Remarkably, despite an untold number of reported homeowner runarounds, leading to class action lawsuits and media investigative reports that helped expose massive mortgage servicing fraud, accounting errors, and alleged criminal activity, nothing has changed. Innocent homeowners continue to be put on the street --without cause.
Various studies and investigations along with nationwide consumer complaints chronicling frustrating nightmares continue to paint a disturbing picture; the mortgage servicing industry has no incentive to work with borrowers. It turns out it is far more economical for them to foreclose, as opposed to modify--whether or not they have just cause or proper authority to do so.
There is some potentially good news:
The US Justice Department in conjunction with bank regulators, attorneys general and HUD are cracking down on the predatory lenders and other mortgage companies who mishandled mortgages or illegally foreclosed on up-to-date loans. They will be determining exactly how big the fines and other penalties should be for lenders who misappropriated and mishandled their mortgages.
Proposed penalties include fines for the banks and lenders, adjustments to the remaining principal owed on some home loans, and forced changes to the way that loans are issued. One key point is the ending of "dual-track" mortgages, a system that allows lenders to seize property even while they are negotiating with the owner of the property to lower the owner's monthly payments. A key piece of the crackdown is reimbursement of wronged homeowners.
But, as usual, there's some potentially troubling news:
It's the banks that will be required to determine how much financial damage they have done to borrowers they've wrongly foreclosed on. And yes, that is concerning because it appears to many who've accumulated losses by the banks, much like the wolf has been put in charge with guarding the hen house.
Many people find it odd, at best, that the wrongdoer would be the one allowed to determine the harm caused to a victim of a fraudulent foreclosure. The Justice Department says they have taken that twisted fact into consideration. One stipulation of the agreement is that the banks in question must hire third-party consultants to determine which homeowners were taken to court or put through foreclosure unjustly in 2009 and 2010. (But, what about those people who lost homes prior to 2009?)
The consultants will be looking not only for those who lost their homes due to bank error but also those whose loan adjustment requests were unjustly denied or who fell victim to other tactics used by servicers to force foreclosures on individuals who didn't deserve them.
The Justice Department agreement has critics feeling that it is an attempt to circumvent possible actions by individual attorneys general. Many worry that the end result won't make as big of an impact as it would have if the agreements were worked out individually by the states. Let's hope that the agreement won't be the last word in the crackdown against predatory lenders and fraudulent foreclosures.
The main problem with this crackdown is that in some cases there is little that can be done to help those who without any fault of their own, fell victim to predatory lenders and fraudulent foreclosures. It could take months if not years for the largest banks to carry out their reimbursement plans, and even then the plans are unlikely to take into account all of the expenses and massive trauma caused by being forcibly evicted from a home that you've been making your payments on. Some have suffered severe financial and emotional losses as a result of foreclosures; how will the plans created by the bank reimburse them for all that they've lost? The reimbursement is a good first step toward making some wrongs of the past right, but in many cases it will simply be too little too late. What about those cases?
Humpty Dumpty sat on a wall,
Image via Wikipedia
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.
Threescore men and threescore more,
Cannot place Humpty Dumpty as he was before.