Thursday, April 14, 2011

Regulators Order Banks to Compensate Wrongful Foreclosure Victims
What can you make of this?

Multiple Federal Agencies, including the Federal Reserve Board, the Office of the Comptroller of the Currency and the Office of Thrift Supervision, have issued a joint enforcement order against most of the major mortgage lenders and servicers. This comes on the heels of findings that the banks engaged in systematic practices resulting in wrongful foreclosures of a scale that the agencies have not yet determined.

"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations," said acting Comptroller of the Currency John Walsh. "These reforms will not only fix the problems we found in foreclosure processing, but will also correct failures in governance and the loan modification process and address financial harm to borrowers. Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward."

The enforcement actions require the servicers to promptly correct deficiencies in residential mortgage loan servicing and foreclosure practices that examiners identified in reviews conducted during the fourth quarter of 2010. The actions require the servicers to make significant improvements in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and dual-tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process.

What does this mean, exactly? On the one hand,it looks to me that the regulators never established the scope of the problem or procedures to determine the scope of the problem. They certainly didn't set up an independent authority to uncover and fix the problem (not to mention to prosecute fraud and misconduct.) On the other hand, the consent decree requires the banks to hire "independent consultants" to determine whether customers were wrongly charged or foreclosed in 2009 or 2010. At first blush this seems to suggest that any case currently in court will come to a screaming halt, if it hasn't already, pending teh "independent consultant" review.

Meanwhile, I'm getting reports from private consumer lawyers who are out in the field trying to help homeowners with their mortgage problems. These lawyers are reporting that even before the recent regulatory action, most of the cases are stuck in legal limbo. There are growing conflicts between loan servicers and investors. While few contested foreclosure actions are going through, the consumer lawyers are having problems because they are having trouble keeping their doors open. It's not easy coming up with a fee structure that strapped consumers can afford and that is results-driven when there are no results for years after filing. UAW members are lucky to have UAW Legal Services Plans, because the homeowner doesn't have to worry about legal fees, and the lawyer doesn't have to worry about getting paid.

Time for a really marginally relevant video.

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