Foreclosure Review Payouts Coming Under Congressional, Media Scrutiny

Congressman Elijah E. Cummings recently<bintroduced a bill that would create an independent monitor to oversee therndistribution of funds paid by mortgage services to borrowers to compensate for illegalrnforeclosures and other abuses. </p

The bill, HR 1706, The MortgagernSettlement Monitoring Act of 2013, was crafted by Cummings, Ranking Member ofrnthe House Committee on Oversight and Government Reform, because of what he viewsrnas a lack of transparency and accountability on the part of federal regulators,rnbanks and their servicing subsidiaries.</p

As background, in 2012 the FederalrnReserve and the Office of Comptroller of the Currency (OCC) ordered 14 banks tornbegin individual case-by-case reviews (at the request of borrowers) of filesrnrelating to alleged servicing abuses.  Atrnissue were illegal foreclosures, modification problems, dual tracking ofrnremediation and foreclosures, improper fees and other violations.  Thousands of reviews were requested and thernbanks hired independent firms to conduct them. </p

After several months it becamernapparent that the reviews were taking an inordinate amount of time and costingrnhuge amounts of money (the consultant firms were being paid as much as $250 perrnhour). In February 2013 the regulators settled with 13 of the 14 banks for an aggregaternof $3.5 billion in cash to end the reviews. rnThe money was to be allocated to 4.2 million borrowers whose homes werernin any state of foreclosure in 2009 or 2010 and serviced by one of the 13 banksrnor their subsidiaries regardless of whether or not they had requested a review.rn</p

Last month the Fed and OCC released arnpayment schedule for benefits from 11 of the banks. Amounts to be paid werernbased on a formula which appeared to set a value based on inconvenience andrnfinancial loss and ranged from $300 to $125,000 per borrower.  For example, where a servicer initiated arnforeclosure against a borrower who was performing all requirements of a writtenrntrial-period modification plan and that foreclosure was rescinded the paymentrnwould be $6,000; if completed, $50,000.  </p

Most of the largest payments ($125,000)rnare going to members of the military who were foreclosed despite protectionsrnafforded them under federal law.  Exceptrnfor benefits designated for military personnel, amounts are halved if thernborrower had not requested to be part of the original independent review.   Information on benefit criteria, paymentrnamounts, and the numbers of borrowers affected can be reviewed here.</p

While there was some comment at therntime, largely in politically oriented media, about the seemingly paltry amountsrnpaid to many borrowers, especially those who lost their homes, the announcementrnpassed quietly.  Payments started to rollrnout on April 12 and to date $1.6 million in checks have been cashed orrndeposited.  </p

NBC and MSNBC aired a report on thernpayouts this morning and Cummings appeared on the latter to discuss it and hisrnbill.  He blasted regulators,rnparticularly OCC, for accepting the settlement amount and for the methods used inrndetermining the criteria for the payouts, the amounts of the individualrnpayments, and for refusing to give Congress information on how these decisionsrnwere reached.  </p

Cummings said he felt the settlementrnamount had been set by how much the banks were willing to pay.  They alone established the categories forrnpayment he said, and made the determination as to how borrowers fit into thoserncategories.</p

Cummingsrnhas been joined in his criticism about the settlement by Senator ElizabethrnWarren (D-MA), a member of the Senate Banking Committee and the two launched a joint investigation ofrnthe settlement in January.  At that timernthey requested that the Fed and OCC provide documents relating to illegalrnactions by mortgage servicers during the Independent Foreclosure Review.  Bothrnagencies refused to provide these documents, arguing that they are the “tradernsecrets” of mortgage servicers.</p

Cummings’ bill would create anrnIndependent Monitor appointed by the President to review the compliance of allrnparties to the settlement, both servicers and regulators, and issue quarterlyrnreports to Congress and the public.  These reports must include:</p<ul class="unIndentedList"<liA description of the criteria andrnmethodology used to determine eligibility for direct and indirect relief and arndescription of due process protections for recipients;</li<liInformation on borrowers who receivernrelief by mortgage servicer including demographic information, the level ofrndirect compensation for similarly situated borrowers, and the number andrnamounts of principal reduction loan modifications and other types of borrowerrnassistance;</li<liInformation on the credit given tornmortgage servicers for direct and indirect compensation provided to borrowers;rnand</li<liA list of instances in whichrnmortgage servicers or regulators fail to comply with the terms of thernsettlement, and a list of actions taken by regulators to compel compliance.</li</ul

“Mortgage servicers have nowrnadmitted that they broke the law by illegally foreclosing on American familiesrnand committing numerous other abuses, but regulators refuse to provide even thernmost basic information about the extent of the abuses that were uncovered,”rnsaid Cummings.  “Since federal regulators now plan to rely on these samernbanks to determine payouts and deliver settlement funds to borrowers, we needrnan Independent Monitor to bring transparency and accountability to thisrnprocess.”

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