Banks slow to repay loan relief

Less than half of $5.7 billion due to homeowners paid

Share with others:


Print Email Read Later

WASHINGTON -- Banks have paid less than half the $5.7 billion in cash owed to troubled homeowners under nearly 30 settlements brokered by the government since 2008, delaying help to the millions of victims of discrimination and shoddy lending that epitomized the housing crisis, according to a Washington Post analysis of government data.

When the settlements were announced with great fanfare, government officials hailed them as the long-promised reckoning with the financial industry. Regulators found that some banks had saddled borrowers with unaffordable mortgages or assigned higher rates to minorities even when they qualified for a better deal. Some banks were accused of having employees "robo-sign" foreclosure documents without reading them or having proper documentation.

But consumer advocates and lawmakers have grown increasingly frustrated by the delays in releasing the settlement funds, which they say is making it difficult for some borrowers to recover financially.

In 2011, Wells Fargo agreed to compensate up to 10,000 borrowers after the Federal Reserve found the bank was steering them into subprime loans even though they qualified for better mortgages. But no borrowers have received money yet.

Last year, Bank of America agreed to pay some borrowers between $1,000 and $5,000 for what the Justice Department called lending discrimination by illegally asking some would-be home buyers who relied on disability income to provide a doctor's letter verifying the severity of their ailment. But it's still unclear how many people will ultimately be paid. There isn't a full list of the victims.

The agreements are coming under increased scrutiny from state authorities who are concerned that the banks are not living up to their obligations to help homeowners. The New York attorney general recently threatened to take Bank of America and Wells Fargo to court to force the banks to comply with a large national agreement to offer struggling borrowers help.

"These settlements are a reflection of the dismal response from the federal government and the banks to consumers who got bad mortgages," said John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer advocacy group. "Their needs got pushed behind taking care of the banks."

Banking industry officials and regulators say the scale and complexity of the settlements have grown over the years, making them difficult to execute quickly. They can involve multiple agencies, banks, lawyers and consultants. In some cases, banks are still identifying people affected or waiting for borrowers to respond to notifications of eligibility. There are also a number of cases in which banks have yet to zero in on how much they will pay out.

Critics point to the 2011 agreement the Office of the Comptroller of the Currency and the Federal Reserve struck with more than a dozen mortgage servicers as a prime example of the dysfunction. After regulators identified flawed foreclosure processes, including shoddy paperwork, the servicers -- including Bank of America and JPMorgan Chase -- agreed to assist homeowners.

But in order to determine how much each borrower was owed, the banks planned to review each foreclosure one by one. After 12 months, no homeowners had received a dime. But the eight consultants managing the process on behalf of the banks were paid nearly $2 billion.

Regulators struck a new agreement with most of the banks involved, including $3.6 billion in direct payments to homeowners.

"I think that the OCC, the Fed, greatly underestimated the complexity of the task," Daniel Stepano, deputy chief counsel for the OCC, told the Senate banking committee at a hearing in April. "The large number of institutions, independent consultants and counsel involved in the process ... required substantial regulatory oversight."

So far, more than 3 million borrowers have received checks, some for more than $100,000.

But when the first few checks were distributed in April some bounced. Another batch of checks sent to nearly 100,000 borrowers were for less than they were owed. And despite the big sticker price of the agreement, more than half of the borrowers affected will receive no more than $300.

There are also thousands of homeowners still in the dark about whether they are entitled to any sort of relief. Ally Financial, One West and Everbank did not agree to the revised settlement and are still reviewing foreclosures one by one.

nation - businessnews


Advertisement
Advertisement
Advertisement

You have 2 remaining free articles this month

Try unlimited digital access

If you are an existing subscriber,
link your account for free access. Start here

You’ve reached the limit of free articles this month.

To continue unlimited reading

If you are an existing subscriber,
link your account for free access. Start here