Thousands of foreclosure payments going to wrong people

by Ryan Smith05 May 2014
More than 25,000 homeowners will receive more than a thousand dollars in the mail this summer as compensation for foreclosure problems they never had.

EverBank Financial will issue $1,050 checks to 25,389 of its customers even though no mistakes were found in reviews of their foreclosure files, according to a Washington Post report.

The compensation checks are part of the foreclosure settlement that the bank made last year with the Federal Reserve and the Office of the Comptroller of the Currency. EverBank’s deal was part of a larger deal the government made with several banks that steered borrowers into bad mortgages, the Post reported. As the economy failed, many  of those banks used shoddy or forged paperwork to rush borrowers into foreclosure.

Many consumer advocates have been sharply critical of the $10 billion settlement the government reached with the banks – in large part because of the paltry sums many victims received. Millions of borrowers, for instance, got only $300, the Post reported.

In 2011, the government ordered 16 mortgage servicers – including EverBank – to hire independent consultants to review their foreclosure files. However, the review was shut down a year later because no homeowners had yet received financial aid and the review was barely halfway over, the Post reported. Regulators negotiated a new settlement deal and most banks agreed.

EverBank, however, continued reviewing its files. The investigation dragged on for two years without a single payment to homeowners, the Post reported. At one point, the independent consultant hired by the bank said there were errors in 22% of its foreclosure files, most related to excessive fees to customers. Finally, the government pressured the bank to abandon the review so homeowners could get some financial help, according to the Post.

But that’s where the new problems began. The new agreement between EverBank and the government required the servicer to pay $40 million to the 32,574 EverBank customers whose homes were in foreclosure between 2009 and 2010 – regardless of whether the bank bungled the foreclosure process. Neither EverBank nor the OCC could explain how they arrived at those terms, the Post reported.

That deal means some people who lost their homes to botched foreclosures received up to $125,000 – but it also means that thousands of people whose foreclosures weren’t bungled will receive more than $1,000.

That’s probably going to be unwelcome news to the millions of homeowners who received just $300 from the 13 mortgage servicers who immediately signed on to the amended deal just to be done with the government review.

Some lawmakers are questioning whether killing the original review had the effect of cheating those homeowners, the Post reported. Rep. Maxine Waters (D-Calif.) said the situation “further underscores the flawed methodology underlying the settlement. It clearly confirms that the error rates across banks varied widely, and that the process would have benefited from the completion” of the review.


Should CFPB have more supervision over credit agencies?