A flawed settlement between federal regulators and the country's biggest banks in the robo-signing scandal finally is getting more attention from Congress. A Senate subcommittee will hold a hearing today to examine the role of consultants who were hired to review bank foreclosures and determine if people were wrongly evicted from their homes. According to a new Government Accountability Office report, the consultants mishandled the job and so did the regulators overseeing them. The bank settlement won't make victims whole and was designed to make good headlines, and Congress should take a closer look.
Ten banks, including Bank of America, Wells Fargo, JPMorgan and Citigroup, agreed in January to pay $3.6 billion in cash and $5.7 billion in other assistance for 4.2 million homeowners. But the assistance isn't being distributed in accordance with each homeowner's claim. Instead, the money will be spread among all homeowners whom the banks acted against. People victimized by being foreclosed upon despite loan modifications or who were subject to excessive fees, faulty paperwork and improper evictions, will most likely not be fully compensated. Others will receive help they don't deserve.
A recent analysis done for the Federal Reserve and the Office of the Comptroller of the Currency collected the worst cases from the sliver of overall loan files that had been reviewed. It found about 20 borrowers who lost their homes even after never missing a payment. Their homes were resold. Another small group of borrowers lost their homes due to bungled loan modifications, where the banks failed to honor an agreement to lower a mortgage payment.
More than 700 cases were documented where the banks failed to obtain the required court order before foreclosing on members of the military. The banks' slipshod controls meant active-duty military members lost their homes even while they were deployed overseas, something federal law is designed to prevent.
There could be many more such cases, but federal regulators abandoned the review after only a small fraction of foreclosures had been reviewed. The consultants reviewing the loan files for errors were hired and paid for by the banks, and bias is suspected of playing a role in the paltry findings of foreclosure abuse. The issue will be explored by the Senate subcommittee, and Sen. Elizabeth Warren, D-Mass., and Rep. Elijah Cummings, D-Md., have opened an inquiry into the consultants' flawed review. The GAO also faults poor oversight and mixed signals by regulators designing the review.
Critics have said the settlement is a sweet deal for banks who were able to put a massive fraud problem behind them. These new details suggest that people suffered real injustice from the foreclosure practices of the nation's largest banks, but the public may never know the full extent or recover what is truly owed. Congress should keep digging.