U.S. Sets Rules for Foreclosure Compensationanks could be forced to pay as much as $125,000 per customer to compensate borrowers who were subject to foreclosure-processing errors.
More than a year after finding widespread abuses in the industry, banking regulators unveiled a plan Thursday to compensate borrowers for a wide variety of errors, including starting foreclosure for a borrower who wasn't in default, denying loan assistance in error, making a mistake on a loan modification and wrongfully foreclosing on a member of the military.
Many borrowers with foreclosure errors may not see any money. Only about 194,000 of 4.4 million borrowers sent letters last year have requested a review of their cases to date. Separately, independent consultants are doing reviews of about 145,000 consumers' files.
The compensation plan is separate from a $25 billion foreclosure-abuse settlement that federal and state officials announced earlier this year. That settlement covered the nation's five largest mortgage-servicing firms: Bank of America Corp., Wells Fargo, JP Morgan Chase, Citi Group Inc. and Ally Financial Inc.
The national servicing settlement includes $1.5 billion in cash payments, or up to $2,000 per borrower, for homeowners who went through foreclosure between September 2008 and December 2011. That was a different approach from bank regulators, who required banks to hire independent consultants who are undertaking a more detailed review of each consumer's case.
The biggest awards under the rules announced by the Federal Reserve and Office of the Comptroller of the Currency would be $125,000 per consumer. Those awards would go to consumers who lost their home without defaulting on their mortgage. Banks also must pay that same fine if they violated a federal law preventing foreclosures on the military or foreclosed on a homeowner enrolled in a loan modification plan.
Smaller awards would go to consumers who had other kinds of violations. Consumers whose applications for loan modifications were improperly denied are in line for up to $15,000. Those who were never solicited for loan help as required under federal programs are eligible for up to $1,000.
Hogan Lovells the law firm that represents the banks said Borrowers are likely to face a tough burden of proof for the larger awards.