Within the next 31 days, 4.2 million homeowners who suffered abusive foreclosure tactics at the hands of some of the nation’s largest banks will be notified of their compensation, banking regulators said Thursday.
The Federal Reserve and Office of the Comptroller of the Currency issued the final details of a sweeping $9.3 billion agreement with 13 mortgage servicers, including JPMorgan Chase, Citibank and Bank of America, under consent orders for fraudulent and flawed foreclosure practices.
(View each bank’s share in the settlement here)
Regulators have hired Rust Consulting to dispense $3.6 billion in cash payments to borrowers whose homes were in foreclosure in 2009 and 2010. Those whose homes were wrongfully seized and sold will be awarded up to $125,000. Borrowers who were charged improper fees during foreclosure or hit with higher rates than they should have will be entitled to a few hundred dollars.
Homeowners will be assigned to one of 11 categories based on the types of errors that could have occurred. Categories include “denied modification,” “insufficient follow-up” and “borrower not in default.” Servicers are still determining how many borrowers will fall into each category.
(View all the categories here)
Payments will be doled out in waves starting in April. No action is required by borrowers. They will receive payment whether or not they filed a form requesting a review.
The remaining $5.7 billion from the servicers will be used for reducing loan payments or interest rates on mortgages. Servicers will also offer forgiveness of deficiency judgments — he difference between the price the home sold for at the foreclosure sale and the total debt that was due under the mortgage. They can use this portion of the settlement to help any of their customers who need aid to prevent a foreclosure.
The requirements are being used as an incentive for institutions “to further improve their efforts” to prevent foreclosures, Morris Morgan, deputy comptroller of large banks at the OCC, said during a call with reporters.
The agreement, first announced in January, replaces an independent foreclosure review that was established shortly after the consent orders were handed down in 2011.
In the 12 months that the government’s foreclosure review was up an running, not a single homeowner received a dime in compensation for the abuses they suffered at the hands of some of the nation’s largest banks. But the eight consultants managing the process were paid a total of $1.9 billion.
By some estimates, it would have taken well into 2014 for the millions of borrowers affected to be paid. The slow process and inordinate amounts spent on operations alone is why federal regulators say they had to shut down the system and forge a new agreement.
But when regulators announced the foreclosure settlement to replace the review, lawmakers and consumer advocates questioned the abrupt conclusion of the initial program and whether the new deal would be any better.
Sen. Elizabeth Warren (D-Mass.) and Rep. Maxine Waters (D-Calif.) are among the lawmakers pressing banking regulators to explain what happened with the original review process.
At a housing luncheon held in February, OCC comptroller Thomas Curry defended the new agreement, saying that is has several times the potential payout of the original review.
“Changing course was the right thing to do, for borrowers, for servicers, for the federal banking system and for the housing markets,” he said. “Our new approach will get more money to more people much more quickly.”