© dacasdo – Fotolia.com

Some form of compensation for the homeowners was expected, but what surprised many was the speed at which the Fed came to this decision – previously, officials were going through complaints on a case-by-case basis, a lengthy and time consuming process that would have taken many months to complete. While the agreement announced last week probably means that lenders get away with paying less, the Fed says that the advantage is that borrowers will receive the financial assistance they need “in a more timely manner”.

As part of the agreement, lenders will hand out more than $3.3 billion in cash to those homeowners that were wrongly foreclosed upon, with another $5.2 billion set aside for other forms of assistance, such as forgiveness of deficiency judgments and loan modifications. The amount of compensation due to each former homeowner will vary depending on their individual circumstances, but officials said that payouts will range from a few hundred dollars to more than $100,000 in some cases.

Opening a Can of Worms

Several observers have said that with any luck the payout will have brought an end to this long running issue, but these people are seriously mistaken. In all likelihood, all the lenders have achieved is to give themselves an even bigger headache, for the small matter of dividing up the payouts so that everyone entitled to compensation receives a fair amount will be no walk in the park.

One of the most controversial issues, and something that is absolutely likely to cause arguments later on down the line, is that dozens of affected homeowners that may or may not receive adequate compensation from the deal, have been denied the right to an “independent foreclosure review”, as is stated in the FAQ section of the review.

The problem here is that in order for such a review to be independent, both the lenders and the federal regulators representing the homeowners should have been given the chance to nominate a neutral third party to carry out this review – sadly, it seems that the lenders themselves actually chose these reviewers.

As ProPublica explains in this article:

“Federal regulators designed the program to work like this: Each of the banks would hire an ‘independent consultant’ (approved by the regulator) to conduct reviews of the bank’s foreclosure cases. The bank was supposed to foot the bill, but the consultant, not the bank, was supposed to decide which of the bank’s customers deserved compensation and how much.”

Clearly then, the consultants chosen to do the job cannot be seen as ‘impartial’ reviewers, and so their fairness in deciding who is entitled to how much compensation will inevitably come into question. In fact, the awards will be paid out according to the stipulations of the agreement, which would appear to be arbitrary at best, and will likely be anything but fair. For an example of this ‘arbitrariness’, consider the actual rules for eligibility, which state that only those foreclosed upon between 2009 and 2010 can be considered for compensation – irrespective of the fact that millions were foreclosed upon before 2009.

Like It or Lump It

Perhaps even worse than this arbitrary decision making is the fact that homeowners will have no rights to appeal the independent review process. The FAQ page states:

“The decision of the review is considered final and there is no further recourse within the Independent Foreclosure Review process. The Independent Foreclosure Review will not have an impact on any other options homeowners may pursue related to the foreclosure process of their mortgage loan.”

The Neighborhood Assistance Corporation of America was quick to jump on the agreement, pointing out these deficiencies and underlining my own concerns that homeowners will not be properly compensated.

It pointed out that more than 65,000 cases had been submitted to the review process so far, and that these reviews were turning up even more evidence that huge numbers of homeowners were wrongly foreclosed upon, without being informed that they could apply for loan modification. Furthermore, it states that the $8.5 billion is simply an insufficient amount to adequately compensate concerned homeowners, and slams the $5.2 billion earmarked for ‘other assistance’, saying “this will do little in assisting homeowners stay in their homes since it is not dedicated to principal reduction.”

Who Gets What?

At the end of the day, lenders are left with an even more pressing headache – which former homeowners are entitled to compensation and which aren’t? How do these people go about filing a claim? And what about those who are not ‘entitled’ to any of this compensation, because their homes were foreclosed upon outside of the Fed’s extremely narrow window?

There remain many other unanswered questions too, such as why the arbitrary $8.5 billion figure (which is surely inadequate), and why was the Neighborhood Assistance Corporation of America not allowed to take part in the settlement making? Is there any avenue of appeal for homeowners that miss out?

Until these questions are answered adequately, this problem won’t be going away anytime soon…

Who really loses? Courtesy © korni007 – Fotolia.com

One case involving some 10 banks was settled with regulators for the some of $8.5 billion. A second case, one involving Bank of America Corp. was cured with an agreement by the former leader in home mortgages, for $10.4 billion to be paid out to Fannie Mae (Timothy J. Mayopoulos, CEO below left). That giant loan buyer, for those not in the know, was later seized and supported by untold billions in taxpayer money.

The gist of these cases really boil down to Federal prosecutors laying off the criminal investigations, and focusing (or dealing) on the civil ones. While some are ecstatic that banks have accepted responsibility, others condemn the settlements as “too lenient” where Bank of America and others being held accountable goes. The trillions in losses suffered, some say, are not nearly rectified by these settlements. Paying back losses suffered by Fannie Mae, and buying back bad “paper”, even still Bank of America will turn a profit for 2012 according to NBC News.

Relying on the old adage, “something is better than nothing” is not a dogma most Americans would clearly identify with or condone, should all that has been lost be revealed. On a personal level, those who lost their homes in the turmoil would not, nor should they, understand how an entity makes money after having contributed to so much loss. Losing everything on the individual level, does not sit well with profitability at the corporate level. Considering all that has transpired, and especially shady dealings such as were investigated of Lehman Brothers and even Ernst &  Young (allegations now dropped), it seems almost amazing the public is not outraged.

While the Wall Street Journal and others sew the seeds of renewed loan approvals on the heels of these decisions, it’s going to be some time (if ever) for Wall Street itself to live down the uncertainty the collapse of 2008 caused. Calling irresponsible investing practice “alleged mortgage misdeeds”, and taking a veritable handout in the billions in settlements, the logic simply has to escape most of middle America.

America’s four biggest banks; Bank of America, J.P. Morgan Chase, Wells Fargo, . and Citigroup Inc. all signed off on an agreement to deliver aid to borrowers, and “do better” where speeding said aid is concerned. Meanwhile, intersecting news in the headlines from Bank of America shows diverging strategies to gather in more investment dollars. Bank of America became the first huge banking concern to enter into the so called private REIT game for clients of the bank. The Jones Lang LaSalle Income Property Trust, and other private funds, offer a lot less transparency than their public investment counterparts. This fact alone, for some observers, would seem to indicate B of A may not have learned much from the 2008 debacle. 

It should be noted too, that in the last three years Bank of America has reached settlements to the tune of some $43.52 billion dollars for one case or another. This New York Times article reveals to an extent, the depth and breadth of the real estate bubble bursting, at least where Bank of America and their dealings with now notorious Countrywide Financial Corporation is concerned. A final note here, while trillions of dollars of investor and taxpayer funds seem to have evaporated, no one at Countrywide Financial, Bank of America, or any of the other principal players in these Federal investigations has admitted any wrongdoing.

Banks to review millions of foreclosures © dundersztyc - Fotolia.com

Eligibility for the foreclosure reviews – which will be executed as part of a new mandate federal regulators have to the country’s banks – will be limited to those homeowners whose homes were in foreclosure from 2009 until 2010 only. The reviews will look into abnormalities such as mortgage payment miscalculations by the banks, or banks charging inappropriate fees as penalties, and if anything like this is found then homeowners may well be compensated for the mistakes.

However, it’s unlikely that any of the foreclosure reviews will lead to foreclosures being overturned, says the Wall Street Journal.

“This is going to be a massive undertaking, at a huge expense to banks,” said Tim Rood of the Collingwood Group.

The third-party reviews are set to be announced by a new public outreach campaign beginning in the next few weeks, which will be contactable via email, direct mail and a toll-free phone number. According to the Wall Street Journal, it will be up to individual homeowners to request that their foreclosure case is reviewed.

The reviews were ordered by federal regulators as part of their response to last year’s “robo-signing” scandal, which saw huge numbers of foreclosures being signed off without anyone reviewing them, something that led judges to call into question the foreclosure practices of banks.

Mortgage lenders and servicers were initially given a 45-day deadline by federal regulators to come up with their plans – a deadline which would have finished next Monday. However, the lenders now have another month to work out what they will do, regulators say.

Banks including Wells Fargo are given more time to address their foreclosure practices. Courtesy of Minnpost

The regulators have already asked lenders and servicers to reimburse those borrowers who have had their homes wrongly foreclosed, they say. Originally, the banks were given 45 days to work with auditors and find out how many of their foreclosed borrowers could have kept their homes had they been given access to workout plans.

Federal regulators have asked servicers to submit workable plans to show how they will improve foreclosure practices and minimize similar problems in the future.

Under the deal, mortgage servicers have also agreed to take steps to make the loan modification process easier for delinquent borrowers by providing them with a single point of contact to discuss their case. Additionally, mortgage servicers have been banned from carrying out loan modification negotiations while working on foreclosing properties at the same time.

Mortgage lenders and servicers need more time to identify and compensate those wrongly foreclosed, say regulators. Courtesy of Huffington Post

Federal officials say that the deadline extension will also give them more time to try and work out a broad settlement with all mortgage lenders and servicers over accusations of widespread foreclosure practice abuses. It’s thought that the ongoing talks may lead to a settlement which includes a $20 billion fine and a requirement for lenders and servicers to revamp standards and cut some borrowers loan balances.

Amongst the banks involved are the Bank of America, Wells Fargo, Ally Financial, JP Morgan Chase, HSBC and others.

The move, say lawmakers, would threaten the chances of the US making a full recovery from recession “for years”.

Lawmakers push federal regulators to reconsider down payments proposal. Courtesy of zimbio

A letter released to the press on Wednesday showed that over 160 House of Representatives lawmakers labeled the mortgage proposal from the federal regulator as “burdensome dictate from the government”, and said that if it were to go through, mortgage availability would be reduced even further than it already is.

The Dodd-Frank Wall Street Reform Law was meant by federal agencies to introduce risk-retention regulations to the industry, and calls for mortgage lenders to heavily scrutinize loans and make sure they retain 5% of the credit risk, except on those properties considered to be safe or qualified residential mortgages.

The Dodd Frank Wall Street Law is signed into effect. Courtesy of IB Times

While QRM’s would be exempted from the requirement of 5%, they would still have to meet strict guidelines, like the 20% down payment requirement that has been proposed. This would leave borrowers unable to come up with the 20% facing higher interest rates and fees.

Lawmakers, in their open letter, said that the 20% down payment requirement was much too high, and urged federal regulators to consider lowering this amount.

Another critic of the high down payment requirements has been the National Association of Realtors, who argue that such a move would put any housing recovery in great jeopardy.

20% down payments will prevent many capable people from owning a home says the NAR. Courtesy of vmtemplates

“A balance is needed between the reduction of risks for investors and the provision of mortgage credit that people can afford,” said the president of the NAR Ron Phipps.

“The use of better underwriting, combined with higher standards for credit has already lessened risks a great deal. The high down payment in totally unnecessary and will only serve to exclude thousands of people who want to buy homes, despite the fact they have good credit and can afford to pay their loans.”