners in distress.
A House oversight panel, which has conducted hearings on foreclosure abuses, wants to review the proposed settlement, the Associated Press reported today.
The House Committee on Oversight and Government Reform wrote a letter Friday to Fed Chairman Ben Bernanke and the Office of the Comptroller of the Currency asking to see any proposed settlement before it is finalzied, the A.P. reported.
The settlement would come as a result of a regulatory enforcement action brought in 2011 by the Comptroller of the Currency and the Federal Reserve. Regulators targeted 14 large home-loan servicers after reports of “errors, misrepresentations, or other deficiencies in the foreclosure process.”
As part of the original plan that officially remains in place, the banks are required to hire independent consultants to review foreclosures conducted in 2009 and 2010, and look for practices such as imposing excessive and improper fees, or foreclosing when a borrower was undergoing a loan modification.
An estimated 4.4 million borrowers may have been wronged in the 2009-2010 time frame.
But under a new settlement, it is not clear how much money will be available to victims and whether the total compensation package will come anywhere near the outline provided last year by regulators.
In the most recent article on the issue, the Times makes this assessment about the settlement portion that would go toward compensation:
“..divvying up $3.75 billion among millions of people doesn’t amount to much per person. If, say, half of the 4.4 million borrowers were subject to foreclosure abuses, they would each receive less than $2,000, on average. If 10 percent of the 4.4 million were harmed, each would get roughly $8,500.”
But in the regulators’ compensation guide released in June, compensation depended on many factors and the relief increased as the degree of wrongdoing widened.
For example, if a borrower was not in default and a foreclosure was in progress at the time of remediation, that borrower is entitled to $5,000 and correction of “servicer record for late fees, foreclosure fees, and/or any other improper amounts, and correct credit reports.”
But if the foreclosure was complete at the time of remediation, and a rescission of foreclosure is not possible, the borrower is entitled to a $125,000 payment “plus equity, remedy deficiency, and correct credit reports.”
If a foreclosure rescission is possible, the borrower is entitled to a payment of $15,000.
Fueling the complexity and delays behind the Independent Foreclosure Review last year was a scathing report from the General Accountability Office (GAO), the nonpartisan Congressional watchdog.
Both bank regulators and mortgage servicers failed to provide borrowers eligible for foreclosure reviews an easy-to-understand letter with specifics on potential compensation, the GAO said.
A lack of effective communication with borrowers and insufficient feedback from consumer groups led to a denial of a “fair opportunity” for foreclosure victims to request an independent review, the GAO concluded.

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