Hasty revisions to a federal settlement between big banks and two of their regulators are leaving homeowner advocates scratching their heads – and about $9.3 billion in settlement funds seemingly up for grabs.
The issue has its origin in the robosigning scandal which came to light in the fall of 2010. In the depths of the housing crisis, several large national banks were rushing through a flood of foreclosures, and sloppy, flawed paperwork resulted in some homeowners being charged extra fees or denied an opportunity to remedy their default. In a few cases, homeowners who were current on their loans or active duty military members lost their homes. When news broke, most of the country’s largest banks called an immediate halt to foreclosures while regulators launched investigations.
On the state level, those investigations eventually resulted in last year’s landmark $20 billion settlement between the banks and 49 states’ attorneys general. Federal bank regulators, however, opted not to participate in that process. Instead, the Federal Reserve Bank (Fed) and the Office of the Comptroller of the Currency (OCC) quickly came to a separate deal, in which banks and servicers pledged to improve their foreclosure procedures and ponied up over $10 billion to remunerate homeowners who has been wronged. Homeowners and their advocates were urged to filed claims with the OCC, which promised to review each individual case to determine whether the former homeowners deserved compensation.
That was in 2011. Bill Minkle, executive director of ESAC, a Jamaica Plain-based housing agency that counsels homeowners in foreclosure, said staff at his agency had made a couple dozen referrals to the OCC for review after the settlement was announced, but had heard nothing back.
“One of my counsellors told me she had made 10 referrals [to the OCC], and of the 10, one received a postcard back,” saying their case would be looked at. “They never really heard anything back,” he said.
‘It Seems Like A Lottery’
By earlier this year, the review process had cost banks over $2 billion in fees to the consultants conducting the reviews, while homeowners had received nothing. In January, the regulators abruptly junked the entire process, renegotiating a $9.3 billion settlement with most of the banks. Now the details of that settlement are being released —and they’re raising even more questions about how many homeowners will ever see any compensation.
In the new settlement, $3.6 billion in funds will be dedicated directly to homeowners who received foreclosure notices between 2009 and 2010, with individual receiving anywhere from a few hundred dollars to up to $125,000. The Fed estimates as many as 4.2 million homeowners across the country may be eligible to receive funds. In Massachusetts, over 8,200 were homeowners were issued foreclosure notices during that period, according to data on foreclosure petitions provided by The Warren Group, publisher of Banker & Tradesman.
Not all of those homeowners’ loans were serviced by participating banks, however, and even for those homeowners who were, regulators are still feeling out how to divvy up the money.
“It seems to be thought out piecemeal. The whole thing is working in chunks, rather than on an individual level. People are grouped together without any regard to [whether any harm was found] and without regard to how much harm,” said Carol Marine, the manager of foreclosure programs for the Citizen’s Housing and Planning Agency. “This is really rough justice.”
Former homeowners who attempted to have their cases reviewed now seem to be in limbo.
“They’re giving out all this money —but as someone who represents some of the people who might be eligible for some of this money, it seems like a lottery. Some people get notices, some don’t,” said Nadine Cohen, head of consumer rights for Greater Boston Legal Services.
Earlier this month, the Fed outlined plans to attempt to contact the 4.2 million homeowners by sending postcards to the address servicers have for them and using public and credit records to track them down.
It remains unclear how effective this will be at reaching the affected homeowners, who may have lost their homes more than four years ago and moved multiple times since. “I don’t know how they’re going to find these people,” said Minkle.
Even if homeowners are aware of and respond to the settlement notification, they may have to wait up to another year to actually receive a check. The Fed has emphasized that participating in the settlement still leaves people free to pursue other legal options, but the clock may be running out for such claims.
“I think most borrowers, unless they’re already hooked up with a legal service lawyer or some other lawyer, they’re going to have no recourse if they don’t get any money,” said Cohen. “We spent a lot of time with some of our borrowers, filling out the [Independent Foreclosure Review] forms, attaching documents, spelling everything out. If those people don’t get any money, what do we do? We’ll have to file some affirmative litigation, which can be very time consuming and costly.”
In Massachusetts, such a claim would be filed under the unfair and deceptive practices act, which typically has a four-year statute of limitations, said Cohen.
Also unclear is what will become of the remaining $5.7 billion dollars in settlement funds. The settlement designates them for “other forms of foreclosure relief,” which may include being used to fund foreclosure counselling services or offering borrowers modifications.
Homeowner advocates say they’ve heard nothing about whether they may be eligible to apply for such funds or how to do so.
“I don’t have any idea how one applies for the money, how they’re going to give it out. Even what the criteria are for the awards,” said Cohen.
Email: csullivan@thewarrrengroup.com
