With all the commotion that surrounded the fiscal cliff debate, it was easy to overlook the recent news of yet another new mortgage settlement that will pay cash to homeowners who experienced fraud or abuses committed through mortgage servicing. The settlement replaces the Independent Foreclosure Review (IFR)—an enforcement action made by the Office of the Comptroller of the Currency (OCC) against servicers under its supervision for violations in the foreclosure process—with $8.5 billion in cash payments. Not only does the amount pale in comparison to the need, the abrupt change in approach also puts the credibility of the entire process in jeopardy.
The Independent Foreclosure Review (IFR) was a terribly flawed enforcement action during which banks hired independent consultants to assess abuses and compensate the homeowner. The project was severely inefficient and used an underwhelming amount of public outreach to inform families that it was there to help them. As a result, participation was low; as of December 13, only 356,000 of the estimated 4.4 million families eligible have filed for assistance. To further muddy the waters, several of the reviewing groups chosen to serve as “objective” entities were not actually disinterested parties. Though the OCC claimed to thoroughly vet such groups, they have since removed some participants due to conflicts of interest.
The good news is that the settlement could reduce the immense cost and bureaucracy required to conduct the reviews, thereby speeding aid to families who have been waiting much too long. However, this is small consolation in light of the potential pitfalls of this approach. The deal—which was negotiated with an alarming level of secrecy—could leave struggling homeowners with another failed program. The deadline to file a request for review was pushed back several times because of inadequate outreach conducted by OCC and the servicers, evidenced by the dismal participation rates. In fact, despite launching in November 2011, the OCC and servicers only implemented a dedicated campaign to reach hard-hit neighborhoods, including communities of color, over the last six weeks. Moreover, we have not seen any data indicating whether or not the outreach was successful.
Poor outreach notwithstanding, news reports suggest the OCC has arbitrarily determined that those who filed for a review will be awarded greater compensation, even though this has nothing to do with a person’s level of harm. It is not fair to determine after the fact that filing for a review entitles you to a higher level of compensation. If families knew about this in advance, they would have been more likely to file before the agreement.
That the sluggish IFR process halted in such an abrupt and nontransparent manner is truly unfortunate, as it will undoubtedly impact millions of Americans and the economy as a whole. Experience shows that quick fixes come up short in delivering relief and justice to families who have been irreparably harmed by wrongful foreclosures and other servicing abuses. If corrective action is not taken, the OCC will miss yet another opportunity to help the most harmed families, reinforce accountability through data collection, and lay tracks to avoid future offenses.