For Most Homeowners, Gov’t Foreclosure Deal Brings A Few Hundred Bucks

The government’s largest effort to compensate victims of the
banks’ foreclosure practices is finally sputtering to an end. But for most of
those eligible – nearly three million borrowers – it won’t be much
of an ending: they’ll be receiving a check for $300 to $500.

For many borrowers, it’s a likely an unsatisfying end to a
process defined by years of frustration. If you were a homeowner in danger of
losing your home at the height of the foreclosure crisis, chances are you soon
discovered that your bank’s mortgage servicing division was a mess. They were hard to reach, gave you misinformation, lost your documents, and generally
screwed things up. In some cases, homeowners were even foreclosed
on by mistake.

In 2011, federal bank regulators announced
a process to right these wrongs. The Independent Foreclosure Review had a
simple aim. If a borrower had suffered “financial injury” (the emotional toll
would not be considered), then the review would make it right. Compensation
payments would range as high as $125,000.

But for borrowers, it was yet another descent into confusion.
Just as so many had waited months and often years for an answer from their
servicer, homeowners sent in a pile of documents and watched and waited as 2011
turned into 2012 and then 2013.

The review process ended with a whimper early this year. The
process was such a mess, regulators announced, that they’d
decided it was better to call it quits. No more trying to determine each
borrower’s “financial injury.” The banks would just cut a check for millions of
homeowners who had been in foreclosure, regardless of whether they were wronged. 

But even this solution had its complications. Not all
borrowers would get the same amount. Instead, regulators said they would break
the four million borrowers into various categories. But regulators didn’t
announce what the different categories would be or how much borrowers might be
receiving. Borrowers would just have to wait a little bit longer.

On Tuesday, three months later, the regulators, the Office
of the Comptroller of the Currency and the Federal Reserve, finally released
a breakdown of the categories.

Most borrowers will receive little. To be eligible, a
borrower must have been in some stage of the foreclosure process at any time in
2009 or 2010 and had their loan handled by one of the major banks covered by
the agreement. That’s about four million borrowers. Most of them, about 2.4
million, will receive $300.

Borrowers who took the time to fill out a complaint about
their bank receive a small bonus for their efforts: Most of them will get $500
or $600. Only about 11 percent of
eligible borrowers filled out complaints, a low response rate both consumer
advocates and the Government
Accountability Office attributed to borrower confusion and poor
outreach by regulators and the banks.

Typical of the subpar communication regulators and banks have
had with homeowners, it will be hard for homeowners to divine why they were put
into a certain category.

Many borrowers facing foreclosure dealt with their servicer
over months or years, and the errors were legion. Borrowers will likely argue
they could be put in several of the regulators’ categories. It was common, for
instance, for borrowers
to be rejected over and over again for a modification before receiving one.
Does that mean such a borrower will be receive a payment based on the denials
or the approval? OCC officials have said that borrowers who fit in multiple
categories will receive a payment based on whichever category brings the
highest payment.

It’s also hard to understand some of the differences in
payments. In some instances, homeowners who ultimately lost their home are
compensated the same as those who did not. In other cases, they reap far more.

At least 1.6 million, or 41 percent of the total pool of
homeowners, ended up losing their homes. The data is based on information as of
the end of 2011, so the actual number is likely higher, because it doesn’t
account for foreclosures in 2012.

Another example of the confusion: The categories are broken
down into types of “possible servicer error,” but all possible servicer errors
are not created equal in regulators’ eyes. For instance, a borrower who was
denied a loan modification and lost her home to foreclosure (a pool of about
370,000 borrowers) will receive $3,000 or $6,000, depending on whether she
submitted a complaint. But in cases where the borrower applied for a
modification, and the servicer never made a decision and then foreclosed
(196,000 borrowers), the payment could range from $400 to $800. If the servicer
never even began the modification process and foreclosed (568,000 borrowers),
the payment ranges from $300 to $600.

Asked for the rationale behind these decisions, an OCC
official explained that regulators deemed the potential for error higher in
cases where the servicer actually denied a request. It’s possible, for
instance, that a servicer never made a decision because the borrower did not
send in the proper documents. Or maybe the borrower never responded to the
servicer’s solicitations.

Borrowers waiting for their checks can only hope they
suffered the right sort of servicer error.

“People who managed to get far enough along in the [modification]
process, many of them will get a decent payment,” said Alys
Cohen of the National Consumer Law Center. “But people who suffered servicer
neglect clearly are not getting compensation for the harm they suffered.”

Regulators say the first checks will be sent to borrowers at
the end of this week, and that almost all payments will have been sent out by
the end of April.

Meanwhile, homeowners, let us know what you get in the mail
and whether you think you’re in the right category.