The Maddening Reality behind the New $8.5 Billion Settlement of the Banks’ Foreclosure Abuses

This settlement means more of the same for the New Year: “no accountability for financial institutions and little help for borrowers,” according to a NY Times op-ed.


Last week when the Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced an $8.5 billion settlement with 10 banks, their joint press release did not mention the following:

  • In allowing the banks to “cease the Independent Foreclosure Review, which involved case-by-case reviews,” the regulators conceded that those reviews were not working. In fact the original settlement was an utter failure. Under that agreement the banks were to hire independent contractors to examine each claim of improper foreclosure or related abuse. Only a small fraction of the eligible borrowers’ cases were reviewed before the cost of the independent contractors reached $1.5 billion, apparently without any compensation delivered yet to the homeowners.
  • After the banks spent this tremendous amount of money showing virtually no benefit to homeowners, the regulators were backed into this new settlement by the banks in order to limit the damage the banks would have incurred if the case by case reviews had continued. According to Ned Brown, a legislative strategist at Prairie Strategies in Washington. “The [bank] servicers rolled the regulators.
  • Rep. Elijah Cummings of Maryland said the settlement “may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered.” “We think if the reviews were done right, the payouts would have been significantly higher than they appear to be under this settlement,” said Alys Cohen, staff attorney at the National Consumer Law Center. “The new settlement will no doubt include the usual language that the banks don’t accept any liability, but are paying merely to resolve the matter.  
  • The end result of this not only protects the banks’ illegal activities from further public scrutiny, but also avoids shining a spotlight on the regulators’ lack of oversight over these activities.
  • Under the new settlement, the banks themselves are to determine where abuses took place, with only a small percentage of cases to be reviewed by regulators. “The regulators have decided to replace the fox in the henhouse with the wolf,” according to John Taylor, head of the National Community Reinvestment Coalition, a community development nonprofit.
  • The announcement by the regulators does not say how the $5.2 billion non-cash portion of the settlement—mortgage modifications and other non-cash assistance—will be distributed, but presumably these types of homeowner assistance will be provided at the banks’ discretion, with little or no oversight.
  • Both the Republican Chair and the ranking Democrat of the House of Representatives Committee on Oversight and Governmental Reform asked the Fed and the OCC for a briefing to respond to specific questions about the proposed settlement before it was implemented. The regulators refused to brief Congress before announcing the deal publicly last week.
  • In a New York Times op-ed a few days ago entitled “Surprise, Surprise: The Banks Win,” Gretchen Morgenson wrote: “If you were hoping that things might be different in 2013—you know, that bankers would be held responsible for bad behavior or that the government might actually assist troubled homeowners—you can forget it. [The] settlement… will… end a review into foreclosure abuses, and it means more of the same: no accountability for financial institutions and little help for borrowers.”

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