As of next month, homeowners who were wrongly foreclosed upon as a result of banks’ “robosigning” will begin to receive compensation from lenders, with the amounts ranging from a few hundred dollars to as much as $125,000 in some cases, said federal regulators last week.
These payments come as a result of a deal struck in January between regulators and ten of the nation’s top banks, bringing to an abrupt end a comprehensive investigation into widespread mistakes made in the processing of foreclosures. The original plan was to investigate more than 4.2 million mortgages, but with only 104,000 of these reviews completed after 18 months, regulators accepted the bank’s compensation offer as a way of ending the investigations quickly.
Those that agreed to the payouts included the Aurora Bank, Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, Sovereign Bank, U.S. Bank National Association and Wells Fargo Bank.
Thomas Curry, Comptroller of the Currency (OCC), explained the thinking behind the deal in an interview earlier this month:
“It just doesn’t make sense for these [mortgage] servicers to continue funneling money to consultants that could be better used to help distressed borrowers who have lost their homes. The cost of concluding these reviews would far exceed the harm that would be found.”
In total, the banks have agreed to pay out a sum of $3.7 billion to compensate homeowners who were wrongly foreclosed upon. But while this might seem like a large amount, critics say that it isn’t nearly enough to adequately compensate all of those who lost their homes.
The original aim of the bank’s reviews was to determine which homeowners had been wrongly foreclosed upon as a result of “robosigning”, so that these could be compensated for the harm they had suffered. The investigations were originally deemed necessary because of the vast differences in the mistakes made by lenders. Some homeowners suffered only minimally due to minor clerical errors, but in other cases homeowners were forced to leave their homes even though they hadn’t actually defaulted on their loans.
One of the problems with stopping the investigations early is that its now up to banks to categorize each borrower that claims to have been wrongly foreclosed upon according to the severity of harm they suffered. But without completing the investigations, this process is also likely to be flawed, argue critics.
Alys Cohen of the National Consumer Law Center asks:
“If the review is being done on the basis of the (mortgage) servicer files, and the servicer files are a mess, how can you make a finding that’s accurate?”
However, the OCC has brushed aside these concerns, saying that it has enough information to determine how much compensation homeowners are entitled to.