US Regulators Move Forward on Foreclosure Relief

A woman looks through mortgage paperwork in her home in Boise, Idaho.
Mathew Staver | Bloomberg | Getty Images

Borrowers whose homes wereforeclosed on during the U.S. housing crisis will startreceiving payments in April from a $3.6 billion fund under apreviously announced settlement with 13 banks, regulators saidon Thursday.

Certain borrowers whose mortgages were serviced by one ofthe 13 banks can expect to receive between a few hundred dollarsand $125,000, under settlements designed to end case-by-casereviews of past foreclosures.

The Office of the Comptroller Currency and the FederalReserve in 2011 ordered banks including Bank of America, JPMorgan Chase, and Wells Fargo toreview individual loan files after widespread mistakes werediscovered in the way mortgage servicers had processed homeseizures.

The reviews were initially expected to determine whichborrowers were harmed and to compensate them based on theirindividual experiences. The process proved slow and expensive,though, with more than $1.5 billion going to consultants.

In January regulators replaced the reviews with about $9.3billion in settlements, including $3.6 billion in cash paymentsto foreclosed borrowers. Struggling borrowers will receive therest of the money in the form of assistance, including loanmodifications and forgiveness.

By the end of March, regulators will provide informationabout the payments to borrowers who fall into one of 11categories, including those eligible for protections under theServicemembers Civil Relief Act, those who were not in defaultwhen foreclosed on, and those denied a loan modification, theOCC said.

Regulators are still determining how many borrowers fallinto each category, OCC Deputy Comptroller Morris Morgan said ona conference call with reporters. Once they have that figure,they can calculate how much money each borrower is likely toreceive, he said.

Declining Error Rate

The OCC and the Fed have faced criticism from Congress overboth the reviews and the settlement that ended them. Lawmakershave asked for more information about the consultants whoconducted the reviews and what they turned up.

Regulators initially said about 6.5 percent of the loansreviewed appeared to have some errors. On Thursday Morgan saidthat error rate had declined, but did not provide a specificfigure.

The banks are expected to try to keep borrowers in theirhomes, but the settlement does not mandate specific kinds ofrelief.

The servicers will receive varying degrees of credit formodifying first and second loans, waiving deficiency judgments,offering short sales, and other types of relief.

Three servicers subject to the original reviews, Everbank, OneWest and GMAC Mortgage, did not enter into thesettlements and will continue their reviews, the OCC said.