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A bank reversed the foreclosure of Christine Lucier, but her home, while empty, was vandalized.
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Federal banking regulators are trumpeting an $8.5 billion settlement this week with 10 banks as quick justice for aggrieved homeowners, but the deal is actually a way to quietly paper over a deeply flawed review of foreclosed loans across America, according to current and former regulators and consultants.
To avoid criticism as the review stalled and consultants collected more than $1 billion in fees, the regulators, led by the Office of the Comptroller of the Currency, abandoned the effort after examining a sliver of nearly four million loans in foreclosure, the regulators and consultants said. Consultants said that only a third of the loans were fully reviewed.
Because they have no idea how many borrowers were harmed, the regulators are spreading the cash payments over all 3.8 million borrowers — whether there was evidence of harm or not. As a result, many victims of foreclosure abuses like bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions will most likely get less money.
“It’s absurd that this money will be distributed with such little regard to who was actually harmed,” said Bruce Marks, the chief executive of the nonprofit Neighborhood Assistance Corporation of America.
While the comptroller’s office acknowledged flaws in the review, Bryan Hubbard, a spokesman for the agency, said the “settlement results in $3.3 billion being paid to consumers and that is the largest total cash payout of any settlement involving borrowers affected by foreclosures to date.”
The examination was plagued by problems from its start in November 2011, according to interviews with more than 25 people who reviewed foreclosures, 15 current and former regulators and 6 bank officials, who insisted on anonymity because they were not authorized to speak publicly or feared retribution.
Several former employees of a consulting firm doing reviews said that their managers showed bias toward the bank that hired them. Other reviewers said that the test questions used to evaluate each loan were indecipherable and in some cases the process failed to catch serious harm. Many borrowers said they had never heard of the review or were so baffled by the process that they gave up or dismissed it as just another empty promise.
The review, which was hastily dismantled this week, was mandated by bank regulators amid public outrage over accusations that banks were robo-signing mountains of foreclosure filings without verifying them for accuracy. The review was supposed to cover any loan in foreclosure in 2009 and 2010, regardless of whether there was evidence of dubious practices.
Of the $8.5 billion settlement, $3.3 billion will be shared among the 3.8 million borrowers, and the rest comes mostly from banks’ lowering of interest payments or loan amounts for homeowners.A critical flaw from the start was that the federal government farmed out the work of scouring the millions of foreclosures to several consulting firms that charged as much as $250 an hour and outsourced work to contract employees, many of whom had no experience reviewing mortgages, according to the reviewers, regulators and bankers.
Oversight by the regulators was nearly nonexistent, the reviewers said. Some employees hired by one of the consultants, Promontory Financial, to pore over hundreds of thousands of Bank of America foreclosures said that without a watchdog some consultants worked to minimize the number of homeowners found to be harmed. One reviewer described how her supervisors routinely kicked back loans where she had identified harm.
Other reviewers said that entire days were wasted assessing files to determine whether the borrowers had been overcharged by minuscule amounts like $5 for lawn mowing.
Months before the review was scuttled, officials from the comptroller’s office dismissed concerns from consultants that such fee testing was distracting reviewers from assessing actual harm.Stymied by unnecessary questions and stalled by work delays, employees said that a single review could take them up to 20 hours per file, more than double the eight hours the consultants originally promised regulators.