Serious Flaws With Foreclosure Reviews?
Drawing the line between regulatory failures and regulatory implementation failures is not an easy task.
The adequacy of the Independent Foreclosure Review process may be a matter of opinion, but it has generated a new wave of concern and criticism from customer advocacy groups.
A report from the Government Accountability Office found “serious flaws” in the Independent Foreclosure Review process, which was established to help compensate borrowers, especially borrowers in the hardest-hit communities, for mistakes made by their mortgage servicers.
GAO finds inadequacy of communication with borrowers may account for the program’s very low response rate.
According to Debby Goldberg, special project director, National Fair Housing Alliance, GAO points out the obvious. “Regulators have not asked the servicers to gather the information needed in order to see what types of borrowers are requesting help.”
That “basic information” gap makes it impossible to track the facts. “We’ll never know whether borrowers in communities hardest hit by the foreclosure crisis are being helped by this program,” Goldberg warns.
Since communities of color have suffered disproportionately higher rates of foreclosure and loss of wealth, Goldberg said, “it is critically important that these borrowers have fair access to the IFR program.”
The IFR process was launched to help people who should never have faced foreclosure at all, or who were harmed by errors their servicers made in the process.
GAO reports failures in the public outreach conducted for the IFR threaten to undermine the program’s success. Under IFR federal regulators require the country’s 15 largest mortgage servicers to review loans foreclosed in 2009 and 2010 in order to find and repair any mistakes made.
In theory IFR has the potential to help about 4.3 million families, which is why it is crucial to get this right, says Ellen Taverna of the National Association of Consumer Advocates. “The banking regulators must fix the problems with the IFR, both for the sake of the borrowers who were harmed and for the country’s economic recovery.”
The GAO report identifies major problems with the servicers’ approach to informing borrowers of their right to have their loan files reviewed.
Problems include materials that are hard to understand, lack of information about the amount of compensation borrowers may receive, and very limited outreach in languages other than English.
These IFR program problems documented by GAO, consumer advocates say, indicate there is room for new requirements mandated by the regulators.
The compensation structure is not fair, says Bruce Marks of the Neighborhood Assistance Corporation of America. As is, he adds, very few homeowners will qualify for the maximum compensation of $125,000. Most homeowners who lost their homes to foreclosure even though they should have received a loan modification, he said, will receive a maximum of only $15,000.
Regulators need to eliminate “unfair distinctions among groups of borrowers who all faced foreclosure” to compensate for the damages. Among others, these customer advocates suggest borrowers who were wrongly denied a loan modification should receive the maximum $125,000 plus lost equity. Borrowers whose servicers initiated or completed foreclosure while they were paying under a forbearance plan also should be eligible for compensation, they say.
In addition, they suggest compensation for other types of servicer errors, including an appeals process for borrowers, regular public reports on the progress of the file reviews and the errors that have been found, and extending the application deadline through the end of 2012.