U.S. banks including JPMorgan Chase & Co. and Citigroup Inc. will pay as much as $125,000 plus equity to individual customers most harmed by mishandled foreclosures in 2009 and 2010, according to a remediation plan released by federal regulators.
“While we’ve made great strides since we took enforcement action against large mortgage servicers last year, much work is still ahead,” said Thomas Curry, U.S. comptroller of the currency, in a statement. This industry guidance “helps people who are considering requesting a free review to understand how they may be compensated for the financial injury they may have suffered,” he said.
A group of the largest mortgage servicers were ordered by the Office of the Comptroller of the Currency and other banking regulators last year to clean up their foreclosure practices and hire independent consultants to see whether their methods in 2009 and 2010 unfairly hurt customers. The 14 firms, also including Bank of America Corp. and Wells Fargo & Co., could be instructed to give lump-sum payments between $500 and $125,000 in each case involving improper practices, the regulators said.
Besides lump-sum payments, loan servicers who improperly handled foreclosures may have to rescind them, modify loans or correct credit reports, according to industry guidance issued today by the OCC and the Federal Reserve.
“I think the range of potential recovery is surprisingly large,” said David Dunn, a lawyer who represents lenders at Hogan Lovells U.S. LLP in New York. “Is there a rationale for those numbers? I haven’t seen it if there is.”
The universe of potential claimants includes an unknown portion of the 4.4 million borrowers to whom regulators sent letters informing them they can ask for reviews. Of those, 4.4 percent, or 193,630, had done so by the end of May, according to a six-month report on the process also released by the regulators today. The independent consultants picked another 144,817 files to examine. About 12,000 cases have gone through review so far.
The guidance says a person whose house was foreclosed on when the mortgage wasn’t officially in default should be given $125,000 if the foreclosure can’t be rescinded. That borrower would also be entitled to any positive difference between what was owed on the mortgage and what the house was worth at the time of the error.
People who lost homes to foreclosure in 2009 and 2010 are being given a deadline extension from July 31 to Sept. 30 for filing to have their cases reviewed for potential errors and misrepresentations, and can do so through www.independentforeclosurereview.com.
Borrowers from California have so far led the requests for review with 35,480, followed by Florida and Texas, according to the report.
“The servicers see this guidance as an important step toward completion of the Independent Foreclosure Review process,” according to a statement from the Housing Policy Council of the Financial Services Roundtable, a Washington-based trade group representing the largest mortgage servicers.
Consumer groups are concerned the payouts won’t amount to much in regions with high real-estate costs.
“Whether it’s enough really depends a lot on where you live,” said Paul Leonard, the California director for the Durham, North Carolina-based Center for Responsible Lending. “If you no longer have your home, $125,000 may or may not get you back in a home in California.”