In a report issued Monday, the Federal Reserve Board defended its method of punishing banks for misconduct in home foreclosures. The agency said about 83 percent of borrowers have cashed checks reimbursing them for financial injury.
In 2011 and 2012 settlements,16 mortgage servicers entered into payment agreements with the Office of the Comptroller of the Currency, Federal Reserve, and Office of Thrift Supervision to provide $3.9 billion in direct cash payments to borrowers and about $6.1 billion in foreclosure prevention assistance. The funds were to be administered under a program called Independent Foreclosure Review.
In January 2013, with less than 20 percent of the more than 500,000 review requests completed, 13 mortgage servicers reached an agreement with federal bank regulators that ended the Independent Foreclosure Review for those servicers participating in the settlement.
They include Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo and their affiliates. Ally/GMAC joined onto the settlement in July 2013 with the Independent Foreclosure Review process continuing only for Everbank and OneWest.
Instead of individual reviews as originally agreed on, the settlement created a $10 billion fund to compensate borrowers for improper foreclosure practices, ranging from wrongful foreclosures to lost documents. The reviews were replaced with homeowners being lumped into 12 broad categories, with payments ranging from $300 to $125,000.
A vast majority ended up in the bottom category, receiving no more than $500, with most only getting the minimum $300.
Consumer and housing advocates are critical of the mortgage settlement process.
Bruce Marks, founder and CEO of the Neighborhood Assistance Corporation of America, a consumer housing advocacy organization, said in an NBC interview that the Independent Foreclosure Review had raised hopes that the government would help homeowners struggling with foreclosure get investigative findings and fair treatment, but that the settlement agreement and the compensation payments had dashed those hopes.
However, the Federal Reserve said in a Monday statement that the Payment Agreement provides the greatest benefit to consumers in a timelier manner than would have occurred under the Independent Foreclosure Review.
The agency also said the Payment Agreement ensures that servicers can’t ask or require borrowers to waive any legal claims against their servicer as a condition of payment.
In its report, the Federal Reserve positively describes the enforcement action against the 16 mortgage servicers between April 2011 and April 2012 for deficient practices in mortgage loan servicing and foreclosure processing.
The report also provides information on the Independent Service Review of foreclosure files during the review and file review results, including servicer error rates during the review, up to the time the review was replaced.
It also offers information on the payments borrowers received and other assistance from the Payment Agreement and reports on the Federal Reserve's handling of corrective actions the mortgage servicers are required to carry out.
The report focuses mainly on servicers regulated by the Federal Reserve.
