Regulators and 13 banks complete 9.3 billion deal for foreclosure relief
The pact, reached after weeks of harried negotiations, halted a flawed review of millions of mortgages in foreclosure. Regulators, led by the comptroller's office, hastily scuttled that review amid heightened concerns that the process was generating billions of dollars in fees for consultants, but providing little relief for borrowers.
The effort was abandoned after consultants examined a tiny fraction of more than four million loans in foreclosure from 2009 to 2010. Ultimately, consultants completed a review of 104,000 loans, regulators said Thursday.
As part of a consent order in April 2011, the comptroller's office and the Federal Reserve set up the Independent Foreclosure Review, which required banks hire a fleet of outside consultants to comb through loan files. The aim was to spot problems like illegal fees, botched loan modifications and examples where borrowers were evicted even though they were current on their mortgage payments.
By halting the review with only a sliver of the loans reviewed for problems, federal regulators don't have a complete picture of the extent of the abuse. As a result, consumer groups have argued, borrowers harmed by shoddy practices could still receive less money than they deserve.
In a speech this month, Thomas J. Curry, who heads the comptroller's office, defended the relief allocated through the settlement, describing it as "several times the potential payout had the reviews run their course."
An estimated 4.2 million borrowers in foreclosure will be contacted by Rust Consulting, a firm handling the payment details, by the end of March, according to the regulators.
Beyond the cash relief, the 13 mortgage lenders will provide $5.7 billion in other assistance like reducing mortgage balances and refinancing burdensome loans.
Three firms -- GMAC Mortgage, Everbank and OneWest -- didn't sign the pact. The lenders will continue to review their mortgages, according to the regulator. Those three companies service more than 450,000 loans in foreclosure from 2009 to 2010.
Updated February 28, 2013, 9:08 p.m. ET Foreclosure Files Detail Error Gap Some Big Banks Posted Sharply Higher Error Rates, Raising Questions About $9.3 Billion Settlement
By
DAN FITZPATRICK And ALAN ZIBEL
The banks were ordered in 2011 to hire consultants to review foreclosures in search of possible errors that could result in compensation for borrowers.
Some 6.5% of files reviewed unveiled errors requiring compensation, officials at the Office of the Comptroller of the Currency said in January. They later revised the error rate to 4.2% after requesting new data, raising the total number reviewed to roughly 100,000 files.
But a breakdown of the information provided to the regulator shows that more than 11% of files examined for Wells Fargo WFC +0.88% & Co. and 9% of those for Bank of America Corp. BAC +0.98% had errors that would have required compensation for homeowners, said people who have reviewed the figures. A narrower sample of files--representing cases selected by outside consultants--showed error ratios of 21% for Wells Fargo and 16% for Bank of America, the people said.
The OCC findings appear skewed by the outsize contribution of one bank, J.P. Morgan Chase JPM -0.02% & Co., which reported an error rate far below rivals that oversaw a much larger universe of loans.
J.P Morgan was responsible for more than half of the completed files counted in the OCC review and reported compensation-worthy errors in just 0.6% of cases, according to people familiar with the figures.
J.P. Morgan is a smaller manager of mortgages than Bank of America and Wells Fargo. It had fewer borrowers who were eligible for the foreclosure review than Bank of America and roughly the same as Wells.