Another Multi-Billion Dollar Foreclosure Abuse Settlement Likely

by devteam December 31st, 2012 | Share

Fourteen large banks appear ready tornpony up another $10 billion to end allegations of foreclosure abuse.  According to the New York Times, the settlement would end federal investigationsrninto the bank’s purported faulty paperwork and excessive fees.</p

Unlike the $25 billion settlement</bbetween all but one of the states' attorneys general and some federal agenciesrncompleted earlier this year, the lion's share of the new settlement would go tornhomeowners.  An estimated $3.75 billionrnwould be used to compensate those already foreclosed and evicted from theirrnhomes and $2.25 billion would be used to assist other distressed borrowers to stayrnin their homes through principal reduction or other loan modifications or byrnhelping those borrowers to refinance.    Under the earlier settlement $1.5 billion wasrnto be used for cash relief to borrowers and some states have made attempts torndivert their share of that amount into state treasuries. </p

The Times suggests that one impetus behind the agreement has been therncost to banks of conducting an independent review of some four million loanrnfiles.  The review was mandated by thernOffice of Comptroller of the Current and the Federal Reserve in 2011 and requiredrn14 banks to engage consultants to go through files looking for illegallyrncharged fees, improper use of forced placed insurance rights, and miscalculatedrnloan payment amounts.  The cost of thesernreviews has skyrocketed above original estimates with some taking as much as 20rnhours of consultant time per file at $250 per hour.  There were also hints that the reviews werernnot yielding the kind of information the government agencies had sought.  The settlement would end these reviews.</p

Negotiations have proceeded quietlyrnand, according to the Times, housingrnadvocates were largely unaware of the discussions.  A deal could possibly be by the end of thernweek but it is unclear how many current and former homeowners would receivernmoney or when they would receive it. </p

The newspaper did not name all ofrnthe banks involved in the negotiations but did say the five who were party tornthe $25 billion deal  – Wells Fargo,rnJPMorgan Chase, Citi, Bank of America, and Ally Bank – are also party to these talks.

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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