The federal government created the Independent Foreclosure Review process in 2011 so that certain borrowers could get a review of the foreclosure procedures used in the foreclosures of their homes. However, the review proved to be far more time-consuming and costly than anticipated, so it was scrapped in favor of a multi-million dollar settlement. Read on to learn about the Independent Foreclosure Review, the subsequent settlement, as well as the issues associated with the settlement itself.
What Was the Independent Foreclosure Review?
In response to the foreclosure crisis of the late 2000s when loan servicing errors were common and egregious, the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Board of Governors of the Federal Reserve System (FRB) required certain mortgage servicers to hire independent consultants to review foreclosures that were initiated, pending, or completed during 2009 or 2010.
The “Independent Foreclosure Review,” which began in 2011, allowed eligible borrowers to request a review of a foreclosure on a primary residence that was in progress at any time in 2009 or 2010 if they believed they suffered financial injury due to mortgage servicing errors. Banks were also required to review a certain amount of all loans that were in foreclosure during the relevant time period. The reviews were intended to pinpoint wrongdoing by mortgage servicers in individual foreclosure cases and then appropriately compensate those borrowers who had been harmed.
The Independent Foreclosure Review Settlement
The Independent Foreclosure Review was supposed to last only a few months, but the reviews turned out to be far more complex and time-consuming than expected. The banks ended up paying more than $2 billion to the consultants, but the reviews weren’t close to being completed. Consequently, regulators announced that they were essentially shutting down the reviews and replacing the program with a settlement to offer relief to borrowers sooner.
In January 2013, 13 mortgage servicers and federal bank regulators reached an agreement that ended the Independent Foreclosure Review for those servicers participating in the settlement. (The participating servicers are Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, Morgan Stanley, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo and their affiliates. EverBank, Ally/GMAC, and OneWest continued with the reviews.)
In the summer of 2013, EverBank and Ally/GMAC settled as well. Checks for borrowers whose mortgages were handled by these banks have not been sent as of November 2013. (The Independent Foreclosure Review process continues for OneWest.)
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Terms of the Settlement
The terms of the settlement with the original 13 settling mortgage servicers include an estimated $3.6 billion in direct cash compensation to nearly 4.2 million eligible borrowers and $5.7 billion in additional mortgage assistance, such as loan modifications and forgiveness of deficiency judgments. (EverBank will provide about $37 million in cash payments to more than 32,000 mortgage borrowers and $6.3 million to housing assistance groups. Ally/GMAC agreed to pay $230 million in direct cash payments to borrowers.)
Who gets money from the settlement? Homeowners who were in some stage of the foreclosure process at any time in 2009 or 2010 and had their loan handled by one of the settling mortgage servicers will receive a payment under the settlement, regardless of whether or not they were wronged. Those who requested a foreclosure review will receive a higher payment.
How much will homeowners get? The settlement checks range from $300 to $125,000, with most borrowers receiving a few hundred dollars. (For EverBank, the payout range is $1,050 to $125,000.) Only around 1,000 households will receive $125,000. These top payouts will go to military servicemembers who lost their homes even though they were eligible for protection under federal law, as well as to those homeowners were current on payments, but lost their homes nonetheless.
To determine payment amounts, borrowers were categorized based the stage of their foreclosure process (completed, rescinded, or in progress) and the type of possible servicer error. Regulators then used a financial remediation matrix published in June 2012 as a guide and incorporated input from various consumer groups to determine the payment amount.
Payment amounts and the number of people in each category can be found at www.occ.gov/independentforeclosurereview (click on “IFR Payment Agreement Details” on the right side of the screen) and www.federalreserve.gov/consumerinfo/independent-foreclosure-review-payment-agreement.htm (click on “Payment Agreement Details [PDF]”).
Timeframe for Settlement Check Distribution
Payments for the 13 mortgage servicers who were part of the original settlement began on April 12, 2013, and as of July 15, 2013, almost all of the 4.2 million checks have been issued by the paying agent -- Rust Consulting, Inc.
For the EverBank and Ally/GMAC settlement, eligible borrowers will be contacted by a third-party agent that has yet to be named and will receive compensation whether or not they filed a request for review. As of late August 2013, the timeframe for receiving settlement checks had not been announced.
Problems With the Settlement
Initial reports indicated that some of the settlement checks distributed by Rust Consulting bounced due to unavailable funds. Regulators now say the problems that led to some checks being rejected have been resolved. (Inquiries regarding cashing the settlement checks can be directed to Rust Consulting at 888-952-9105.) Additionally, according to the Huffington Post, about 400,000 checks have gone to incorrect addresses.
Checks issued as part of the settlement expire 90 days after they are issued as a means to limit fraud. This means that checks issued in the early waves of distribution that have not been cashed or deposited have begun to expire. If your check has expired and you would like to have the check reissued, contact Rust Consulting, at 888-952-9105.
Plus, many people take issue with the fact that the settlement largely lets banks off the hook for errors in foreclosures since there is no final accounting of how many borrowers were actually harmed. In fact, some borrowers who initially requested reviews under the original program have started a petition at www.change.org seeking to have the Independent Foreclosure Review reinstated for those who initially applied for a review.
Many of the borrowers who have received compensation checks in the mail are complaining that they should have been placed in categories that provided larger payments. If you feel you were not adequately compensated by your settlement check, keep in mind that accepting a payment does not prevent you from taking any legal action you may wish to pursue related to your foreclosure. Servicers are not permitted to ask borrowers to sign a waiver of any legal claims they may have against their servicer in connection with accepting payment.
More Information on the Settlement
Go to the Office of the Comptroller of the Currency’s website, www.occ.treas.gov, and click on “Independent Foreclosure Review” for more information on the settlement. You can also go to the Federal Reserve’s website at www.federalreserve.gov and click on “What You Need to Know: Independent Foreclosure Review.”