This article first appeared in the St. Louis Beacon: Steven Peterson of Belleville is one of 4.2 million Americans who will find out in the next few weeks how much -- if any -- compensation they will receive from their lenders after a government-ordered review of questionable foreclosure processes.
Peterson isn’t expecting much, although his mortgage servicer – PNC Mortgage – was one of 13 companies that earlier this year reached a settlement with federal banking regulators from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Bank.
Peterson has posted on his website an image of the postcard recently mailed to eligible borrowers by the OCC. The mailing informs homeowners that they will be contacted in a month or so by the consulting firm responsible for disbursing $3.6 billion in direct cash payments to wronged borrowers. The payments will range from “a few hundred dollars to $125,000,” according to the OCC.
The regulators are also cautioning homeowners about scams and to deal only with Rust Consulting Inc., the paying agent. Homeowners are instructed to direct any questions to Rust at 888-952-9105 and to beware if anyone contacts them with a different phone number or asks them to pay a fee to receive their checks. There is no fee for homeowners.
Peterson, who has been sharing his foreclosure experiences online, notes that 14 months have passed since he submitted his application for an independent foreclosure review but that it took PNC just 120 days to initiate foreclosure proceedings after he was unable to obtain a loan modification. Peterson’s experiences were detailed in a story published in November 2012 by the St. Louis Beacon.
"At this point, we're not expecting much from the negotiated settlement the OCC brokered with this financial institution,’’ he says on the website.
'Better than nothing'
The payments are from a negotiated settlement that replaced the independent foreclosure review program that was fraught with problems after it was announced by the OCC in November 2011.
The reviews were supposed to hold accountable mortgage servicers who used unsound practices -- including robo-signing documents -- in processing the flood of foreclosures after the collapse of the U.S. housing market. American homeowners whose primary residences were in foreclosure in 2009 and 2010 were eligible to request reviews to determine if they had been financially injured by errors made by their mortgage servicers.
Consumer advocates criticized the OCC for failing to provide a clear and simple application process for eligible consumers -- and for setting up a system that would have paid more cash to the consultants overseeing the reviews than to the wronged homeowners.
Shortly after the Dec. 31, 2012, deadline for homeowners to apply for foreclosure reviews, the OCC and the Federal Reserve announced a settlement with 10 of the nation’s largest mortgage servicers that, in effect, replaced the process.
The settlement included $3.3 billion for eligible borrowers and $5.2 billion in other assistance, including loan modifications and forgiveness of deficiency judgments. The OCC said the agreement would provide a "broader framework allowing eligible borrowers to receive compensation significantly more quickly.” The settlement includes all borrowers who were eligible, whether or not they had applied for a review. Three additional servicers later joined the settlement, raising the homeowner payout to $3.6 billion.
Consumer advocates say the settlement is an improvement over the original independent foreclosure review program but called the compensation inadequate in light of the harm done to homeowners.
"Whatever people will get is better than nothing, but it hardly makes up for being unfairly thrown out of your house,’’ said Kathleen Day of the Center for Responsible Lending in an interview with the Beacon.
"The money’s been decided on, so it is what it is, but the regulators can make a difference if they try to get the banks to do as many loan modifications as they can. They can keep people in their homes. We’re worried that the banks will just do short sales.”
Day said that federal banking regulators have played catch-up throughout the crisis, and she credits the state attorneys general for leading the way in investigating deceptive foreclosure procedures and for negotiating an earlier settlement with the nation’s top banks.
"Thousands of people who lost their homes probably could have -- with a reasonable loan modification -- been able to stay in their homes,’’ Day said. "A lot of people who have been harmed will never really be compensated.’’
The current settlement covers borrowers with the following servicers: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.
Better options for homeowners now
According to real estate analyst CoreLogic, there were 54,000 completed foreclosures in the U.S. in February 2013, down from 67,000 in February 2012. The year-over-year decrease was 19 percent.
Although the number of foreclosures has been slowing, local housing counselors say they are busy helping homeowners stay out of foreclosure.
Eric Madkins of the Urban League of Metropolitan St. Louis said that at his agency, for example, seven counselors are still working full time to assist financially struggling homeowners throughout the region.
"We’re still getting quite a few calls,’’ said Madkins who also serves as coordinator of the St. Louis Foreclosure Intervention Task Force.
Madkins estimates that his agency is able to help 70 percent of homeowners stay in their homes these days, an improvement over the 50 percent rate earlier in the foreclosure crisis. He said that underemployment is still a major problem, but an improved job market means that many homeowners now have at least some income to qualify for mortgage modifications. And there are more modification programs available than in the early days of the Great Recession.
"There has been a lot of organizational learning,’’ Madkins said. "At the end of the day, if we can keep a homeowner in a home with an affordable mortgage payment, that’s the most cost-effective way to handle the situation. A lot of servicers and lenders are offering more options.’’
He said that lenders are still more likely to offer reduced interest rates and extended payment terms, rather than the principal reductions that most housing advocates would like to see.
"But the situation is better,” Madkins said. "Back in the day, we didn’t have as many tools as we have now. And I think those tools are definitely helping.’’
