WASHINGTON – Borrowers whose homes were foreclosed on during the U.S. housing crisis will start receiving payments in April from a $3.6 billion fund under a previously announced settlement with 13 banks, regulators said on Thursday.
Certain borrowers whose mortgages were serviced by one of the 13 banks can expect to receive between a few hundred dollars and $125,000, under settlements designed to end case-by-case reviews of past foreclosures.
The Office of the Comptroller Currency and the Federal Reserve in 2011 ordered banks including Bank of America Corp, JPMorgan Chase & Co, and Wells Fargo to review individual loan files after widespread mistakes were discovered in the way mortgage servicers had processed home seizures.
The reviews were initially expected to determine which borrowers were harmed and to compensate them based on their individual experiences. The process proved slow and expensive, though, with more than $1.5 billion going to consultants.
In January regulators replaced the reviews with about $9.3 billion in settlements, including $3.6 billion in cash payments to foreclosed borrowers. Struggling borrowers will receive the rest of the money in the form of assistance, including loan modifications and forgiveness.
By the end of March, regulators will provide information about the payments to borrowers who fall into one of 11 categories, including those eligible for protections under the Servicemembers Civil Relief Act, those who were not in default when foreclosed on, and those denied a loan modification, the OCC said.
Regulators are still determining how many borrowers fall into each category, OCC Deputy Comptroller Morris Morgan said on a conference call with reporters. Once they have that figure, they can calculate how much money each borrower is likely to receive, he said.
DECLINING ERROR RATE
The OCC and the Fed have faced criticism from Congress over both the reviews and the settlement that ended them. Lawmakers have asked for more information about the consultants who conducted the reviews and what they turned up.
Regulators initially said about 6.5 percent of the loans reviewed appeared to have some errors. On Thursday Morgan said that error rate had declined, but did not provide a specific figure.
The banks are expected to try to keep borrowers in their homes, but the settlement does not mandate specific kinds of relief.
The servicers will receive varying degrees of credit for modifying first and second loans, waiving deficiency judgments, offering short sales, and other types of relief.
Three servicers subject to the original reviews, Everbank, OneWest and GMAC Mortgage, did not enter into the settlements and will continue their reviews, the OCC said.
(Reporting by Aruna Viswanatha; Editing by Gerald E. McCormick and Lisa Von Ahn)