A multi-billion dollar settlement promises to help millions of people who lost their homes to foreclosure. The deal announced Monday was a long time coming, and even though a lot of people will get money, most don't realize the banks may end up the real winners.
A closer look at the deal shows banks are off the hook from an independent review which would have done a full investigation of foreclosure abuses by the banks.
Carlette and James Breedlove were counting on the independent review to compensate them for the foreclosure process Bank of America put them through. The bank began foreclosing on their Alexandria home nearly three years ago, despite being in bankruptcy.
"One day, we received a foreclosure and that our home was in the Washington Post ... I was devastated," Carlette Breedlove said. "I didn't know what to do."
With that independent review scrapped, the couple is part of a new settlement. The Breedloves are among 3.8 million borrowers in the process of foreclosure between January 1, 2009 and December 31, 2010 who may be eligible for direct cash payments in a deal between 10 banks and federal regulators. The payments are expected to range from a few hundred dollars to a maximum of $125,000. The couple could use that money.
"Hopefully giving people money to pay back or reduce their principle on their home loan, it will help a lot of people out," said James Breedlove. "We just hope we get a fair deal."
That "fairness" has come into question over the past year. The settlement replaced the original 2011 consent order which called for an independent foreclosure review (IFR) on a case-by-case basis to determine if errors were made and homeowners were harmed. Only about 500,000 borrowers had applied by the December 31, 2012 deadline.
An investigation by the non-profit journalist group Pro Publica found evidence some banks were playing a large role in the review process to determine who was harmed. The very same banks accused of cheating homeowners.
"It's a tremendous conflict of interest and it's something that really outrages borrowers who have been through the wringer with these companies," said Pro Publica's Paul Kiel, who uncovered the problems. "They think it is independent and they find that the bank has a major role in it. That's very upsetting."
All of the lenders involved in the independent review declined to comment, but Bank of America referred us to the Financial Services Roundtable, a banking trade group.
The new settlement, which involves only 10 of the 14 banks in the IFR, will send payments to homeowners regardless of whether they requested a review.
"The whole process is overseen by regulators and the regulators are overseen by Congress," said Paul Leonard, Senior Vice-President of Government Affairs at Financial Services Roundtable. "Congress has asked questions. They'll probably continue to do so to make sure that they're satisfied with the process."
The cash payouts are capped at $3.3 billion. But with a pool of 3.8 million foreclosures, that averages out to payments of less than $1,000 each. But critics say had the independent review been done properly, banks could have been on the hook for much more in damages. The payouts are based on 11 different categories of harm.
Federal regulators expect few to get the maximum $125,000 in compensation. The banks will determine what categories the foreclosures fall into, although it will be overseen by federal regulators. How those cases are evaluated though is a process housing advocates claim has been shrouded in secrecy.
"I think we need to pull back the curtain or open that door and let some sunshine in so people can really see how it's working in real time and in real life in order to have confidence that it's fair," said Debby Goldberg with the National Fair Housing Alliance.
The first payments are expected to go out no earlier than March when borrowers are notified of their payment amounts.
"People are bound to be disappointed because they're having expectations that aren't realistic," warned a skeptical Goldberg.
If people aren't happy with their payout, there is no appeal, except to sue the lender. The settlement also provides $5.2 billion for banks to provide assistance to borrowers such as loan modifications or to forgive deficiency judgments. Foreclosed homeowners may also be eligible for additional compensation through a separate $25 billion settlement with state attorneys general.
After all the frustration and confusion, the Breedloves remain hopeful they will be compensated.
"It'll be a miracle if it works out," James Breedlove told his wife. "All of this has been a miracle."
They would like to believe with the money from the foreclosure settlement a few months from now that their prayers will be answered.
To confirm if you are part of the pool of eligible borrowers in the settlement or to update your address, call the Office of the Comptroller of Currency (OCC) at 1-888-952-9105.
If you would like to know more about the settlement or how payments will be determined, call the Office of the Comptroller of Currency's Customer Assistance Group at 1-800-613-6743.
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