TribLIVE

| Business

 
Larger text Larger text Smaller text Smaller text | Order Photo Reprints

Foreclosure payouts 'pennies on the dollar'

Email Newsletters

Click here to sign up for one of our email newsletters.

On the Grid

From the shale fields to the cooling towers, Trib Total Media covers the energy industry in Western Pennsylvania and beyond. For the latest news and views on gas, coal, electricity and more, check out On the Grid today.

'American Coyotes' Series

Traveling by Jeep, boat and foot, Tribune-Review investigative reporter Carl Prine and photojournalist Justin Merriman covered nearly 2,000 miles over two months along the border with Mexico to report on coyotes — the human traffickers who bring illegal immigrants into the United States. Most are Americans working for money and/or drugs. This series reports how their operations have a major impact on life for residents and the environment along the border — and beyond.

By The Orange County Register
Saturday, May 25, 2013, 9:00 p.m.
 

Tyler Reid struggled to hold onto his Ladera Ranch, Calif., condominium during the recession.

He was self-employed. When his clients dried up, so did his software business. Reid sold his car, ate one meal a day, and paid his taxes with credit cards. He tried to get a loan modification or sell his home in a short sale, but he says his bank turned down every request. The condo was foreclosed in 2010.

Reid is among millions of borrowers receiving checks meant to compensate what federal officials have characterized as lenders' lax, botched or abusive procedures during the height of the foreclosure crisis. Thirteen of the nation's major lenders are making the payouts as a result of a $9.3 billion settlement with government regulators.

Reid received a check for $6,000, an amount that pales in light of what he went through, he said.

“The payments are an embarrassment,” Reid said. “They don't really help people affected by the foreclosures regain any footing, financially or credit-wise. If others are like me, far more money was spent trying to responsibly get help with modifications, make trial payments, etc. I estimate that I spent somewhere in the neighborhood of $20,000 trying to save the house.”

Lenders began disbursing checks to 4.2 million borrowers in April. Many checks were for $300. A Santa Ana, Calif., woman opened the envelope and burst into tears. Consumer advocates called the amounts a joke.

As part of the settlement, the banks agreed to make payments totaling $3.6 billion but admitted no wrongdoing.

The compensation process began after the Office of the Comptroller of the Currency and the Federal Reserve decided to pursue a settlement with the banks over foreclosure abuses. Initially, the banks hired consultants to conduct lengthy case-by-case reviews of foreclosures.

That method ultimately was dropped in favor of a broad payout system affecting everyone in some stage of foreclosure during 2009 and 2010 serviced by one of 13 major lenders.

The settlement involved a detailed matrix of payments spelling out what sums borrowers would receive. For example, someone whose home was foreclosed after a loan modification was denied could get $6,000 if the borrower requested a review through the independent foreclosure review process, or $3,000 if he or she did not request a review.

Someone who lost their home after a loan modification application was left undecided could get $800 if the borrower requested a review, or $400 if no review was sought. If the lender did not reach out to try to offer a loan modification or other loss mitigation, a borrower could receive $500 if the borrower asked for a review, or $300 if not.

“They put people into boxes by circumstances as best they could determine,” said Harry Gural, communications director for the House Financial Services Committee. “They made rough approximations. There are going to be all kinds of issues about who should have gotten what.”

Gural said that under the broad settlement, people who lost homes may have been insufficiently compensated, while others who received money “may not have deserved, given their circumstances, anything.”

Some borrowers didn't receive enough. The Federal Reserve announced earlier this month that about 96,000 people who received checks would get an additional check to correct mistakes in the initial payment. The Fed blamed errors made by Rust Consulting, the company disbursing the checks.

The new payments — making up the difference between the amounts that should have been paid and the lower amount paid by Rust — were sent to borrowers whose loans were serviced by former subsidiaries of Goldman Sachs and Morgan Stanley.

It's just the latest glitch in a series. When lenders sent the first wave of checks, some bounced.

Members of Congress, meanwhile, want to know more about the failed review process.

At a hearing in April, Sen. Elizabeth Warren, D-Mass., blasted regulators for withholding records of borrowers who may be contemplating lawsuits against their banks.

Under the foreclosure review, she said, “Families get pennies on the dollar for being the victims of illegal activities.”

The nonpartisan Government Accountability Office, or GAO, criticized the way the reviews had been conducted.

Subscribe today! Click here for our subscription offers.

 

 


Show commenting policy

Most-Read Business Headlines

  1. Consol Energy reports deep loss, bigger Utica results
  2. Leisure, hospitality lead Pittsburgh area job gains
  3. Ambridge’s PittMoss takes off with help from TV show, Mt. Lebanon native Cuban
  4. U.S. Steel to debut oil, gas pipeline connector
  5. Plummeting natural gas prices slash revenue of Marcellus shale producers
  6. Invasive beetle costs Pittsburgh-area power companies plenty
  7. Israel’s Teva drops bid for Mylan, buys Allergan for $40.5B
  8. Alcoa among 13 firms in $140B carbon-footprint pledge
  9. Pitt to start Energy Law and Policy Institute
  10. Muni bond funds stressed
  11. Bayer sets sights beyond aspirin