Consumer Groups: Landmark Foreclosure Settlement Too Easy on Big Banks

Monday, 04 Mar 2013 08:26 AM

By John Morgan

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The giant $9.3 billion mortgage foreclosure settlement between the government and 13 big banks may favor borrowers with the highest unpaid loan balances, according to dismayed consumer advocates.

The settlement overseen by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board is intended to compensate borrowers for mortgage abuses, but consumer groups told USA Today the deal is far too lenient on the banks.

Under the terms of the settlement, a bank forgiving $15,000 in principal owed on a $100,000 unpaid balance would get a $100,000 credit toward its mortgage relief obligation. But a bank forgiving the same $15,000 principal on a $500,000 unpaid balance would get a $500,000 credit, the newspaper reported.

Forbes Columnist:
‘Who the Hell Cleared This?’

So it’s not hard to see where banks will focus their mortgage relief obligations to Americans — clearly they will place their emphasis on high-balance loans instead of smaller ones, the consumer groups said.

The new credit formula is “monumentally bad,” Ira Rheingold, executive director of the National Association of Consumer Advocates, told USA Today. “I’m absolutely stunned that they would do this.”

Alys Cohen of the National Consumer Law Center said the credit terms also would let the banks inflate the value of their modifications. “It lets the banks off easy,” she maintained.

The OCC claimed regulators could take additional action if the banks fail to provide well-structured assistance, USA Today reported.

The cash payouts, ranging from a few hundred dollars to $125,000, will be split among 4.2 million borrowers in foreclosures in 2009 or 2010 with one of the banks included in the settlement agreement.

The 13 banks are Bank of America, Wells Fargo, JPMorgan Chase, Aurora, Citibank, HSBC, MetLife Bank, PNC, Sovereign, U.S. Bank, Goldman Sachs, Morgan Stanley and SunTrust.

The multitude of issues addressed in the case included deficient practices on mortgage servicing and processing, improper fees, wrongful denial of modification, and the robo-signing scandal, in which bank employees approved numerous foreclosures without a full review of the documents involved, according to MarketWatch.

The Washington Post said the payments to consumers would be sent out in a stream starting in April. No action is required by borrowers. They will receive payment whether or not they filed a form requesting a review.

Forbes Columnist: ‘Who the Hell Cleared This?’

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