By Tanya Dennis
On Wednesday, April 13, the federal government ordered sixteen of the nation’s largest mortgage lenders and servicers reimburse homeowners that were improperly foreclosed upon. The nation’s four largest banks, Bank of America, Citibank, JPMorgan and Chase, were cited. The Feds have directed the banks to hire auditors to determine how many homeowners could have avoided foreclosure in 2009 and 2010. On the state level, Attorney Generals are demanding an end to false affidavits and “robosigning”, and, they want the banks to do more loan modifications and more negotiations with homeowners before foreclosure. Although banks have balked at the idea of principal reduction, the subject was discussed. Attorney General of Colorado Roy Cooper said he’s heard promises for three years and still sees problems, “That’s why we need an agreement that’s enforceable and that we don’t have just promises.”
Cooper is on the right track. Even though Wells Fargo reached an Assurance Agreement with the Attorney General of California in December 2010 to rectify their toxic Pick-a-Pay loans, borrowers who have already been foreclosed upon would only receive $2,600 for the loss of their property, not much compensation for a $300K or $600K home. Pick-a-Pay borrowers currently in negotiations with modifications still must qualify under the same or even more stringent standards set by Wells Fargo, and most are not granted a reduction in principal. Currently Wells Fargo grants 15 to 20% of the modifications that are requested and when they do grant a principal reduction, the most that can be expected is ten or twenty percent. Not much help when some homes are currently worth 50% less their original value.
In a joint report by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency, the Fed’s said it believes that financial penalties are “appropriate” and that it plans to levy fines in the future. All three agencies plan to review foreclosure audits and lenders and servicers have forty-five days to hire auditors. Lenders will also be forced to “remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies.” No minimum or maximum dollar amount has been identified.
Since 2007, approximately five million homes have been foreclosed upon and 2.4 million primary mortgages were in foreclosure in 2010. Currently two million homeowners are ninety days or more past due and at serious risk of foreclosure.
Other lenders and service providers cited by the agencies include: Ally Financial Inc., Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Banks, U.S. Bank, Lender Processing Services and MERSCORP.