Ten Banks have to compensate victims of fraudulent foreclosure practices with $8.5 billion dollars, according to a settlement with regulators on Jan. 7. Some experts, however, think that the settlement is not sufficient to punish individuals and institutions guilty of mortgage fraud.
Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo were part of the civil settlement with the Federal Reserve Board and the Office of the Comptroller of the Currency. They agreed to pay 3.8 million borrowers $3.3 billion in cash and $5.2 billion in other assistance, such as loan modifications.
The penalty is due because of “deficient practices in mortgage loan servicing and foreclosure processing,” which affected millions of ordinary citizens whose homes were foreclosed unduly. On average, each affected customer of the above named institutions will receive $2, 200, but the maximum award will be as high as $125,000.
This broad settlement means that these banks acting as servicing agents for the mortgages do not have to conduct case-by-case reviews to determine mortgage fraud. Instead, payment will be made available for all eligible borrowers as soon as possible.
Fraudulent practices started with the origination of the mortgages, where sometimes different staffers used the name of an employee with the authority to sign a contract to actually close the deal. The most famous of these instances of robo-signing is the case of Linda Green, whose signature has appeared in many shapes and forms on different contracts across the nation.
When the foreclosure wave hit the United States in 2009 and 2010 in the wake of the subprime crisis, the mortgage service providers followed standard procedure and foreclosed homes with delinquent payments. Due to the shady origin of the mortgages they often did not have the necessary documentation or legal basis to affect the foreclosure
Settlement Not Sufficient Says Lawyer
“I don’t believe it’s enough. It creates a precedent. If you are a large financial institution and you rip off the citizens of the United States and you later get caught you can pay your way out of it,” says Elliot Schlissel, a lawyer representing 100 people with suits related to fraudulent foreclosure.
Schlissel believes that the amount of the settlement should be put into perspective with how much money the banks made over the years originating fraudulent mortgages. According to him, this greatly benefited the banks and their employees and the current settlement represents too little repayment.
“It’s not a great deal if they took $200 billion. If they took $200 billion and lots of people made tens of millions of dollars in their pocket and walked away. If you’re a cashier at a supermarket, take 50 bucks and see what happens to you. Give the 50 bucks back it doesn’t change anything,” he says.
If a cashier in a supermarket steals $50 and then gives it back, he will still be criminally prosecuted. Not so in this settlement. “Because of a civil settlement there is no criminal prosecution. … The settlement is there to avoid other penalties, civil and criminal. Which means the case is over they can go continue doing business as before,” says Schlissel who points out that neither the 10 institutions nor their employees can be prosecuted further
Other institutions that were not part of the settlement can still be charged, but this settlement will serve as a precedent.
Representative Blasts Regulators for Locking Out Congress
Foreclosure defense lawyers were not the only ones displeased with the settlement. Representative Elijah E. Cummings, D-Md., Ranking Member of the House Committee on Oversight and Government Reform, blamed the Fed and the OCC for disregarding a request by the committee to be briefed on the findings before their publication.
“I am deeply disappointed that the OCC and the Federal Reserve finalized this settlement and effectively terminated the Independent Foreclosure Review process before providing Congress answers to serious questions about how this settlement amount was determined, who these funds will go to, and what will happen to other families who were abused by these mortgage servicing companies, but have not yet had their cases reviewed,” Rep. Cummings writes.
Rep. Cummings and Committee Chairman Darrell Issa (R-Calif.), last Friday sent letters to the government agencies requesting to be briefed before the publication of any settlement. This request was boldly ignored by both the Federal Reserve and the OCC.
“In calls to the agencies [Jan. 7], agency officials stated that they would not provide the briefing or answer additional questions before going public with the announcement of the deal,” reads Rep. Cummings’s press release.
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