In order to identify the problems caused by the financial crisis relating to home foreclosures and to compensate aggrieved homeowners, the Independent Foreclosure Review (the “Review”) was established with a mandate to investigate the responsible banks. But before the Review could complete its mission, the Office of the Comptroller of the Currency and the Federal Reserve went ahead and reached a $10 billion settlement with the banks under investigation.
The excuse for ditching the Review prematurely stemmed from the resistance applied by banks under investigation as well as errors in the methodology used by the regulators sifting through the thousands of mortgage deals leading to and then affected by the crisis. But the existence of these very errors and the failure to comprehensively review all of the banks’ mortgage portfolios renders the eventual settlement unreflective of actual losses to individual victims. For instance, regulators used the “error rate” – the percentage of mortgages which resulted in improper foreclosure or which were wrongfully denied modification – from one bank to project the error rate for all involved banks. This approach incredibly presupposes that all banks mishandled their mortgage departments in the same fashion, an assumption that defies credibility.
Furthermore, the Review had yet to figure out how many home borrowers were the victims of any bank misfeasance. Nor had the regulators reviewed individual files so as to ascertain the extent or kind of injury sustained by particular borrowers. Accordingly, the compensation earmarked for allocation to individual borrowers does not appear to bear any rational relationship to the financial injury suffered by specific homeowners.
Now, as a new report from the Government Accountability Office (GAO) has uncovered evidence suggesting that the error rate for mortgages amounted to approximately 24% – almost 1 in 4, some are calling for the process to be reviewed anew. The ranking member of the minority in the House Government Oversight Committee, Rep. Elijah Cummings has requested that hearings be convened to study the matter. Cummings noted that his office’s inquiry uncovered a report that revealed an error rate of 60 percent at Bank of America, and 21 percent at PNC Bank in the way those banks handled either delinquent mortgages or mortgages given to homeowners who became distressed due to job loss or pay reduction. Cummings questions whether the settlement package which was finalized actually provides victimized borrowers with the compensation they deserve.
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