Journalism in the Public Interest

Big Foreclosure Compensation, But Only for the Right Wrongs

Last month, the government released information on the compensation victims of the banks’ foreclosure practices might receive. For homeowners, it turns out that it’s crucially important just how the bank messed up.

A foreclosed home stands boarded up on February 9, 2012 in Islip, New York. (Getty Images)

Can you put a price on the damage caused by a wrongful foreclosure? Banking regulators have. And it’s $125,000. Or $60,000. Or $15,000. Or… it’s unclear.

Last November, banking regulators launched a process to force the big banks to compensate homeowners victimized by their foreclosure abuses. Many crucial details remained unclear, including how much victims might receive.

More than seven months later, regulators finally released a “framework” that shows some of the possible outcomes. It’s a list of thirteen mortgage servicing “errors,” each with its own associated form of compensation. In addition to fixing the bank’s errors, remedies include cash payments ranging from $500 all the way up to $125,000.

It turns out that, for homeowners seeking compensation for those errors and abuses, it’s crucially important just how the servicer messed up. The logic for the differences in payment isn’t always apparent and in some instances seems to defy common sense.

Two homeowners who each had their bid for a modification mishandled, for instance, could emerge with either $125,000 or $15,000 depending on just where in the process the error occurred. Regulators also left unsettled how homeowners will be compensated for so-called robo-signing, the scandal that provoked the foreclosure review to begin with.

With consumer response to the review so far underwhelming, regulators also extended the deadline for homeowners to submit a claim to September 30. It was originally April 30.

Attorneys with the Office of the Comptroller of the Currency (OCC), the primary regulator for the largest banks, told us the compensation is appropriately tailored for differing circumstances.

Readers wanting to know whether they might qualify for the foreclosure review should see our detailed list of Frequently Asked Questions. The FAQ also covers the separate National Mortgage Settlement arrived at earlier this year.

The worst errors, the ones reaping the $125,000 payouts, fit into three categories. The first covers active duty members of the military who were foreclosed on while protected by the Servicemembers Civil Relief Act. The OCC attorneys said they arrived at $125,000 for these worst errors in part because it’s close to what the Justice Department used in recent legal settlements with banks for violating that law. (In all cases, the cash compensation drops to $15,000 if the servicer returns the home to the borrower.) The $125,000 payment is the same regardless the size of the borrower’s mortgage, but since homeowners aren’t being required to waive any legal claims to accept the money, they could go to court to recoup more.

The other two categories for max compensation encompass a far broader range of homeowners: those who ended up in foreclosure as a direct result of bank error (by mishandling payments, for example) and those who were in trial modifications when the bank foreclosed.

Over the years, we’ve reported extensively on the number of ways that mortgage servicers botched the applications of homeowners trying to avoid foreclosure through a loan modification. Servicers regularly lost homeowners’ income documentation, miscalculated incomes, and generally made homeowners run a gauntlet of errors, confusion and frustration to emerge with a modification. Trial modifications, which were supposed to last only three months and easily transition to a permanent modification, often lasted many months longer only to end badly. Many homeowners were foreclosed on prematurely.

A number of the 13 categories regulators have laid out focus on these modification errors. For instance, if the bank simply never evaluated a homeowner for a modification before foreclosing and the homeowner would have qualified, then the review will result in compensation of $15,000. If the bank denied a modification in error, that’s also $15,000.

But trial modification errors result in much larger compensation, resulting in a discrepancy that seems to make little sense. If the homeowner was accepted for a trial modification, made the payments as agreed, and then the servicer foreclosed without giving a final answer, that would be $125,000. But if the servicer did give an answer to that homeowner, even if it was entirely baseless wrong denial, and then foreclosed, it would be only $15,000.

The attorneys for the OCC said there were a number of reasons that homeowners foreclosed on while in trial modifications deserve much higher compensation than those who suffered other modification abuses. The first and main reason is that there’s a clear legal distinction between the servicer plainly violating a written agreement with the homeowner and other situations. That was one of the main guiding ideas in how they allocated the compensation, they said. The highest amounts are reserved for scenarios where the servicer either violated the mortgage by improperly handling the account or didn’t abide by the trial modification agreement.

If a homeowner fell behind on her payments, applied for a modification, but was foreclosed on before the bank even gave an answer, that’s an entirely different scenario, they said. The servicer’s failure to process the loan modification application “is not the reason why the borrower was foreclosed upon,” said one attorney. “They were foreclosed upon because they were delinquent on their mortgage terms.”

Furthermore, they said, that homeowner wouldn’t have much of a shot in court if she sued, even if it’s clear that the bank broke the rules of the government’s loan modification program (as they regularly did). That’s because the largely toothless program didn’t provide homeowners with any legal recourse for rule-breaking servicers. If, however, the homeowner could point to a clear violation of a written agreement, they might be able to win damages in court.

Such reasoning “turns the idea of remediation on its head,” said Diane Thompson of the National Consumer Law Center. “Borrowers who lose their homes wrongfully for any reason suffer the same amount of financial injury and harm, whether or not they could or would bring a separate lawsuit to challenge that wrongful foreclosure.”

It also sends the wrong message to mortgage servicers, Thompson said, to have such a mild penalty for failing to consider a homeowner for a modification at all when there’s such a significant payment associated with trial modification errors. “This essentially rewards servicers for having failed to process loan mods.”

The OCC said it arrived at its framework after seeking a variety of viewpoints, including those of consumer advocates.

One major aspect of the framework that remains unclear is what might be offered as compensation for robo-signing. The foreclosure review was prompted by revelations that the major banks had filed thousands of false affidavits in courts across the country when seeking to foreclose on homeowners. Banks have also often filed forged or flawed documents when attempting to demonstrate the right to foreclose. But the framework only says that compensation in cases where the servicer didn’t properly document the right to foreclose will be “determined on a case-by-case basis as state law dictates.” The OCC attorneys could give no further information about this.

We have updated our FAQ on the Independent Foreclosure Review to include a brief discussion of the framework, but homeowners wanting more information should see the framework itself and the lengthy FAQ that regulators produced about it.

To help us continue reporting on this issue, homeowners going through the process can also fill out our foreclosure questionnaire or contact us to let us know what's happening.

Alessandro Machi

July 3, 2012, 1:58 p.m.

Or, the banks COULD HIRE 50,000 PEOPLE to actually go over cases one by one.  This is an insulting presidential election solution. HIRE 50,000 people to give personalized attention, it’s that simple.

Alessandro Machi

July 3, 2012, 2:04 p.m.

And parallel foreclosure (also known as dual tracking), IS a constitutional violation and is probably also a Federal Hobbs Act Violation, extortion under the color of right by government officials.

Belos is a good explanation of what the Federal Hobbs Act is, and then just apply it to YOUR situation.  The government offered home mortgage modifications while the banks stole your home under the guise of “processing” your home mortgage modification. The government then declared the practice of parallel foreclosure legal, closing the loop and making them accountable for Federal Hobbs Act violations.

Alessandro Machi

July 3, 2012, 2:05 p.m.

And parallel foreclosure (also known as dual tracking), IS a constitutional violation and is probably also a Federal Hobbs Act Violation, extortion under the color of right by government officials.

Belos is a good explanation of what the Federal Hobbs Act is, and then just apply it to YOUR situation.  The government offered home mortgage modifications while the banks stole your home under the guise of “processing” your home mortgage modification. The government then declared the practice of parallel foreclosure legal, closing the loop and making them accountable for Federal Hobbs Act violations.

I live in Maryland and got foreclosed on without so much as a second of mediation - which has been the law here since July 2010.  Unfortunately Baltimore County Circuit Court judges don’t care about the mediatiion law.  That’s ok - we’re fighting back with a laundry list of wrong doing.

A securitization investigation reveals every bit of fraud and is a welcomed tool for borrowers’ attorneys who can use it as a backbone for litigation.

Thank’s Craig for your comment - that is exactly what we are doing.  But you know at the end of the day if the banks had done the right thing from jump street maybe a lot of this would not have happened, maybe it would not have gotten this far. Anyone who has been where I have knows how quickly you slide down that slippery slope that is default.  Arrearages and late fees and fees on top of fees become a mountain overnight because the end game is to drive you into foreclosure.  I have since learned that the reason for this, for their unwillingness to negotiate/modify/mediate is two fold and I can’t say for sure which one came first but I’ll put it out there.  1) The foreclosure mills drive the foreclosure train - if there is a modification/negotiation/mediation - they don’t get paid.  If there is a foreclosure they do.  To have a loan get reinstated and perform again over 30-40 years is not in their best interest.  2) Servicers (who are most likely under the gun of investors/banks)  can’t open up to modification because to do so will ultimately reveal the very soft underbelly of the securitization fail. We’ve all been had in a nationwide shell game.  It’s really that simple.

As part of the National Mortgage Settlement, Bank of America is supposed to offer refinancing to its mortgage customers who are “under water,” yet who have remained current on their mortgage payments. This part of the settlement was touted by the government last December. However, when I contact Bank of America to request to apply for this refinancing, I am told that the “details are still being worked out,” and the program is not yet available.

The monies are not being released by Bank of America for this provision of the settlement.

Jan - do not expect for one minute that BofA will play fair and be honest with you.  They are lying.  Demand to speak to a supervisor.  We are not the criminals here - they are!  You are owed a refinance.  It’s their greedy fault that you wound up paying way too much for your house and are now underwater!  They got a bailout with our money.  Stand up for yourself!

One important part of the story is they aren’t even processing any of the “reviews” until after the deadline for filing, and it’s been pushed back now 3 times.  I filed mine in early December 2011.  Still waiting….

Another way BOA ripped you off was to delay, delay, delay and the reduced amount you were paying when they finally gave you a modification added all the unpaid interest to the loan.  I got a reduced interest rate but they added $20K to the mortgage.  It took 22 months to get my modification and I was qualified the whole time.  If I had gotten it within the four month for my first trial, the unpaid interest would have been minimal.  It took BOA a full year to send me a letter that I had won my appeal when I challenged them on the figures they used to evaluate my modification.  I was in touch with the Fed and they did squat.

None of these government programs have any teeth…it’s just a way to look like the government is protecting homeowners…it’s BS!

BOA recently was told to do principal reductions & spend a certain amount of money to repay. As a housing counselor, what I’ve seen is that they’re giving principal reductions to those with ‘high end’ homes/mortgages. This is being done so they can complete the process quickly, repay the funds they owe quickly & be done with it. They’re not helping the middle/lower end clients who need it the most.  I have a client who hasn’t paid in 2 years & owe around $700.000. on the home. They rec’d a loan mod in 2011, were unable to keep it, quit paying…AGAIN! Asked for a principal reduction, after BOA was told they must offer this, and they rec’d a $406,000. reduction on their home! How does this help the average homeowner in CA.? If you take away the T&I kept in escrow, it makes their actual payment around $1500.!!! See any justice in this scenario??

Alessandro Machi

July 6, 2012, 8:30 p.m.

What about people who paid off their home, took a relatively small HELOC, then their home tanked in value as well?

Suddenly their HELOC vs home value is a lot closer than it was just a few years ago, those people were victimized as well. But they will get no mod and could end up losing their homes if they are unemployed and can’t access any more HELOC.

There are homeowners who may have taken out less than 20% on a paid off home, lost their job, and could lose the entire home because being unemployed means they can’t take anymore out of the home.

These types of stories never make the news.

Eventually all comes to human greed and too rich private individuals inside the structures of corporations such as Swiss , American, Royal Banks etc.
A new set of Laws tergetting only greed-blind super wealthy guys behind corporate-profiteerings, replacing the old version model book of laws will do the magic of positive change in the global economy.
To understand how it is possible, visiting may help a little.

direct line to office of the president and ceo of BofA
704-386-5687 .have at it guys and good luck.

also the new CFPB is having great impact on my mods.

also if you are with 1 of the big 5 part of the DOJ $25b settlement is allocated to the Principal Reduction Alternative.You have to ask for this in writing.

i just got $ 140,000.00 permanent principal reduction on a loan amt of $ 338,000.00 !!!

Angela Vermillion

July 9, 2012, 6:25 p.m.

@Michael…I must call bull**** on your statement,“you have to ask for this in writing.” and pretty much everything you wrote!!!  I have attempted(sent paperwork for 4 years) a loan mod for for the last 4 years with zero results.  The new CFPB is just another do nothing Obama created bureau that takes complaints and does nothing with them just like the OCC.  Most states aren’t using the $25B to help homeowners, that has been reported by Propublica.  I have been at this since 2008, reading, researching, complaining to every agency I can…. I am highly suspect that the largest bank in the U.S. gave you that much of a PR….again, I call bull****!

Elaine Williams

July 9, 2012, 9:04 p.m.

@Angela Vermillion - you are so right - I too have been at this since 2008!  How convenient that MICHAEL has no last name and no contact info.  I’ll say it for Angela - BULLSHIT.

angela and elaine, my name is michael churchville. my e-mail is .(JavaScript must be enabled to view this email address). my cell is 302-249-4942. i would be happy to forward the approval notice for the above DOJ-PRA. also I negelected to mention that the pre-modification monthly payment was $ 2,800.00the new payment is $ 1,700.00.Also, While being evaulated for HAMP, initial package sent 2/1/2012, I read about the 25 B settlement in April so i faxed a written request to see if my client was eligible for   the PR.The approval letter is dated May 31,2012.I provided the # of the CEO and President in order for people not to have to deal with what I call ” the army of idiots”.No offense taken. You can ask Paul Kiel about me.I would never abuse or take advantage of this web site.
By the way,it is my belief that the Three Month Trial period is nothing more than a deceptive ploy in order to partially collect on a debt. The reason I say that is because the documentation required for a modification ( ie: you have to disclose monthly expenses such as food,utilities,gas,cable,phone etc.) is greater than the documentation required for an origination. Therefore,if there is a legimate reason for a TPP it should be required for an origination. What I believe is bull****is thefact that no one has persued this.Criminally !
If you have any questions or comments please do not hesitate to call or write.

Also for everyone’s information re: BofA please only deal with the tel # I provided and most of BofA’ employee e-mail addresses is their 1st name.last .(JavaScript must be enabled to view this email address) of course Moynihan’s.I would love his e-mail address

Alessandro Machi

July 19, 2012, 7:45 p.m.

Michael wrote “What I believe is bull****is thefact that no one has persued this.Criminally !”

I think you are referring to the practice of parallel foreclosure, and I 100% agree. I think our president should be impeached over his advocacy of the present parallel foreclosure policy as it IS a violation of two different constitutional laws.

hey alessandro,you are 100% correct in so far as dual tracking is concerned.i agree with you beef is the Trial modification.Why is there not a Trial Origination ??????? As we all have seen re: the LIBOR manipulations, what makes any of us think that the ” industry ” has any sense of intergity given the almost daily revelations of’s like giving a crack addict $ 100,000.00 and saying don’t buy crack. I am sorry but i have had it up to here with this shit and i am not going away. that’s why i applaud propublica for their efforts thus far however it’s time to hold those accountable for their involvement.i simply don’t know how to go about paraphase eisenhower we are dealing with a ” global financial complex ” that scares the shit out of me. sorry for my candor

Alessandro Machi

July 19, 2012, 11:41 p.m.

Are we to believe that ProPublica would really put the public good above Barack Obama’s re-election?  Let’s face it, most do gooder news organizations look the other way when it comes to issues like democrats trading unrealistic state pension promises for democrat votes even as city after city is now being bankrupted by these lame horrendous deals the democrat politicians and union heads have negotiated over the past 30 years.  Should we really expect ProPublica to go after Obama giving his blessing to Parallel Foreclosure?

Yes Parallel Foreclosure is known as dual track, but which phrase is easier for most people to comprehend?  Dual Track actually sends people off on wild google chases. Look up Dual Track and see how many non foreclosure articles pop up.

Now try Parallel Foreclosure, and all articles are about, parallel foreclosure.  Yet now Dual Track is being pushed as the phrase that strays off topic.

Alessandro Machi

July 26, 2012, 7 p.m.

I created a Change dot org petition in regards to debt neutrality. This could be a big deal if over time it amasses enough signatures.

Please check it out.

Alessandro Machi

July 26, 2012, 7:01 p.m.

I created a Change dot org petition in regards to debt neutrality. This could be a big deal if over time it amasses enough signatures.

Please check it out.

This article is part of an ongoing investigation:
Foreclosure Crisis

Foreclosure Crisis: Banks and Government Fail Homeowners

Banks and the government have fallen short in helping homeowners in danger of foreclosure.

The Story So Far

Systemic failures at the country’s banks and mortgage servicers have exacerbated the most severe foreclosure crisis since the Great Depression, and government efforts to limit the damage have fallen short. ProPublica created an unrivaled database of homeowners who have faced foreclosure, opened a Facebook page to encourage homeowners to share their stories, wrote profiles of some of them, and incorporated their experiences into our reporting. We also provided a comprehensive rundown of the numbers behind the crisis.

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