I’ve talked a lot about central banker Bernanke in terms of monetary policy who, as many are aware, doesn’t clear my list of top 10 favorites (which the absence thereof suggests even more). But, to his credit, Mr. Bernanke wasn’t completely rotten. When it comes to the banking side of his dual responsibilities, he did a much better than average job of bringing order and sanity to the world of mortgage servicing in the crucial area of loss mitigation.
In 2012, the Federal Reserve, in conjunction with other regulatory agencies, began a regime of independent review of the default management and foreclosure practices at the regulated entities that ultimately resulted in a settlement agreement worth billions of dollars in relief for borrows who faced a range of foreclosure circumstances between the beginning of 2010 to mid-2011.
I’ve read discussions about this in a few different blogs and around the web that seemed to refer to settlements with the banks such as this one as some sort of taxation or, in the worst case, as bank “shake downs.” But of course, those articles lacked detail; and because I was just a little bit curious, I decided to have a look at the Fed’s Independent Foreclosure Review report that was released in July 2014 to see what it was about.
The report contains data regarding the classification of borrowers who received a payment from the settlement into approximately seven broad categories ranging from overt violations of Federal law, not to mention the moral issues that go along with those violations; to what amounted to the jacking around of troubled borrowers, filibustering or stonewalling them until they gave up trying to save their homes.
Looking at the details, I was astounded by what I saw. The first and most serious of categories where those foreclosures that where completed against service members deployed in Iraq and Afghanistan and who were entitled to special treatment under the Servicemembers’ Civil Relief Act (SCRA). Within the regulatory jurisdiction of the Federal Reserve alone, with less than 20% of all foreclosures, a total of 1,198 deployed service personnel were foreclosed upon, SCRA notwithstanding, between 2010 and 2011.
In the same time period, other borrowers protected from foreclosure by Federal bankruptcy laws were foreclosed upon a total of 28,000 times. Borrowers who were approved for a loan modification and complied with the terms of the modification, but who were never provided with a closing modification agreement were foreclosed upon 4000 times. Borrowers who were approved for modifications and made the required three trial payments where foreclosed upon 1,012,000 times. Borrowers who were not in default were foreclosed upon 670 times. Borrowers where were under the protection of a forbearance agreement were foreclosed upon 150 times.
The Independent Foreclosure Review report also contains a link to the history of the Federal Reserve’s attempts to deal with the foreclosure crisis in the US that starts with a regulatory guidance memo disseminated to regulated firms starting in April of 2007, a memo that was apparently ignored. Thereafter, a new regulatory memo was distributed approximately at six month intervals until finally in 2010, the Federal Reserve decided it had enough. Attached to the categorization of borrower circumstance at the time of foreclosure is a data set inclusive of foreclosures that were rescinded by regulators, demonstrating the seriousness with which these enforcement actions were carried out.
This categorization of borrower circumstance at time of foreclosure is quite broad and doesn’t include some of the more detailed horror stories of which I’ve heard, like people who were told they just had too much equity – too bad, so sad – or those who had to argue with the bank about previous sales of other homes in their neighborhoods; or those who got caught in the interdepartmental blackhole; or the ones who had mortgages held by Fannie Mae or Freddie Mac who had foreclosure actions filed against them even though they had been approved for HAMP, a program whose guidelines prohibited such actions.
All of this brings back memories I never wanted to revisit and I’ve shed a tear or two (actually more) recalling the horror and in consideration of the folks who got the worst of it. I managed to save my house in the end, which is the important thing. They were not so fortunate. It’s even worse thinking about service personnel deployed at the call of their country, out getting shot at by hostiles, while these bankers took their homes and evicted their families in violation of Federal law and decency, and the body of conservative politics called them deadbeats. It might be that I live in a cave or something, but I don’t recall reading any news stories about this. I would be willing to bet this kind of stuff would quickly turn into scandal fodder should average people become aware of it. Perhaps one or more of my reader-journalists could write it up for a quick headline?