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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…

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.

Florida couple were shocked to recieve foreclosure notice when they had paid in cash! Courtesy of TimeCuriousCapitalist Files

The mix-up happened when the couple, Warren and Maureen Nyerges, bought themselves a foreclosed home in Naples back in 2009, paying the Bank of America the $1650,000 price they asked for in cash. Despite this, just four months down the line the couple were issued a notice of foreclosure by the bank.

Despite it obviously being a mistake, Bank of America took months to resolve the mix up, ultimately forcing the couple into court to prove that they legally owned the home outright.

At the culmination of a year-long legal battle, the couple finally won their case last September, and Bank of America was ordered to pay the Nyerges for their court costs and lawyers fees.

Even so, the bank refused to pay the couple for months on end, forcing them to eventually seek a court order allowing them to seize the bank’s assets if it didn’t repay their attorney fees immediately.

Bank of America threatened with being foreclosed. Courtesy of Alertsec

Last week, the couple drove round to a Naples branch of the Bank, with a moving truck and sheriff’s deputies in tow, ready to seize the bank’s assets.

“The manager was quite shocked by us turning up,” said Todd Allen, the couples attorney. “Good job too, because at that point I was riled enough to take the very chair he was sitting in.”

The bank manager immediately issued the couple with a check for $5,772 and assured them that they would deliver the rest of what they were owed by the end of this week.