Banks’ $8.5B foreclosure pact should speed help to homeowners
BY FRANCINE KNOWLES Business Reporterfirstname.lastname@example.org January 7, 2013 10:10AM
Updated: February 9, 2013 6:13AM
Chicago area organizations that assist homeowners at risk of foreclosure give mixed reviews to an $8.5 billion agreement reached between the U.S. government and some of the nation’s biggest lenders and mortgage service companies to assist victims of foreclosure abuses.
The deal, announced Monday, calls for the companies to provide compensation to eligible borrowers ranging from hundreds of dollars up to $125,000. It also would end the Independent Foreclosure Review process that had been put in place to address foreclosure misdeeds by lenders and services, but that had been criticized for failing to quickly help victims of those abuses. The review was required under a 2011 federal government enforcement action ordered because banks mishandled people’s paperwork and skipped required steps in the foreclosure process.
“I think it’s a good thing that people are going to be getting some compensation sooner rather than having to go through this entire independent review process that was set up,” said Spencer Cowan, vice president of the Woodstock Institute, a Chicago-based research and public policy non-profit.
The review process, while free to the borrower “didn’t work well. It was very, very expensive for the banks,” he said. “The reviews were taking much longer than anticipated, and very few files were actually being reviewed. So this[new agreement] expands the number of people who will get relief. It speeds it up enormously.
“On the other hand I think the total amount of the settlement is probably going to be less than had the review process worked” effectively, Cowan added.
The agreement was reached with the Federal Reserve Board and Office of the Comptroller of the Currency [OCC] with Bank of America, Citibank, JPMogan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, Wells Fargo and Aurora.
Under the review process, little money was flowing to homeowners, said Ed Jacob, executive director of Neighborhood Housing Services of Chicago. “Banks had claimed they’d spent a lot of money hiring these consultants to do file review, but there had been very little that had actually gotten out into the street. If this takes some of that money that would have been spent on file review that wasn’t yielding results and actually brings about dollars to homeowners and dollars to neighborhoods, then it’s a good thing. I’d rather have the dollars go out that way.”
The agreement calls for $3.3 billion in direct payment to eligible borrowers and $5.2 billion in other assistance, such as loan modifications and forgiveness of judgments. It covers 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010. Of those, about 400,000 may be entitled to payments, advocates estimate.
“It’s another get out of jail free card for the banks,” said Diane Thompson, a lawyer with the National Consumer Law Center. “It caps their liability at a total number that’s less than they thought they were going to pay going in.”
The OCC said its “new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets.”
From January 2007 through November 2012, 422,678 homes in the Chicago metropolitan area and 6.37 million nationally were hit with default notices, initiating the foreclosure process, and banks have repossessed 188,232 homes in the Chicago area and 4.66 million nationally, according to RealtyTrac.
Under the agreement, eligible borrowers will receive compensation whether or not they filed a request for review form, and borrowers don’t need to take further action to be eligible for compensation, the agency said.
A payment agent will be appointed to administer payments to borrowers. Eligible borrowers are expected to be contacted by the agent by the end of March with payment details. Borrowers won’t have to waive any legal claims they may have against their servicer as a condition for receiving payment, and the servicers’ internal complaint process will remain available to borrowers, the OCC said.