Report: Settlement Negotiated Before Scope of Foreclosure Abuses Was Clear
A new report filed by the U.S. Government Accountability Office indicates that a $10 billion settlement agreement negotiated following the botched Independent Foreclosure Review was based on information that significantly downplayed the extent of the bank abuses.
Foreclosure defense attorneys in Miami know that no one was under the illusion the settlement agreement truly helped wronged homeowners. The terms of it were so skewed in favor of the financial institutions that borrowers received paltry payouts, with banks determining the final sums.
But the fact that federal regulators failed to follow through in determining a more accurate scope of the problem likely impacted the size of the settlement, and in turn cheating already-swindled borrowers out of what they might have otherwise recovered.
In case you aren’t familiar with how this all started, here’s some background:
The Independent Foreclosure Review was a billion-dollar operation in the wake of the foreclosure crisis. It was overseen by the Federal Reserve and the Office of the Comptroller of the Currency, and involved more than a dozen companies. Major banks agreed they would pay to have independent auditors scour their loan files. Their job was to identify errors and then determine compensation amounts for those who had been abused in the foreclosure process.
But in less than a year, there was a growing body of evidence indicating that the whole thing was a disaster. Banks were paying these “independent” auditors a killing, and in turn, banks were interfering in the error determination process. There was also widespread government mismanagement.
This prompted government regulators to put an abrupt end to the program. Instead, they quickly replaced it with the $10 billion legal settlement.
What the GAO report indicates is that the settlement negotiation was likely premature because it was based on initial foreclosure error rates – reached by the independent auditors – that were far lower than reality.
Where preliminary figures pointed to foreclosure error rates of between 1 and 6.5 percent, we have since learned those error rates in fact ranged between 21 and 60 percent. We went from a belief that 1 in 20 borrowers was impacted to at least 1 in 4 – sometimes more than double that.
Regulators haven’t said to what degree that initial error rate influenced settlement negotiations. However, the GAO investigation seems to assert those numbers were pretty important.
What’s more, they were based on less than 14 percent of the total 135,000 people who at that point applied for foreclosure review. The vast majority of those case files were never even opened.
These were people who were victimized by bogus fees, “lost” loan modification applications and, in some cases, subjection to unnecessary foreclosures. These were not isolated incidents. They were common and they were often intentional on the part of the banks. Employees for some banks have even offered sworn testimony indicating that bank employees were rewarded anytime they successfully pushed a borrower into foreclosure. They also indicated that loan applications were routinely denied for made-up reasons and homeowners seeking modifications on their loans were often deceived.
The Independent Foreclosure Review was supposed to be a chance for homeowners to finally get a fair shake. In the end, as this new report underscores, it was yet one more immense disappointment.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call 305-358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.