Last week's other settlement $8.5 billion deal by 10 banks over foreclosure-abuse claims also drew fire from consumer advocates, who argued that homeowners were left out in the cold while lenders faced minimal consequences. Barry Zigas, the director of housing policy for the Consumer Federation of America, called the deal "inadequate" from a consumer perspective.
"In its scale and scope, given that individual consumers potentially lost their homes, it's not very much to compensate them," Zigas said. Until 2006, he was a former senior vice president for Fannie Mae and he is currently a member of Bank of America's national consumer advisory council.
Still, Zigas said both settlements could help restore consumer confidence in the mortgage process. "From a consumer point of view, the hope is that through this kind of effort to hold lenders accountable, we will hopefully see that consumers will be able to approach the market with a higher degree of confidence that they are getting the best mortgage they deserve," he said.
As part of the foreclosure-abuse agreement, the banks and lending institutions will fork over $3.3 billion in payments to eligible borrowers and $5.2 billion in the form of loan modifications and forgiveness of deficiency judgments.
Included in the settlement with the Office of the Comptroller of the Currency and the Federal Reserve Board are Aurora Bank FSB, Bank of America, Citibank, JPMorgan Chase & Co., MetLife Bank, The PNC Financial Services Group Inc., Sovereign Bank, SunTrust Banks Inc., U.S. Bancorp and Wells Fargo & Co. In a statement, Comptroller of the Currency Thomas Curry said the settlement, which stems from an April 2011 enforcement action, meets the objectives of the Independent Foreclosure Review process "by ensuring that consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner." The Office of the Comptroller of the Currency initially set up the review process to allow foreclosed homeowners to request an independent review of their foreclosure and then dole out funds on an individual basis.
The settlement abandons the review process, which critics said hampered homeowners' access to funds. The New York Times reported last week that consultants raked in more than $1 billion, detailing waste and abuse on the part of so-called independent experts in the review process. "All of us were very frustrated with the [Independent Foreclosure Review] process and its shortcomings," Zigas said. "It was not meeting the intended goals, and I can understand the desire to find a quicker path to resolution."
The Federal Reserve said in a statement that the eligible borrowers should be contacted by a payment agent by the end of March and that they would receive compensation regardless of whether or not they filed for review. According to the release, the settlement will help some 3.8 million borrowers whose homes were foreclosed upon in 2009 and 2010, with compensation ranging from hundreds of dollars up to $125,000.
Albany Law School of Union University associate law professor Elizabeth Renuart said it's still hard to assess the settlement until more details are available, but she was skeptical about how the money will be apportioned. "$8.5 billion divided by 3.8 million borrowers the math there is not impressive. What they're doing now with the settlement is changing the rules of the road," she said. "It will no longer be a remedy for those who applied, but a settlement to limit the amount of damages that these banks and companies would have to pay out or give credit for."Federal regulators likely were eager to settle the matter, said Peter Henning, a professor at Wayne State University Law School. "I think the government wants to be done with this," he said. "They put a bow on it and said, 'Yeah, we're done. Pay your money and move on,' " he said, adding, "We need to cross our fingers and hope the banks have learned their lesson, but I don't think they have."
This article originally appeared in The National Law Journal.
This article originally appeared in The National Law Journal under the headline “Banks settlement draw fire from critics.”