Homeowners Out of Luck in Finding Foreclosure Relief

Bank of America is making national headlines, as six former employees filed declarations in a federal court this month alleging that the mortgage lender engaged in fraudulent practices to force customers into foreclosure.

As the largest mortgage servicer in the Home Affordable Modification Program (HAMP) when the program began in 2009, Bank of America held twice as many eligible loans as the next largest bank. But former employees are claiming that bank officials arbitrarily declined masses of applications, rewarded employees for foreclosing on homes and falsely claimed they hadn’t received documents from homeowners.

These allegations are part of a class-action lawsuit comprising 29 total lawsuits against the bank, on behalf of homeowners who made the required payments during their three-month trial modification in 2009 and 2010, and were wrongly foreclosed on.

So, in light of these continued problems with mortgage servicing and wrongful foreclosures, how can homeowners get help?

In 2011, the Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System formed the Independent Foreclosure Review (IFR), to attempt to correct the wrongdoings of lenders and make remediation payments to homeowners affected by this process. Although attempts to rectify this situation have been made, many payments made in 2012 and earlier this year reportedly fell short of covering the costs of such hardship caused by a system rife with predatory lending and government oversight.

Issues with the Independent Foreclosure Review

Despite three deadline extensions, only 11% of eligible borrowers filled out the paperwork online or through the mail by December 31, 2012, in order to qualify for consideration in the remediation process. In a report released in June 2012, the U.S. Government Accountability Office found that regulators and servicers did not adhere to best practices in consumer outreach, stating that, “without informing borrowers of what type of remediation they may receive, borrowers may not be motivated to participate.”

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Then in January of this year, federal regulators abruptly halted the IFR investigation process in favor of a direct payment system to borrowers. In a press release, the Federal Reserve Board stated that ten mortgage servicing companies, including Bank of America, agreed to pay “$3.3 billion in direct payments to eligible borrowers and $5.2 billion in other assistance, such as loan modifications.”

According to the IFR, these payments went out to about 4.2 million borrowers beginning in May of this year, and although they were originally eligible for up to $125,000 depending on their circumstance within the IFR’s framework, a majority of homeowners affected received a one-time payment of $300 to $500, slightly more if they actually did file a complaint.

So where does that leave wrongly foreclosed consumers who are seeking more help?

At this point, the remediation payments are finished, and non-negotiable — there’s no appeal process, and the IFR is directing homeowners to work with individual mortgage lenders if they feel their payment was insufficient. While the class-action suit provides excellent case studies of the frustrating experiences so many borrowers experienced, depending on the outcome, only those involved may reap any further benefits.

Image: Phil Ashley