In 2011, Federal regulators told the nation’s big banks to investigate themselves because of the shoddy foreclosure practices that took place in 2009 and 2010. The banks were forced to hire consultants and if violations were found, they were supposed to reimburse homeowner victims for amounts found “as appropriate.” After spending an estimated $1.5 billion dollars on consultants, big banks found little wrong-doing which provided any significant relief for homeowners. Homeowners received next to nothing when compared to the soaring profits the banks continued to reap during that period of time. In essence, it was left up to each bank to decide what constituted both a wrongful foreclosure and “appropriate” compensation.

Yet, the banks got their way because in January, 2013, Federal regulators (The Federal Reserve and The Office of the Comptroller of the Currency) reached a deal with 10 big banks which effectively ended the review and required the banks to provide $8.5 billion in aid to borrowers. The investigation could have been more expensive, but the deal also resolved any uncertainty or risk—which big banks no longer enjoy. Of the $8.5 billion, $3.3 billion is ear-marked for cash payments to borrowers who lost their homes and $5.2 billion is for various loan modification programs. The foreclosure abuses were obvious and caused not only the disruption of entire neighborhoods, but also depressed home values, caused children to relocate to different schools and forced seniors to move to housing that is not well suited for them. Given the extent of the crisis, Federal regulators could be questioned why they ended the review process with a settlement that may not give the required relief.

For their part, federal regulators are proudly claiming that the goal in ending the reviews was to provide borrowers relief in a more-timely manner, which begs the question why the flawed review process was instituted in the first place. There is, however, no reliable analysis to figure out which borrowers were victimized, so there really is no fair way to apportion the $3.3 billion among the 4 million borrowers who could be affected. Simple math bears out that if half of the eligible borrowers received the payment, each would get roughly $1,700 on average – a paltry sum for suffering through a wrongful foreclosure.

The $5.2 billion in loan modification relief can be effective as long as the banks keep the goal in mind – keeping families and individuals in their homes. There may be help, however, because the Consumer Financial Protection Bureau is expected to issue new rules shortly to reign in the risky and abusive mortgage practices of the past. These new rules are needed to ensure that all eligible borrowers facing foreclosure receive modifications according to specific publicly available criteria.

Contact Shaffer & Gaier

To set up a free initial consultation, contact our office online or call our foreclosure hotline at 855-289-1660. Or call our office location in Philadelphia at 215-751-0100, or in New Jersey at 856-429-0970.