Will a New Home Loan Settlement Help Homeowners?

The Bank of America Corp. building in Charlotte, NC Photograph by John Adkisson/Getty Images

Another settlement over faulty foreclosures. That’s the news this morning from the New York Times, which says 14 banks are on the cusp of paying $10 billion to settle charges with federal bank regulators over the robo-signing scandal that revealed banks rushed through the paperwork used to foreclose on homes.

If you thought banks already settled over robo-signing, you’re right. Back in February 2012, five banks agreed to pay $25 billion to settle claims relating to faulty foreclosures with 49 state attorneys general (all but Oklahoma), state bank regulators, the Department of Justice, and the Department of Housing and Urban Development. Federal bank regulators—such as the Office of the Comptroller of the Currency and the Federal Reserve—were not party to agreement. The new potential settlement could fill this gap, the Times says.

According to the Times, this settlement ties back to an April 2011 consent decree the OCC and the Fed signed with 14 banks. Under the decree, banks had to offer an independent review to any customers who believed they might have suffered financial injury as a result of the banks’ mortgage-servicing operations. The reviews—which can lead to financial compensation for homeowners—haven’t gone smoothly, though. ProPublica’s Paul Kiel has been reporting on lapses in the review process since it launched, finding that few people have applied for the reviews, that the process has lax oversight, and that the reviews aren’t truly independent. Kiel found that Bank of America even pre-populated the answers in a computer form the consultants were using to double-check the bank’s work. (Bank of America said the reviewers could “override any answer” the bank may have submitted, and that the reviews were not tainted. It has since changed its process so reviewers don’t see the bank’s answers.)

In November, American Banker reported that banks may end up paying more to the consulting firms running the reviews than to homeowners who may have been harmed. The Times says banks have already paid consultants $1.5 billion—and that the OCC thinks that figure may give it leverage in negotiations, because it can tell “banks that they can either sign on to a large settlement or be forced to pay billions over several more years until the consultants finish the reviews.”

The settlement with the attorneys general has also faced criticism over how it has been implemented. Some states used their share to shore up their budgets, and some banks are getting credit for reducing the principal on mortgages they don’t own. If a new deal goes through, banks would pay $6 billion in relief for homeowners, the Times says. The prior settlement shows that the headline figure doesn’t tell the whole story.

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