Federal regulators’ review of deficient practices in mortgage loan servicing and foreclosure processing concluded in a $8.5 billion settlement with 10 of the nation’s largest mortgage servicers.
The settlement, announced Jan. 7 by the Federal Reserve and the Office of the Comptroller of the Currency (OCC), involves some of the giants of the financial industry including Bank of America Corp., Wells Fargo & Co., JPMorgan Chase & Co. and Citigroup Inc.
The banks will pay $$3.3 billion to more than 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010. Homeowners could receive as much as $125,000 depending on the type of bank error.
The mortgage servicers will also provide $5.2 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments.
Federal regulators said the decision ensures that more money goes directly and more quickly into the hands of affected homeowners.
“When we began the Independent Foreclosure Review, the OCC pledged to fix what was broken, identify who was harmed, and compensate them for that injury,” Comptroller of the Currency Thomas J. Curry said in a statement. “While today’s announcement represents a significant change in direction, it meets those original objectives by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner.”
Curry said the regulators had learned a great deal from the review process, “it has become clear that carrying the process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers. Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets.”
Some critics say the judgment is a slap on the wrist, which will not deter banks from the criminal behavior that brought on the near collapse of the U.S. economy.
“It’s not a huge amount of money when we consider it in respect to the bailouts that have happened or the cost to households in the U.S. The banks are not paying enough for what they actually had done,” James Heintz, an economist at the Political Economy Research Institute in Amherst, Mass., told The Real News Network. He added, “$8.5 billion, when we compare it to the amount of wealth that’s evaporated from households, which is about $6.9 trillion, is a drop in the bucket at the very best.”
Maryland Democrat Rep. Elijah E. Cummings, ranking member of the House Committee on Oversight and Government Reform and an outspoken voice on the foreclosure issue, said he was concerned with the haste in which the decision was made, and feared banks would sidestep their full obligations.
“I am deeply disappointed that the OCC and the Federal Reserve finalized this settlement and effectively terminated the Independent Foreclosure Review process before providing Congress answers to serious questions about how this settlement amount was determined, who these funds will go to, and what will happen to other families who were abused by these mortgage servicing companies, but have not yet had their cases reviewed,” Cummings said in a statement.
“I do not know what the rush was to make this settlement without answering these key questions, and although I look forward to obtaining information about how this deal may assist homeowners, I have serious concerns that this settlement may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered,” he added.
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