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Foreclosure review deal: Helpful?

By Polyana da Costa · Bankrate.com
Monday, January 7, 2013
Posted: 4 pm ET

Ten of the nation's largest mortgage servicers have reached an $8.5 billion settlement with regulators to end foreclosure reviews that were triggered over complaints of illegal foreclosure practices.

Under the agreement, the banks will pay $3.3 billion to eligible borrowers who faced foreclosure in 2009 and 2010. The banks will also offer about $5.2 billion worth of loan modification and loan forgiveness to borrowers. Borrowers whose primary homes were in any stage of foreclosure in those years and whose loans were serviced by one of the 10 banks in the agreement are eligible for compensation, according to a spokesman for the Office of the Comptroller of the Currency.

The servicers are: Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo. The banks are among the 14 servicers that received orders from federal regulators in April 2011 to conduct independent reviews of millions of foreclosure files. The enforcement action required servicers to compensate borrowers who were victims of improper foreclosure practices, once the review process was completed.

This latest settlement puts an end to those reviews and satisfies the order from 2011 for 10 of those 14 banks. Four servicers were not included in this settlement.

Will settlement really benefit borrowers in the long run?

The OCC claims that the settlement is the quickest, most efficient way to get money to borrowers, but consumer advocates say it's too early to tell if this is actually going to offer borrowers a fair deal.

"Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation's housing markets," says Comptroller of the Currency Thomas J. Curry.

The foreclosure review process that was in the works would certainly take longer to deliver any results to borrowers, but a quicker deal doesn't automatically mean a better deal, says Debby Goldberg, special project director for the National Fair Housing Alliance.

"Switching to something that is more streamlined is a good concept," she says. "But the details of the settlement are critically important."

Who gets a check?

Regulators have not disclosed the actual settlement yet and have not detailed how it will be determined how much each borrower will get.

According to the OCC, 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 will "receive cash compensation in a timely manner."

If all borrowers were to get equal compensation, that would translate into about $868 per borrower.

But the OCC says "Eligible borrowers are expected to receive compensation ranging from hundreds of dollars up to $125,000, depending on the type of possible servicer error."

How do you determine the type of possible error without reviewing the actual foreclosure file? An OCC spokesman says details aren't yet available on how the process will be conducted.

The agency says "a payment agent" will be appointed to administer payments to borrowers, and borrowers will get contacted by the agent by the end of March.

The deal with loan modifications and forgiveness

Regulators have not disclosed how banks will determine which borrowers will receive offers for loan modifications under the $5.2 billion part of the agreement. The servicers will also offer forgiveness of deficiency judgments to borrowers who lost their homes to foreclosure. Many borrowers are not aware that, in most states, lenders can pursue borrowers after foreclosure to collect the unpaid balance of the loan.

The release of liability on the balance of the loan would be a relief to many borrowers, but regulators did not specify the eligibility requirements to benefit from this part of the settlement.

"It's not at all clear how the banks will decide what option they will offer to each borrower," Goldberg says. It's also important to remember that the $5.2 billion is not actual cash the banks are going to pay out of pocket, she says. With the deficiency judgments, for instance, this is money that the lenders already weren't expecting to be able to recover, she says.

What if you filed a review request?

Matt Weidner, a foreclosure defense attorney in St. Petersburg, Fla., says several of his clients reached out to him in recent months asking whether they should reply to the letter they got in the mail urging them to request a foreclosure review. He encouraged them to do so.

"I didn't know they would be flushed down the toilet," he says. "The government asked for evidence of wrongdoing, but rather than saying we have a major problem here, they did the opposite. They said we are going to stop the investigation."

Follow me on Twitter @Polyanad.

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3 Comments
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Rhonda Davis
January 08, 2013 at 3:36 am

It was just by chance that I learned of this possible settlement. An email found its way into my account on December 27, 2012 from my state housing department. It seems that the mortgage servicer was obligated by the settlement agreement to mail out notices to those foreclosed between 2009 and 2011 during the months of septembe4r and October 2012.

Here's where it gets a little quirky - the mortgage companies sent the claim instructions and a claim number. If you do not have your claim number, you cannot file a claim. Yet, the information was sent to my previous residence -- yes, the home I was foreclosed on in 2010. USPS stops forwarding mail after 6 months; most, if not all, residents living in their primary residence that was foreclosed upon will have moved from that residence; only those that left a forwarding address that is less than 6 months old would have received their instructions and claim number.

I am grateful that my state used a different notification method for me. My email is on file with the mortgage servicer that foreclosed on the home, but if less notifications are received, there will be less payouts by the mortgage servicers.

It all seems like a shell game to me -- just moving money around from one place to another. The money they received in bailout funds was used to set up the bogus modification programs that were designed like a Rube Goldberg invention to provide smoke and mirrors so it looks like they grew a heart. they got a slew of houses, turned around and sold them either to new buyers with new mortgages or dumped them on other mortgage servicers, still have the ability to reclaim what was owed on the original foreclosed mortgage balance, and are putting up a pittance of what they have made on the whole mess.

There is no amount of money that will undue or 'make good' on the way I was treated during the 18 months' foreclosure process.
Bankruptcy followed the month after the foreclosure capping a 4-year messy divorce that started this fiasco in the first place. Up until the end of the divorce in 2008, there was no glitch in mortgage payments; however, the first late payment moved the property onto the fast track towards foreclosure with the mortgage servicer refusing even a partial payment to pay back the arrears.

By the way, the mortgage I owed was $172,000; final accounting at foreclosure had it at $182,900+; we had a solid offer to purchase on the table to close in 3 days at $205,000 that was ignored after the mortgage servicer was notified and agreed to allow us to move forward with the offer. Two years after the foreclosure, the house was sold for $165,000!!!!!!!!