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Still Waiting for Cleanup in Foreclosure Mess

If last year was the year in which faulty foreclosures and bank errors became a full-blown scandal, this has been the year of waiting for something to be done about it.

This is part of our year-end series, looking at where things stand in each of our major investigations.

If last year was the year in which faulty foreclosures and bank errors became a full-blown scandal, this has been the year of waiting for something to be done about it.

First, there's the still-to-come multi-state settlement over alleged fraud on the part of the country's five largest mortgage servicers. That's the settlement being brokered by a coalition of state attorneys general and once touted as homeowners' best bet for redressing banks' flaws in foreclosure and mortgage documentation. Over the past year, one story after another declared such a deal was imminent, but the details -- the total price tag, the deal's framework, and the expected date -- have continually been changing.

Earlier this month, the Des Moines Register reported Iowa Attorney General Tom Miller -- a point man for the attorneys' general probe -- as saying that the final deal should be complete before Christmas and would include a measure to reduce the total debt owed by underwater homeowners. No deal has yet been announced. Miller wouldn't disclose a dollar figure on the size of the settlement -- or whether California, one of the hardest-hit states, would participate.

Over the course of the year, some state attorneys general seemed to lose faith in the coordinated effort, voicing concerns that the eventual settlement would be too easy on the banks.

California Attorney General Kamala Harris signaled her hesitation too, as did the attorneys general of New York, Delaware, Nevada, Massachusetts, Kentucky and Minnesota. These state attorneys general -- many of whom have filed their own suits against major servicers, foreclosure processing firms, and other players -- questioned whether the settlement would limit their ability to take more aggressive action against foreclosure abuses in their states and either expressed doubts about whether they'd sign on to the final settlement or pulled out of the talks altogether.

Banks, meanwhile, have pushed for the settlement to include broader releases from legal liability over mortgage-related abuses. According to a recent Wall Street Journal piece, they've tried to make their participation in the settlement contingent on being shielded from the possibility of lawsuits brought by the new Consumer Financial Protection Bureau.

Also still to be determined? An official to monitor the banks and servicers and ensure they comply with whatever agreement is eventually reached.

Meanwhile, federal banking regulators have also begun to act. In April, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve accused eight mortgage servicers and two third-party mortgage processing firms of “unsafe and unsound" foreclosure practices and ordered them to come up with a plan to prevent the same errors going forward. (Read the orders they received.) But the revamp plans drawn up by the banks are kept confidential. And no financial penalties have been issued, though regulators have said that they're still to come.

Regulators also launched an interagency foreclosure review program [PDF] this year to identify and compensate homeowners who were wronged in the foreclosure process. The plan is to review sample loan files pulled from the files from 14 largest mortgage servicers, as well as files from homeowners who submit a request for a review.

The regulators in charge of the program have so far declined to disclose information on key aspects of the review, such as what kinds of compensation are available to homeowners, how compensation would be calculated, and for what specific offenses. (Homeowners with questions can see our FAQ on the reviews to see whether they're eligible for review and how to apply.)

The reviews themselves are being conducted by outside consulting firms that will be supervised by the regulators but paid by the banks. As we've reported, some lawmakers have raised concerns about the experience of the reviewers and whether they will truly be able to operate independently of the banks.

Finally, it bears mentioning that despite the efforts on both the federal and state level to address the systemic failures of banks and mortgage servicers, errors are continuing -- and they're still causing wrongful foreclosures.

The only subset of homeowners who seem to have gotten a break -- or redress for botched foreclosures -- is military families. Earlier this year, the Justice Department settled lawsuits against subsidiaries of Bank of America and Morgan Stanley over allegations that they wrongfully foreclosed on active duty service members, in violation of a law that specifically offers them greater protection from foreclosure. As part of that settlement, the two companies apologized and paid a combined penalty of $22 million, plus compensation to certain service members who suffered wrongful foreclosures.

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