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Major Banks Settlement With Federal Government Provides Little Compensation to Homeowners

January 8, 2013

Vincent Howard and our Redlands foreclosure defense attorneys work every day with mortgage borrowers who have been misled and mistreated by their lenders and loan services. So we were interested to see the announcement yesterday that the major lenders have settled claims of foreclosure abuses with the federal government. As the Los Angeles Times reported, ten lenders agreed to pay a total of $8.5 billion to banking regulators, to settle charges that the major banks mishandled foreclosures and loan modifications. Of that money, $5.2 billion will fund loan modifications and other programs intended to help borrowers with trouble making their payments. The other $3.3 billion will be paid directly to 3.8 million borrowers who were headed for foreclosure in 2009 and 2010.

The ten banks participating are most of the 14 who were originally came to an agreement with the government in April of 2011. That agreement, with the Office of the Comptroller of the Currency and the Federal Reserve, created the Independent Foreclosure Review that required lenders to hire consultants to review foreclosures from 2009 and 2010. Nearly 500,000 borrowers signed up, expecting to be compensated if the consultants found bank misconduct. But the projects never ended up giving any compensation to borrowers, and the cost of the consultants was very high. As a result, regulators agreed to this settlement instead. The four who opted out are Ally, HSBC, Everbank and OneWest (formerly IndyMac) Bank; they may still join in.

The financial industry largely praised the move, while consumer advocates gave the settlement mixed reviews. Financial analysts said the certainty of the settlement -- as opposed to the uncertainty created by the reviews -- would help banks stop worrying about regulatory or criminal threats and focus on rebuilding the housing market. Consumer advocates appreciated that the settlement provides at least some compensation for homeowners, but said it was likely not enough. Though the $3.3 billion sum is large, the number of people affected means each borrower will likely get no more than a few thousand dollars. (The number could be as low as a few hundred or as high as $125,000, depending on the borrower's history.) Critics also said that ending the Independent Foreclosure Review stopped consultants from identifying the causes of the mortgage crisis and making them public knowledge.

Vincent Howard and our Tustin foreclosure defense lawyers agree that this settlement is inadequate for many borrowers. If you have lost your home to a wrongful foreclosure, $3,000 is nowhere near adequate compensation, either for your actual lost money and equity, or violations of your rights. The San Francisco Chronicle noted that even after accepting the money, eligible homeowners retain their right to sue -- and we recommend that borrowers consider it, when they feel they were not fairly compensated. At Howard Law, P.C., our Norco foreclosure defense attorneys focus our practice on just this type of lawsuit. Another problem with this settlement is that it ends a chance to cast a light on the abuses that were endemic in the mortgage lending system during the housing bubble. It's convenient for banks that they can close the book on that chapter without negative publicity, but learning how and why it happened is the best way to keep it from happening in the future.

If you believe you were misled or outright lied to when you took out your mortgage, or have been railroaded into foreclosure without adequate review, don't wait to call Vincent Howard and the team at Howard Law for help. You can reach us through our website or call toll-free at 1-800-872-5925.

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