About the Independent Foreclosure Review Settlement
Just about a month ago, 4.2 million formerly distressed borrowers received small postcards in the mail stating that their settlement check would be coming soon. That’s the settlement coming from the Attorney General (by means of its paying agent, Rust Consulting) as part of the Independent Foreclosure Review.
Postcards from Rust Consulting have created a national frenzy as 4.2 million borrowers clamor to find out when they will be getting their checks and how much they will receive. Just last week, the breakdown information became available, and it appears that approximately 2.4 million formerly distressed borrowers will probably not be able to buy more than a steak dinner with their new found fortune.
What Is Independent Foreclosure Review?
In April of 2011, the Federal Reserve Board issued enforcement actions against four large mortgage servicers (GMAC Mortgage, HSBC Finance Corporation, SunTrust Mortgage, and EMC Mortgage Corporation). Because of this, these four servicers were required to hire independent consultants to review foreclosures that were initiated, pending, or completed during 2009 or 2010. The reason for this review was to determine whether borrowers suffered any financial harm directly resulting from errors, misrepresentations, or other anomalies that may have occurred during the foreclosure process. In addition to these four servicers, a number of other servicers supervised by the Office of the Comptroller of the Currency (OCC) were also required to conduct independent reviews.
In order to initiate the review process, a total of 13 mortgage servicers sent solicitation letters to 4.2 million potential victims of robo-signing and other foreclosure-related (and potentially fraudulent) matters. These letters provided homeowners with the opportunity to request an independent review of their foreclosure process (a.k.a. Independent Foreclosure Review). If the review found that financial injury occurred as a result of errors, misrepresentations, or other deficiencies in the servicer’s foreclosure process, the customer might receive compensation or another remedy.
The deadline to request the independent review was December 31, 2012.
Payments to Eligible Borrowers Began April 12, 2013
According to information available on both the Federal Reserve Board and the Office of the Comptroller of Currency websites, some payments went out in the mail as early as April 12, 2013.
In an announcement on the OCC website that came on April 9, 2013, the following disbursement information is provided:
Checks will be sent in several waves beginning with 1.4 million checks on April 12. The final wave is expected in mid-July 2013. More than 90 percent of the total payments to borrowers at those 11 servicers are expected to have been sent by the end of April. Information about payments to borrowers whose mortgages were serviced by Morgan Stanley and Goldman Sachs will be published by the Federal Reserve Board soon.
In most cases, borrowers will receive a letter with an enclosed check sent by the Paying Agent—Rust Consulting, Inc. Some borrowers may receive letters from Rust requesting additional information needed to process their payments.
How Much Will Your Independent Foreclosure Review Check Be?
Borrowers will receive anywhere from $300 all the way up to $125,000 depending upon their perceived financial harm by the events surrounding their foreclosure activity. The Independent Foreclosure Review Disbursement Breakdown shows that 2.4 million borrowers will receive $300 and approximately 1300 borrowers will receive $125,000—the bulk of borrowers will receive $500 to $600 dollars.
How Were the Disbursements Determined?
The Independent Foreclosure Review Disbursement Breakdown has the lists of categories used to determine the remuneration. The categories vary greatly and include wrongdoing to servicemembers, wrongful foreclosures on borrowers not even in default, foreclosures during a forbearance period, and even successful completion of a loan modifications.
There seems to be a great deal of concern, and perhaps confusion, with respect to how the disbursement funds has been allocated. As pointed out by Paul Kiel of ProPublica, it’s a little hard to understand the differences in rationale between some of the payment types. The categories are broken down into types of servicer error and some servicer errors are more grievous than others. For example, if a borrower is denied a loan modification and lost his or her home to foreclosure (about 370,000 borrowers), this individual will receive $3,000 or $6,000, depending upon whether the borrower submitted a complaint. On the other hand, if a borrower applied for a modification, and the servicer made no decision and then foreclosed (about 196,000 borrowers), the payment would be between $400 and $800.
4.2 million wronged borrowers may be hoping for $125,000, yet it seems that borrowers waiting for disbursement checks better hope that they were victims of the “right” servicer error. Very few folks will be able to hang their hat on the opportunity to buy a new home with their Independent Foreclosure Review check.