Foreclosure payouts 'pennies on the dollar'
By The Orange County Register
Published: 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.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Corbett: Coal is working
- Drugmakers ready to carve out deals any way they can
- PNC’s CEO elected board chairman
- ‘Old GM’ defense expected in court fight over faulty ignition switch
- Young visionaries at PieceMaker Technologies Inc. see future in 3-D
- Earthquakes could affect Beaver Valley nuke plant more than first thought
- AT&T joins crowded field with online video plans
- Mastech Holdings records 51 percent profit jump in 1st quarter
- BNY Mellon notches $661M profit in 1st quarter
- McDonald’s profit slips amid weak sales
- Winning streak for stocks continues