Foreclosure Crisis
Banks and Government Fail Homeowners
Feds Replace Flawed Foreclosure Review With Vague $8.5 Billion Settlement
Banking regulators admitted the Independent Foreclosure Review was a big expensive mess and shut it down. But many details about the $8.5 billion settlement that replaces it remain murky. (David McNew/Getty Images)
by Paul Kiel
ProPublica, Jan. 8, 2013, 10:13 a.m.
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The Independent Foreclosure Review was supposed to be a full and fair investigation of the big banks' foreclosure abuses, and it was trumpeted as the government's largest effort to compensate victimized homeowners. Federal regulators, who designed the review, forced banks to spend billions to carry it out. Millions of homeowners were eligible and hundreds of thousands submitted claims. But Monday morning, the very regulators who launched the program 18 months ago announced that it had all been a massive mistake and shut it down.
Instead, 10 banks have agreed to pay a total of $3.3 billion in cash to the 3.8 million borrowers who had been eligible for the review. That's an average of around $870 per borrower. But typical of a process that's been characterized by confusion, delays and secrecy, regulators said the details of how the money will be doled out were not yet available.
Our FAQ on the Foreclosure Reviews
Answers to homeowners' questions about the Independent Foreclosure Review.
Do You Work in Mortgage Servicing or as a Foreclosure File Reviewer?
If you’ve worked for a servicer or on the Independent Foreclosure Review, contact our lead reporter.
Resources
• The State of HAMP
See the performance of all the mortgage servicers.
• Making Home Affordable.gov
The administration’s web site for the foreclosure prevention program. Provides an FAQ, homeowner examples, and other tools to see whether you might qualify for the program.
• Foreclosure Avoidance Counselors
A list of HUD-approved housing counseling agencies nationwide.
• FTC Tips for Mortgage Servicing Consumers
Tips for homeowners from the Federal Trade Commission.
• Program Guidelines for Mortgage Servicers
These rules lay out how mortgage servicers are supposed to conduct the program.
• Calculated Risk
A finance and economics blog that provides news and metrics on the state of the housing market.
Did Your Bank Wrongfully Seek to Foreclose on You?
We'd like to hear from current and former homeowners who wrongfully faced foreclosure in the last couple of years.
Do You Work in Mortgage Servicing or as a Foreclosure File Reviewer?
If you’ve worked for a servicer or on the Independent Foreclosure Review, contact our lead reporter.
The headline number for the settlement is $8.5 billion, but that includes $5.2 billion in "credits" the banks will receive for actions they take to avoid foreclosures, such as providing loan modifications. That's very similar to the separate $25 billion settlement reached last year between five banks, 49 states and the federal government. That settlement has been criticized for awarding credit to banks for things they were already doing.
Officials from Office of the Comptroller of the Currency, one of the federal regulators that ran the review and negotiated the new settlement, did not say how they arrived at the $3.3 billion in cash. Pressed on this question during a conference call with reporters on Monday, an official would only say, "The best way to think about that is that it was a negotiated amount. It represents an acceleration of payments to consumers that results in more consumers getting more money in a much quicker time frame."
Critics had assailed the original review since it was launched. Regulators required each bank to hire an "independent" consultant to review the case of each eligible homeowner, evaluate if the bank had committed errors or abuses and, if so, determine how much money, up to $125,000, that the bank would have to pay the borrower.
But those consultants turned out to be companies that had other contracts with the banks and so relied on them for business, causing consumer advocates and some members of Congress, among others, to question how independent the consultants could be. Fueling suspicion was the fact that many details of how the banks and the consultants actually worked together were kept secret. Last year, ProPublica published a series of articlesrevealing that the banks' own employees were heavily involved in the supposedly independent review, calling into question its fundamental integrity.
Regulators dumped the review and struck a deal for two main reasons, OCC officials said on the Monday conference call with journalists. The officials spoke on the condition they not be named.
First, they said, the reviews had taken far too much time. That was great news for the consultants that had been hired by the banks to conduct the reviews, because the banks have paid them more than $1.5 billion. But all that work has not resulted in a single payment to a borrower.
Second, months and perhaps years from now, when the consultants finally finished their work, most borrowers still would not have received compensation. The officials said only 6.5 percent of the case reviews completed so far had produced evidence of harm to the borrower.
Given the flaws in the review, it's questionable whether that rate is "remotely accurate," said Alys Cohen of the National Consumer Law Center. "Because the reviews were flawed," she said, "basing a total settlement number on them would grossly understate the harm and really be an abdication of responsibility on the part of regulators."
Divvying Up the $3.3 Billion
The OCC officials said the details of how the $3.3 billion will be distributed had not been finalized and likely would not be made public for several more weeks. But they outlined the basic approach.
As originally designed, the review identified 13 categories of potential harm and put a price tag on each. For the worst errors, banks would have had to pay victimized borrowers up to $125,000, while for lesser problems they would have had to pay only $1,000 or even no cash compensation at all.
The new settlement will work in a similar way. Each of the 3.8 million homeowners will be placed in categories, they said. The categories would be broadly similar to the ones from the review. For instance, one category might be homeowners who were denied a loan modification and later lost their home to foreclosure. Another might be those who were put in foreclosure, but received a modification and are still in the home.
Each category will have an associated payment. Borrowers who fall in more than one category will receive the highest category payment they qualify for.
As for the amounts borrowers in each category might receive, it will likely range from $125,000 down to a few hundred dollars. Officials said the precise amounts had not yet been decided.
Unlike the original review, no case-by-case effort will be made to sort out who was really the victim of a bank error or abuse and who was not. Instead, basic criteria will be used to assign homeowners to a category, and everyone in the same category will receive the same amount.
The banks themselves will sort all the homeowners into the various categories, the officials said, but regulators will oversee that process. They argued that the banks had no incentive to game the process since the total amount each bank will have to pay out had already been determined. There is no way for a bank to reduce that sum.
495,000 borrowers submitted claims as part of the original review process. Those borrowers will receive a higher payment than borrowers who did not submit a complaint, but the officials would not say how much that would be.
It's unclear when regulators will release the full details of the process, but they did commit to a timeline: Borrowers will be contacted by the end of March with news of their payment amount.
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This is a question we wrote on Trulia and thought it should be posted and spread around. Below is our question and the answers given so far, as more answers become available we will update this blog.
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Do you believe the Hype about the media saying it's the Borrower not the Mortgage Companies that has caused this housing market?
In the last 2 yrs. we've seen, heard and experienced some of this down market. We've seen the mortgage companies in some cases raise the rates prior to closing, give our clients A.R.M as apposed to a fixed, Been at closings where we were on the Sellers side and watched and sometimes even argued for the Buyers with their interest rates being so very high and the points being charged. We've also had many clients walk in our door with mortgage issues. Yes we've seen and heard about those who also went over their means to buy a home, but the majority has always been the mortgage companies who have bought about the higher interest, points and after a sale heard about the instant equity lines. Whats your opinion we'd like to know.
==========================================================================Hi,
No, I do not believe the hype. Mortgage companies had certain standard they should operate by, the fact that they ignore these standards and lend money to everyone who ask, because they were packaging these mortgages and passing the hot potato. This them 100% liable they have destroy this countries economy with their loose paractices fueled by one word "GREED".
Brian Halstead
License real estate broker
Halstead Homes Realty
786-303-1046
Web Reference: http://www.brianhalstead.com
There's more than enough blame to go around.
The conduct by many lenders was reprehensible. No argument there.
But I have yet to see a gun that was pointed at any borrower's head at the closing table. Many borrowers were willing accomplices. Some weren't.
Still, I've been in situations where I've ordered something at a fast food place that's shown on the menu as costing $1.39. When it's been rung up as $2.29, I've walked away. My son says I'm cheap. I say I don't like being lied to and I don't like being ripped off.
If I were buying a house and had been told that the interest over 30 years would be $100,000 and I'm presented with a loan that shows I'll be paying $150,000 (whether it's through points, an adjustable rate, a higher interest rate, or a combination of all of the above), I'd walk.
Realistically, it took the buyers, the lenders and--yes--the real estate agents to bring us to where we are today. I'm willing to debate whether the lenders are 50% responsible or 80% responsible, and whether the buyers were 30% responsible or 90% responsible. But both were willing--often eager--parties in the debacle we're now facing.
The banks do not need to lend money to make money these days. They make money just borrowing from the government at 0% They pay it back at 0% I wouldn't lend either if I had no risk!
They are making more now then ever before. paid off their debt. Borrowing at 0% or maybe a little more now but really what's the difference?
They will not ease while it's already easy for them. The money they got was ridiculous. The govm't spread the losses dissolving such big big bears such bear sterns and the like. Turning Goldman Sacs into a bank. Gave them all that power. We all understand why they got that position.. Jamie Dimond pushed his way in for the big money too, he wasn;t going to allow Paulson and Sacs to be alone on this .
And if the govm't gave us money wouldn't you do the same thing. Some people say that's what the unemployment extensions were for. But really all it did is suppress the sitiuation. Stalled problems while these big companies made bigger money. Got bigger salaries and BONUSES...
I wouldn;t have given them anything. Unfortunately it all started at the AIG level because that is where all the govm't pension where held such as postal and military. Gov't had to bail them out and it all became a domino effect thereafter.
We can talk about this for ever. But I hold heatedly believe it's the banks and their easing of lending standards that pushed the public and allowed fraud to run rapid . Fannie wa snot supposed to be in the no doc lending arena. But they did! They took on this debt and pushed competition between the banks and frenzied the public which in turn tidal waved values up and up and up.
They are making more now then ever before. paid off their debt. Borrowing at 0% or maybe a little more now but really what's the difference?
They will not ease while it's already easy for them. The money they got was ridiculous. The govm't spread the losses dissolving such big big bears such bear sterns and the like. Turning Goldman Sacs into a bank. Gave them all that power. We all understand why they got that position.. Jamie Dimond pushed his way in for the big money too, he wasn;t going to allow Paulson and Sacs to be alone on this .
And if the govm't gave us money wouldn't you do the same thing. Some people say that's what the unemployment extensions were for. But really all it did is suppress the sitiuation. Stalled problems while these big companies made bigger money. Got bigger salaries and BONUSES...
I wouldn;t have given them anything. Unfortunately it all started at the AIG level because that is where all the govm't pension where held such as postal and military. Gov't had to bail them out and it all became a domino effect thereafter.
We can talk about this for ever. But I hold heatedly believe it's the banks and their easing of lending standards that pushed the public and allowed fraud to run rapid . Fannie wa snot supposed to be in the no doc lending arena. But they did! They took on this debt and pushed competition between the banks and frenzied the public which in turn tidal waved values up and up and up.
Web Reference: http://www.SicklervilleShortSaleRealtor.com
Web Reference: http://www.sjrates.com
Of course qualificiations were pushing well beyond where they should have been.
Now today the lenders seem like they really don't want to lend even to good people, thoses who have protected themselves through all of this mess are being punished. Just over the last month Ihave two seperate buyers who both had credit scores in the 800's with substantial assets and income raked over the coals.
When I say coals I mean shown everything that anyone could ask and still the mortgage committment were delayed and had to be extended twice before closing. The process today is enough to drive anyone out of the market! As to this problem there is not one single entity to blame it is in ever segment from the buyer, seller, agents, banks, congress, treasury, past and present Presidents everyone is to blame. The banks need to know from this point on that there will be NO BAIL OUTS you either swim or sink on their own.
They make money lending there has to be a middle of the road approval process that does not drive good solid people away. The lenders need to stop making their own rules that are outside of the banking industry rules coming up with their own for FHA, VA, Conventional loans and making people run away this will not solve the real estate blight. Until this gets straighten out and all players are on the same page and must maintain the same rules this will not change the market. The two BIG BOYS BOA and WELLS should not be allowed to make there own game to push others out.
Tim Robbins, Sr. GRI, ABR, CRS, CBR, CDPS, CRFS
Buyers Broker
Web Reference: http://njbuyersonestoprealty.com
We have whitnessed "over & over" that when catastrophic events occur that the parties involved stoop to the level of "pointing their fingers" at someone else.
Why would this be any different?
Bill
Why would this be any different?
Bill
Hi Larry I agree in for the most part. we also knew of 1 person who was late on her payments due to injury, later on when she was working again the bank wouldn't do a moification, tried to push her into foreclosure thank the powers that be in this case a Judge called out the bank, we're happy to report she has her home back again. Another we know in Florida a friend of a friend of ours, she and her huaband unknown to them had a friend who refianced their home 4x's in one month and he walked away with over a half million dollars on a home worth 150k none of the banks even checked the guys ss or credentials to see if he was who he said he was. long short of it the REAL owners had to leave the home, banks are harrassing them, and they now live in a small 2 bedroom home instead of their large retirment home, they are in their late 50's.
more recent a buyer stated his income sent in his bank statements etc. and of late found out that the mortgage rep. put in a whole different set of loan doc's ..and as before the list goes on.
more recent a buyer stated his income sent in his bank statements etc. and of late found out that the mortgage rep. put in a whole different set of loan doc's ..and as before the list goes on.
Web Reference: http://www.urhomerealty.net
I think it is both. With competitive rates Fannie and Freddie allowed lower ratios and less documents and easier closing. It allowed mortgage companies, mortgage reps and real estate sales to push things thru. Prices were raising. Spending was occuring because people were using their homes as bank accounts. Paying off one loan and then purchasing another loan.
so I think it was the borrower yes. but it was the easing of credit that pushed the borrower. Just like credit card companies giving credit to college kids with out jobs. I see happening all over again easing of credit as banks start profiting they ease their credit. Only mortgages are still scrutinized heavily.
I saw one of the most blatant form of fraud about a year ago. Older Women has a mort on her home for about 155k around 2004 after her husband dies she tries to refi and cannot. So they contacts a RE agent. The agent refers them to a mort person. The mort rep says use the son but it will have to look like a sale transaction. They agree since the son is living at the home taking care of mom anyway.
They go to settlement were told to sign here and here and here... Asking a question why the number $265K is on the paperwork The answer is "formality"
Long and short is this...
They financed 265K
Mort rep charges 30k in settlement costs
RE agent gets a 19k commission (18k and change) 7% prob as a transaction broker 3 days of.work! of work???
A 53k of gift of equity was showed on the HUD (air) on an ARM
9900 was to go to mother was told they made a mistake and then sent a check for 7k
Unbelievable. !!!
Yeah really bad decisions and not looking over paperwork on the borrower's part but they put trust in agent and mort rep. they didn't have 2 nickles for a lawyer
When they were at the settlement table they needed to show more money so the rep asked them to make up receipts as a storage company. He makes the receipts up and has them sign them... Another son was asked to sign when the borrowing son was late to the table to speed things up. all in front of an escrow agent!
REALLY BAD. Prob the most heartfelt case I have run into so far. I see parents with kids while I am sitiing at the kitchen table/ The kids dancing in their disney princess outfits in the living room, all while we are trying to avoid last minute stop foreclosure tactics to get more time to provide a short sale. because they've tried a loan modification and then were denied... Terrible stories...
So yes the borrower but I blame mostly the banks. Even for allowing income to be stated on an application that was not and could not be documented... such as storage in this case.
Fraud lots of it all around... I see it and you have also from reading your post here.
Greed set in and it was easy money for everyone. So the disadvantaged were raked into the coals.
the ones I don't feel as bad for are those who borrowed big money to buy big homes using min down and ARMs and no interest loans. But when you get down to it again its the banks allowing this kind of borrowing. Why would a bank allow a 1-5 year ARM adjusting the income requirements lower so it "looks" better.
THE BANKS! Government deregulation...
so I think it was the borrower yes. but it was the easing of credit that pushed the borrower. Just like credit card companies giving credit to college kids with out jobs. I see happening all over again easing of credit as banks start profiting they ease their credit. Only mortgages are still scrutinized heavily.
I saw one of the most blatant form of fraud about a year ago. Older Women has a mort on her home for about 155k around 2004 after her husband dies she tries to refi and cannot. So they contacts a RE agent. The agent refers them to a mort person. The mort rep says use the son but it will have to look like a sale transaction. They agree since the son is living at the home taking care of mom anyway.
They go to settlement were told to sign here and here and here... Asking a question why the number $265K is on the paperwork The answer is "formality"
Long and short is this...
They financed 265K
Mort rep charges 30k in settlement costs
RE agent gets a 19k commission (18k and change) 7% prob as a transaction broker 3 days of.work! of work???
A 53k of gift of equity was showed on the HUD (air) on an ARM
9900 was to go to mother was told they made a mistake and then sent a check for 7k
Unbelievable. !!!
Yeah really bad decisions and not looking over paperwork on the borrower's part but they put trust in agent and mort rep. they didn't have 2 nickles for a lawyer
When they were at the settlement table they needed to show more money so the rep asked them to make up receipts as a storage company. He makes the receipts up and has them sign them... Another son was asked to sign when the borrowing son was late to the table to speed things up. all in front of an escrow agent!
REALLY BAD. Prob the most heartfelt case I have run into so far. I see parents with kids while I am sitiing at the kitchen table/ The kids dancing in their disney princess outfits in the living room, all while we are trying to avoid last minute stop foreclosure tactics to get more time to provide a short sale. because they've tried a loan modification and then were denied... Terrible stories...
So yes the borrower but I blame mostly the banks. Even for allowing income to be stated on an application that was not and could not be documented... such as storage in this case.
Fraud lots of it all around... I see it and you have also from reading your post here.
Greed set in and it was easy money for everyone. So the disadvantaged were raked into the coals.
the ones I don't feel as bad for are those who borrowed big money to buy big homes using min down and ARMs and no interest loans. But when you get down to it again its the banks allowing this kind of borrowing. Why would a bank allow a 1-5 year ARM adjusting the income requirements lower so it "looks" better.
THE BANKS! Government deregulation...
Web Reference: http://www.SicklervilleShortSaleRealtor.com
I think the new changes about disclosures and the settlement statement are a real win for consumers. They are a pain in the butt for lenders. But the abuses were too heavy to argue against the changes. I always checked for my clients anyway, but many agents did not. Now when I check I don't find any of the same problems. Very clean and better for the consumer. Everybody participated in the demise of the housing industry: builders, lenders, appraisers, agents and consumers. Glad to see the changes but for many it is too little too late.
Web Reference: http://MintProperties.net
