Some Motgage Settlement News

Big Banks Erred Widely on Troubled Mortgages, U.S. Regulator Confirms

By MICHAEL CORKERY, The New York Times

April 30, 2014, 8:14 pm

The latest analysis found that at least 9 percent of the errors discovered in the review involved banks improperly denying loan modifications that would have prevented foreclosures. The report also found that more than half of the errors related to administrative flaws and improper fees charged to homeowners during the foreclosures process.

Last year, 15 financial institutions settled with banking regulators, making payments that totaled $3.9 billion to more than four million homeowners. The settlements ended the independent reviews, which had been costly and lengthy. As part of the deals, the banks agreed to pay the homeowners, regardless of whether they had been harmed.

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Bank of America, for example, had reviewed only 6 percent of its files, revealing a financial error rate of 8.9 percent. Wells Fargo had examined about 9.6 percent of its records, finding an error rate of 11.4 percent.

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Before the reviews, regulators discovered many problems with the way banks had handled foreclosures after the financial crisis, including bungled modifications and the practice of “robo-signing,” where reviewers signed off on mounds of foreclosure paperwork without verifying its accuracy. Other errors included wrongful foreclosures and improper fees charged to homeowners.

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In particular, the Government Accountability Office, an auditing arm of Congress, said this week that regulators had not demanded specific terms for $6 billion in foreclosure prevention measures that the banks agreed to undertake, in addition to the $3.9 billion in cash pay outs to homeowners.

It also said the decision to cut short the review left regulators with limited information about actual harm to borrowers when they negotiated the $10 billion settlement.

Regulators had calculated a preliminary error rate of 6.5 percent for all the banks when they negotiated the settlements last year, according to the G.A.O.

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It was one of the largest and most costly bank failures in American history. And the bank’s collapse could end up costing the F.D.I.C. even more money because of the Independent Foreclosure Review.

It is possible that the F.D.I.C. will have to cover at least some of the costs of the $8.5 million payouts, banking specialists said. Specifically, the F.D.I.C. could be responsible for any errors in the first three months of 2009 when the federal regulators owned IndyMac’s assets and ran its servicing operations, they said.