2013 Rings in a New Foreclosure Settlement Agreement

The National Mortgage Foreclosure Settlement Agreement of 2012 was a landmark case for the housing industry in the United States, but it did not mark the end of the scrutiny placed on dubious foreclosure practices. A new settlement between 10 banks and the U.S. Office of the Comptroller of the Currency (OCC) will distribute $8.5 billion to nearly four million homeowners who were victims of the careless, perfunctory, aggressive, and generally misguided actions of mortgage lenders and servicing institutions during the foreclosure free-for-all that followed the housing market crash.

Amidst mounting complaints by mortgage borrowers with regard to malfeasance and general ineptitude by banks and legal teams handling foreclosures, federal regulators assigned the review of millions of highly questionable mortgage defaults, evictions and repossessions to the OCC. The review, which began in late 2011, proved to be a herculean task and a costly endeavor.

After more than a year of reviews and analysis by consultants who pocketed about $1 billion in fees, the OCC gave up and approached the offending banks with offers of a settlement agreement. Among the few foreclosure files examined, the OCC consultants found patterns of Clouseau-like clumsiness, dual tracking, robo-signing, substandard paperwork, botched loan modifications, and suspicious activities.

A Conflict of Interest and a Lacking Settlement

Bruce Marks, an executive at the Neighborhood Assistance Corporation of America, told the New York Times that the decision to distribute the funds from the settlement award among the 3.8 million borrowers affected was absurd. From $8.5 billion that the banks agreed to pay, only about $3.3 billion will be disbursed among the borrowers. One billion has already been earmarked to pay the consultants who were paid as much as $250 per hour in some cases.

Two of the consulting firms retained by the OCC may have caused conflicts of interest due to their prior relationship to the banks being investigated. Those firms are Deloitte and Promontory, respectively assigned to audit Bank of America and JP Morgan Chase. According to the New York Times, the former chairwoman of the Federal Deposit Insurance Corporation (FDIC) realized that the OCC was ill-equipped to deal with the situation from the beginning.

As the OCC defends its role in review and the settlement agreement it was able to reach, some borrowers are questioning the validity of the review. Many borrowers felt that they were given puzzling questionnaires that did not apply to their particular foreclosure situations. It is unclear at this point how much each borrower will receive as part of the settlement.