The results are in. The award for the sorriest chapter of the great American foreclosure crisis goes to the Independent Foreclosure Review, a billion-dollar sinkhole that produced nothing but heartache for aggrieved homeowners, and a big black eye for regulators.
The foreclosure review was supposed to uncover abuses in how the mortgage industry coped with the epic wave of foreclosures that swept the U.S. in the aftermath of the housing crash. In a deal with the Office of the Comptroller of the Currency and the Federal Reserve, more than a dozen companies, including major banks, agreed to hire independent auditors to comb through loan files, identify errors and award just compensation to people who'd been abused in the foreclosure process.
But in January 2013, amid mounting evidence that the entire process was compromised by bank interference and government mismanagement, regulators abruptly shut the program down. They replaced it with a nearly $10 bil! lion legal settlement that satisfied almost no one. Borrowers received paltry payouts, with sums determined by the very banks they accused of making their lives hell.
Now, new evidence shows that had the reviews continued, they may have uncovered far more mistakes than regulators said were present when they scuttled the deal.
In a letter last week, Rep. Elijah Cummings (D-Md.) said an inquiry by his office had revealed "widespread and systematic foreclosure abuses" turned up by the auditors conducting the mortgage reviews. The letter was sent to Darrell Issa (R-Calif.), the chairman of the House Committee on Oversight and Government Reform.
Cummings specifically cited high error rates described in several reports issued by Promontory Financial, one of the auditing firms. In a May 2013 report, Promontory said that an audit of a small sample of Bank of America files revealed an error rate of 60 percent, Cummings said. These were mistakes made by the bank i! n its handling of mortgage modification applications, submitte! d by people hoping to avert a foreclosure.
In a separate report, Promontory said it found "borrower financial injury" in 21 percent of PNC Bank loans, according to the Cummings letter.
These numbers are vastly higher than the figure regulators gave when they cancelled the review program. At the time, regulators said they had detected an error rate of just 4.5 percent -- meaning the mortgage industry had made a mistake in handling less than 1 in 20 foreclosures. The error rate is critical because it was almost certainly used by regulators when they were determining how much the mortgage companies should pay to settle abuse claims.
The Promontory documents have not been made publicly available. Officials at the Office of the Comptroller of the Currency and the Federal Reserve have declined to comment on the letter.
The Cummings letter offers the latest evidence that the government badly fumbled its best opportunity to learn the full scope of mortgag! e abuses that inflicted additional harm on already battered neighborhoods and almost certainly deepened the recession that gripped the U.S. in the wake of the financial collapse of 2008.
Untold thousands of people have complained that their lender fouled up their mortgage -- assessing bogus fees, losing applications for loan modifications and even pushing them into an unnecessary foreclosure. Nearly all the evidence that has come to light indicates that these errors were commonplace, and even intentional.
At Bank of America, employees have testified that they lied to homeowners seeking loan modifications, denied their applications for invented reasons and were rewarded for pushing borrowers into foreclosure.
A 2012 study conducted by academics and regulators at both the Office of the Comptroller of the Currency and the Federal Reserve found that the mortgage industry had screwed up the modifications of more than 800,000 loans.
The foreclosure revi! ew was supposed to give these frustrated borrowers a chance for a fair ! hearing. Instead, by the fall of 2012, nine months after it began, the program was beset by complaints of bank interference. After the program was cancelled, contractors who worked on the reviews said the entire process was marred by shifting guidelines and poor oversight. Some said they were told by bank officers to ignore mistakes they were finding.
Despite the problems, dozens of borrowers who have shared their experience with The Huffington Post said they would have preferred that the reviews continue in some form, regardless of cost and time involved. That's because the math of the settlement did not work in the favor of people with a legitimate gripe.
Instead of doling out cash just to the 250,000 people who had applied for a review, the settlement called for $4 billion to be divvied up among all 4.4 million people who received a foreclosure notice in 2009 or 2010. As a result, payouts were small. More than 99 percent of these borrowers received less th! an $6,000, with many receiving checks of just $300.
To add insult to injury, checks were delayed in going out, with some lost in the mail and others never delivered.
Regulators have not explained how they reached the settlement amount. But the error rate -- the percentage of loans they determined were compromised by errors or abuses -- seems an obvious factor in the decision-making. At a hearing last April, Sen. Elizabeth Warren (D-Mass.) said that the 4.5 percent rate reported by regulators was a "made-up number."
The Cummings letter concludes with a call for a hearing to further investigate the review and the settlement. It is unclear, he wrote, how regulators arrived at the sums the mortgage companies would have to pay -- and whether the amounts were "in any way related to the actual or estimated harm suffered by borrowers."
Issa has not yet responded to the call for a hearing. Whatever he decides, it is hard to fathom an outcome to this mess ! that would satisfy foreclosure victims.
Source : http://www.huffingtonpost.com/2014/04/29/bank-foreclosure-victims_n_5228275.html?utm_hp_ref=business&ir=Business
