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Foreclosure compensation checks arrive, but anger some homeowners

Families who endured years of anguish or lost their homes due to banks wrongly reporting they were behind on their mortgage payments are calling the compensation payments resulting from a government settlement, many of which number in the low hundreds, "insulting." NBC's Lisa Myers reports.

Millions of American homeowners who have struggled with foreclosures are now receiving checks for compensation from the companies that serviced their mortgages -- part of the federal government’s efforts to resolve the foreclosure crisis. But some of those receiving checks tell NBC News that the payments are an insult that neither punishes the banks enough for “deficient” practices nor helps harmed homeowners recover. 

Karen Pooley, 50, of Seattle, told NBC News that she fell behind on her mortgage after losing her job in the building industry in early 2009, and received a notice of default in February 2010. 

Pooley said she’s been fighting to save her home from foreclosure for the past three years.   Believing that her servicer did not follow legal procedures, she said she has contested the foreclosure through her state’s foreclosure process, and managed to stop three foreclosure sales.  She said she also has tried to get authorities to investigate. 

Last month, she received her settlement payment, a check for $300.

“It was more than pathetic. It was insulting,” Pooley told NBC News. “I spent more in money on postage providing government agencies with detailed descriptions of what had happened in my case.” 



Timothy Platt, 52, a truck driver from Indianapolis, told NBC News he’s also been fighting to save his home from foreclosure the past three years.  He claims his servicer made a mistake, declaring he and his wife behind on their mortgage when they were not.  Platt is suing the servicer, but has found trying to prove his case frustrating. 

"They (the banks) have misrepresented the facts,” he wrote to NBC News in an email last month, “they have insisted on pursuing foreclosure." 

On Thursday morning, Platt emailed NBC News, saying his settlement check had just arrived. It was for $500. 

“It's kind of like a, like a slap in the face,” Platt told NBC News during a stopover in Chicago.  “We've been trying to work through this for three years now, and we have no help whatsoever, and we've lost lots.” 

Both homeowners believe their mortgage servicers are in the wrong.  Each has gone to court to prevent the servicers from taking their homes.  Their respective servicers declined to comment to NBC News. 

The compensation payment checks, which range from $300 up to $125,000, are part of the Independent Foreclosure Review Payment Agreement announced in January between federal regulators and 13 mortgage servicing companies, which were subject to enforcement actions for “deficient practices in mortgage loan servicing and foreclosure processing.”  Deficient practices have included errors and misrepresentations and the “robo-signing” of documents. 

The regulators are the U.S. Treasury’s Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System. 

The recipients of the checks are mortgage loan borrowers whose homes were in any stage of a foreclosure process during 2009 or 2010, and whose mortgage servicers were among the 13 companies, or their subsidiaries or affiliates.  Compensation payment checks, which began going out April 12, have so far been sent to 3.7 million homeowners. In all, 4.2 million eligible mortgage loan borrowers will receive them. 

The 13 servicers are: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo. 

According to the OCC’s online FAQ about the agreement, the servicers agreed “to provide more than $9.3 billion in cash payments and other assistance to help borrowers. The sum includes $3.6 billion in direct cash payments to eligible borrowers and $5.7 billion in other foreclosure prevention assistance, such as loan modifications and forgiveness of deficiency judgments.” 

By comparison, the five largest banks alone – Wells Fargo, Citigroup, Goldman Sachs, JPMorganChase, Bank of America – earned $60 billion in total profits last year. 

Payout guided by 'the matrix'
What determines how much homeowners receive? 

The largest payouts – $125,000 – are going to 1,082 members of the military wrongly foreclosed upon, and to just 53 homeowners across the country foreclosed upon even though they never missed a mortgage payment.  But most of the recipients – almost 2 million homeowners – will get the smallest payments of $300 to $600.

How much each homeowner gets depends on a complicated financial matrix designed by the regulators.

 “In determining the payment amounts,” reads a recent OCC press release, “borrowers were categorized according to the stage of their foreclosure process and the type of possible servicer error.  Regulators then determined amounts for each category, using the financial remediation matrix published in June 2012 as a guide, incorporating input from various consumer groups.”)

The two federal regulators began an Independent Foreclosure Review, or IFR, in 2011, with consent orders requiring servicers to conduct a case-by-case, document-by-document review of hundreds of thousands of foreclosure cases, to investigate the scope of those “deficient” practices. 

According to a description of the IFR by the U.S. Government Accountability Office: “The consent orders require(d) the servicers to engage third-party consultants to review the servicers’ loan files to identify borrowers who suffered financial injury through errors, misrepresentations or other deficiencies in foreclosure processes in 2009 and 2010. … According to regulators, the goals of the foreclosure review were for consultants to identify as many harmed borrowers as possible … and to help restore public confidence in the mortgage market.”

But that process ended abruptly, unfinished, when regulators suddenly announced the settlement agreement in January, with its generic payouts to all homeowners who’d been in foreclosure in 2009 and 2010, and ended the foreclosure review of 11 of the servicers.

A press release from the Federal Reserve stated its reason: “The OCC and the Federal Reserve accepted this agreement because it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process.”

The issue of third-party consultants handling the reviews, and the money they received for the work, had generated criticism prior to the announcement, and has continued to do so.

At congressional hearings this month, Sen. Sherrod Brown, D-Ohio, asked an OCC official whether the $2 billion paid to seven consulting firms to do reviews had meant less compensation for homeowners.

The official, OCC Deputy Counsel Daniel Stepano, replied that it did not:

“As part of the settlement we required the servicers to set up a qualified settlement fund and to put money into that and all of the compensation that goes to the borrowers is coming out of the fund,” he stated. “The amounts that they paid to the consultants is not a factor.”

So far federal regulators have refused to release information – about what the consultants’ reviews had found about mortgage servicers’ “deficient” practices in mortgage loan servicing and foreclosure processing – to the public, or even to Congress -- claiming the servicers’ documents are "trade secrets." 

In a conference call for media in January, OCC officials did disclose that “preliminary data from all the reviews of mortgage loan foreclosure files to date” had indicated “a 6.5 percent rate … (of) errors which would result in injury” to borrowers.  The officials offered no information about the incidence of misrepresentations or other deficiencies.

In a follow-up interview with NBC News later in January, OCC Deputy Comptroller Morris Morgan acknowledged that error rates in the reviews were “too high…and (were) unacceptable for regulated financial institutions.”  

'The ultimate insult'
Bruce Marks, founder and CEO of the Neighborhood Assistance Corporation of America (NACA), a non-profit consumer housing advocacy organization, told NBC News that the Independent Foreclosure Review had raised hopes that the government would help homeowners struggling with foreclosure get substantive investigative findings and fair treatment, but that the settlement agreement and the compensation payments had dashed those hopes. He said NACA had submitted 65,000 foreclosure cases to the review.

“These checks are the ultimate insult,” Marks said, in an interview from the Staples Center in Los Angeles, where his organization was conducting a “HomeSave” event, at which homeowners were negotiating loan modifications with representatives from several of the largest mortgage servicing companies. “Homeowners get hundreds of dollars, lenders are let off the hook, and it just reinforces the homeowners' understanding that the government doesn't stand for the homeowners. They stand for the banks.” 

Some members of Congress, including Sen. Elizabeth Warren, D-Mass., and Reps. Elijah Cummings, D-Md., and Maxine Waters, D-Calif., have questioned the replacement of the Independent Foreclosure Review with the settlement agreement. Warren and Cummings announced a joint investigation in January, and asked federal regulators to provide information and data from the IFR work that did get completed. 

At a recent Senate Banking Committee hearing, Warren criticized the plan over the compensation payments.

“Families get pennies on the dollar in this settlement,” she said, “for having been the victims of illegal activities or mistakes in the banks' activities.”

Karen Pooley believes she is a victim, but told NBC News she is concerned that, without the government’s review of her case, she may not obtain sufficient legal proof of that. 

“The servicer of the loan was provided an out,” Pooley said, “and I was given a pittance of $300, which doesn't even compensate me to file (a) lawsuit.” 

Pooley says she has not cashed her check, in protest.  

For its part, a spokesman for the Mortgage Bankers Association, the trade association for mortgage servicing companies, pointed to the federal regulators.   

“Mortgage servicers have been working night and day with their customers to resolve outstanding issues related to any wrongful foreclosures,” read a statement provided to NBC News.  “The IFR process has been managed, and payment amounts determined, under guidelines established by the OCC and the Federal Reserve. To our knowledge, the servicers have been compliant with every piece of the IFR agreement.” 

In “consent orders” filed with the settlement agreement, mortgage servicers do not admit or deny any wrongdoing. 

In an interview with NBC News in the days following the announcement of the settlement, OCC officials stressed that OCC chose to end the Independent Foreclosure Review when it did, because continuing it would have “needlessly delay(ed) benefits” getting to homeowners, and that the settlement agreement and its calculated compensation payments provided “the greatest benefit to consumers” possible.  

Lisa Myers is NBC News senior investigative correspondent; Rich Gardella is an NBC News investigative producer in the Washington, D.C. bureau.

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