More than 1,000 military servicemen and women were unlawfully foreclosed on while in active service, it has emerged, as federal regulators have released new details about a $9.3 billion foreclosure settlement between them and 13 of the country’s largest servicers.
The tally of foreclosure problems, released last week by the Federal Reserve Bank and Office of the Comptroller of the Currency (OCC), is renewing scrutiny about the practices of some of the country’s largest banks during the foreclosure crisis.
The settlement had its roots in the robo-signing scandal which first broke in the fall of 2010, and eventually produced both the federal settlement in 2011 and a separate deal between banks and 49 state attorneys general in 2012. Banks had been accused of allowing such sloppy paperwork and errors in their pursuit of foreclosures that many borrowers were harmed. When banks came to a settlement with federal regulators in early 2011, they had agreed to allow their foreclosure files to be reviewed to determine whether and what kind of harm borrowers had suffered, and borrowers were encouraged to submit their own claims for verification, in a process known as the “Independent Foreclosure Review.”
Early this year, however, after months of review had garnered billions in fees for consultants while borrowers were still awaiting resolution, the regulators opted to junk the whole process. They hastily reached a new deal with 10 of the original servicers. OneWest, Everbank and GMAC Mortgage declined to sign onto the renegotiated settlement. Their files are still being reviewed.
The new plan calls for $3.6 billion of direct cash payments along with $5.7 billion in other foreclosure relief. Banks rapidly generated their own tally of problematic loans, to which were added the files submitted by borrowers. Checks were due to begin going out to a list of 4.2 million borrowers starting April 12.
That tally is raising some eyebrows. In addition to 1,082 military borrowers who had foreclosures completed, nearly 700 borrowers who were not in default had foreclosures begun on their homes, including 53 borrowers current on their loans, who eventually lost their homes. Additionally, 28,000 borrowers who had declared bankruptcy – which blocks foreclosure and requires a bankruptcy court to come up with a plan to distribute the borrower’s assets – had foreclosure actions taken against them, and 5,800 lost their homes.
Flummoxed Over Foreclosure
“How can this be? How was a lender able to pursue foreclosure without demonstrating compliance with the Soldier’s and Sailor’s Civil Relief Act? Those files ought to be [further] scrutinized, perhaps shedding some light on the sorts of practices that have devastated so many families,” said Carol Marine, the foreclosure program manager for the Citizens’ Housing and Planning Association.
Even more plentiful were instances of banks reneging on promises to allow borrowers to attempt to obtain loan modifications in lieu of foreclosure. There were 2,678 borrowers who lost their homes despite being approved for and successfully meeting the requirements of a modification or forbearance agreement. And hundreds of thousands of borrowers who applied for the modifications were foreclosed on before underwriters reviewed their applications, or, in 234,816 cases, even though their applications had been approved.
The compensation amounts due to borrowers are also raising eyebrows. Military borrowers who lost their homes have been approved for the highest amount, $125,000, and borrowers foreclosed on while in bankruptcy or while successfully meeting the terms of a loan modification are receiving $12,000 to $62,500. But borrowers who lost their homes while attempting to obtain a modification are receiving as little as $300. And in almost all cases, borrowers whose problems were uncovered by the banks themselves are receiving only half the amount due to borrowers who applied for review on their own behalf.
“Those people who submitted a request for review were expecting an independent consultant to review their circumstances. Because of that, the regulators determined that these borrowers should be compensated at a higher rate,” said Bryan Hubbard, a spokesman for the OCC.
Hubbard took pains to explain that, while servicers were admitting to foreclosing on people who had not defaulted on their loans or who were in active service, this did not mean that the banks had necessarily done something illegal or wrong. “The concept of error doesn’t exist in the agreement, because reviews were not completed,” he said. “A lot of people are characterizing this as 4.2 million people harmed by faulty practices. That’s not right either. We don’t know how many people were harmed.” Much of the money, he explained, might in fact go to people who weren’t harmed.
The settlement terms explained by Hubbard have raised eyebrows in Congress, where an investigative committee headed by Sens. Sherrod Brown (D-Ohio) and Elizabeth Warren (D-Mass.) called up officials from the Fed, OCC and the consultants who conducted the review for a grilling last week. As of this writing, it remains to be seen whether the renewed Congressional interest in servicers’ conduct will produce further legal consequences.
Email: csullivan@thewarrengroup.com
