Negotiators are still working out the details, but it seems lenders will have to review the cases of homeowners victimized by improper foreclosure activities. Many egregious foreclosures practices accompanied the onslaught of mortgage defaults flooding the courts in 2008. Violations include falsifying documents, inappropriate signatures and other questionable procedure. Regulators also claim servicers did not have adequate staff require to service delinquent homeowners.
Government regulators, and representatives from the Federal Deposit Insurance Corporation(FDIC), analyzed an estimated 200 files from each loan servicer. In addition, during the three-month review period, third party contractors studied pending foreclosures and completed cases. Walsh admits the review conducted by investigators did not come close to addressing “all questions.”
The 14 largest mortgages servicers must hire independent consultants - lawyers and accounting firms, to review cases. Lenders signing off on the consent decree include: Ally Financial Inc./GMAC Mortgage, Aurora Bank FSB, Bank of America, Citigroup/CitiMortgage, EverBank Financial Corp., HSBC Holdings PLC, JPMorgan Chase, MetLife Bank, OneWest, PNC Financial Services Group Inc., Sovereign Bank, SunTrust Banks Inc., U.S. Bancorp, and Wells Fargo.
Lenders assert the evaluations of their foreclosure processes did not reveal any wrongful foreclosures. However, the companies have admitted to “weaknesses” in their foreclosure procedures.
The Proposed Process
The plan calls for categorized foreclosures cases, starting with those with the best potential for financial injury to the homeowner. Once regulators complete the structure for the third-party case review process, mortgage lenders must draft a remediation plan, which the Federal Reserve Board and the Office of Controller of the Currency must approve.
Instead of each mortgage lender setting up its own system to remedy the wrongdoing, a single entity will administer the process of case review. The allege foreclosure violation (s) must have occurred on the homeowner's primary residence, in 2009 or 2010.
Lenders must conduct an outreach campaign to inform consumers of the process, which includes a joint website and direct mail initiative. Wash said the foreclosure settlement process requires a, “strong quality control process to ensure each institution is treating cases of financial harm in a consistent way.” Homeowners must request a case review.
Third-party consultants have the charge of evaluating cases to determine if lenders handled the process inappropriately. Violations that cause financial harm, entitle homeowners to some kind of monetary compensation, according to the Acting Controller of the Currency, John Walsh.
At the heart of each case is whether the lender's foreclosure activity financially harmed homeowners. If the case demonstrates financial damage, the consultant must determine fair compensation for damages. None of the banks have acknowledged or denied the findings of the investigation. Consultants will judge each request for a review on a “case-by-case basis.”
The government's negotiating team includes the U.S. Department of Justice, Department of Housing and Urban Development and ten State Attorneys General. Negotiations have been ongoing for nearly a year.
Attorney General Breaking Rank
Some Attorney General (AG) backed out of the foreclosure settlement, including California, and Massachusetts. These AGs believe the rumored $20 billion settlement amount, floating about since last year, does not come close to the financial damage inflicted by improper foreclosures on homeowners.
California’s State Attorney General, Kamala Harris, sent a letter to the negotiation leaders -- Iowa Attorney General Tom Miller and Associate U.S. Attorney General Thomas Perrelli. Ms. Harris wrote, “It became clear to me that California was being asked for a broader release of claims than we can accept and to excuse conduct that has not been adequately investigated,” Harris wrote.
Mortgage lenders anxiously want all states and federal agencies to sign off on the proposed settlement, which grants lenders immunity from further legal actions. The scandal has formed a dark cloud over the industry since 2008.
Massachusetts Attorney General Martha Coakley did not participate in the negotiation, but stated that she particularly concern about misrepresentation false documents and the electronic system -- Mortgage Electronic Registration Systems (MERS), lenders used to track property ownership.