$3.6B Foreclosure Deal for Home Owners

Story first appeared on USA Today -

Consumer advocates say banks getting off too easy in reworked foreclosure settlement

A foreclosure settlement between the government and 13 banks will spread $3.6 billion in cash among millions of borrowers starting in April, regulators said Thursday.

But the $5.7 billion in mortgage relief that’s also part of the deal may favor borrowers with the biggest unpaid loan balances, consumer advocates say.

The settlement, first announced in January, is intended to compensate borrowers for foreclosure and mortgage servicing abuses.

The cash will be split among 4.2 million borrowers who were in foreclosure in 2009 or 2010 and had home loans serviced by one of 13 banks. They include Bank of America, Wells Fargo, and JPMorgan Chase.

Cash payouts will range from a few hundred dollars up to $125,000, says the Office of the Comptroller of the Currency (OCC). It’s overseeing the settlement with the Federal Reserve Board.

The companies are expected to meet their $5.7 billion mortgage relief obligation, in part, by modifying loans. They’ll earn certain levels of credit toward that $5.7 billion for certain actions.

Consumer advocates said they were shocked and dismayed when they learned Thursday how some of the credits will be tallied.

For instance, a bank forgiving $15,000 in principal owed on a $100,000 unpaid balance would get a $100,000 credit.

If the bank forgave $15,000 in principal on a $500,000 unpaid balance, they would get a $500,000 credit, says Bryan Hubbard, OCC spokesman.

The OCC says the terms are meant to drive modifications that best serve borrowers.
Consumer advocates, however, say the system will lead the banks to focus on high-balance loans instead of more smaller ones.

Plus, it’ll let them inflate the value of their modifications, says Alys Cohen, of the National Consumer Law Center. “It lets the banks off easy,” she says.

When the deal was announced, consumer advocates said it included too little money. The new credit formula is “monumentally bad,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. “I’m absolutely stunned that they would do this.”

The OCC disagrees with the consumer advocates. It also says regulators could take further action if the banks fail to meet the deal’s requirements for well-structured assistance.

The $9.3 billion settlement largely replaces a 2011 agreement reached between the regulators and the companies. That one required case-by-case foreclosure reviews and was too slow and costly, regulators say.