GWEN IFILL: And we turn to the settlement reached today between the government and several of the nation’s largest banks over their foreclosure practices.
Margaret Warner has the story.
MARGARET WARNER: Ten of the country’s major banks have agreed to pay $8.5 billion to settle claims that they improperly foreclosed on homeowners during the height of the housing crisis. The companies include giants J.P. Morgan, Bank of America, and Wells Fargo.
The settlement stems from the way they handled some millions of foreclosures during 2009 and 2010. More than $3 billion of that will go in direct payments to borrowers foreclosed on during those years. Another $5 billion is earmarked for other assistance to homeowners who are struggling now.
In a separate housing crisis-linked settlement today, Bank of America also agreed to pay mortgage giant Fannie Mae more than $10 billion to settle claims that it sold Fannie risky mortgages.
For more, I am joined now by two people who track the housing industry from different perspectives.
Guy Cecala is publisher of “Inside Mortgage Finance,” a housing industry research publication.
And Diane Thompson is an attorney with the National Consumer Law Center.
Welcome to you both.
Diane Thompson, beginning with you, remind us first of the sorts of abuses that gave rise to this settlement.
DIANE THOMPSON, National Consumer Law Center: Fundamentally, what we’re talking about are wrongful foreclosures, foreclosures of homes that should never have been foreclosed on. People lost their homes because of the servicers, the banks’ misdeeds, because the banks of violating the law.
And the banking agencies found that there were repeated and pervasive violations of the law, everything from putting people into default who had not been, to wrongfully foreclosing upon people in the military, to failing to process people for loan modification correctly and in time, with the result that homeowners were out on the street.
MARGARET WARNER: And, Guy Cecala, when this sort of process began, the settlement process began back in 2011, even the banks admitted some of the procedures had been improper, didn’t they?
GUY CECALA, “Inside Mortgage Finance”: Definitely.
I think there were 14 banks originally part of the banking regulator settlement. And all of them basically admitted that they did things like robo-signing and other abuses of the foreclosure process.
MARGARET WARNER: Robo-signing being that either people or even machines signed these papers saying they had actually reviewed the mortgage.
GUY CECALA: Exactly, signing off on mortgage documents that they hadn’t specifically reviewed.
MARGARET WARNER: So, back — Diane Thompson, back to you.
So, there’s $8.5 billion in this settlement. How does that stack up against the total losses or damage that at least homeowners assert that they lost in these practices?
DIANE THOMPSON: I think we will never know exactly how it stacks up against the total damages.
The one big hope for this review process had been that we would finally get a complete accounting of the failures of the large banks, and there were lots of problems with that review process. And I think the agencies have correctly decided to abandon it. But what that means is that we now will never know the extent of the wrongdoing and what the actual harm was.
But I think reasonable estimates of the harm done put the total harm in the tens of — to homeowners covered by the settlement in the tens of billions of dollars, significantly more than will be paid.
MARGARET WARNER: And when Ms. Thompson talks about the original review process, this was something that, when it started in 2011, they were going to look at every loan individually. Is that right, Mr. Cecala?
GUY CECALA: Yes, the specific banks were charged with going through their foreclosure files and looking at each case and finding out what the misdeed may have been, how the borrower was hurt, and coming up with even a monetary value of what they were due.
MARGARET WARNER: So, what was the problem with that? Why does Ms. Thompson say that, in fact, it didn’t really work?
GUY CECALA: Well, the review process became drawn-out. The banks hired third-party consultant firms to do it. I don’t think they’re even half finished with the number of loans they have gone through, and we’re at the end of 2012, so it’s been going on for a year-and-a-half.
MARGARET WARNER: Ms. Thompson, Thomas Curry, the comptroller of the currency, said today when he announced this — or issued a statement saying this will get more money to more people more quickly than the original enforcement action and the process that it had kicked off back in 2011. Do you agree with that?
DIANE THOMPSON: I hope that’s the case. I think we don’t know whether or not that will be the case.
Whether or not that’s the case will really depend upon the enforcement and oversight mechanisms that they put in place.
MARGARET WARNER: Well, how will they decide who gets at least the amount that’s going to the alleged — the wronged homeowners, the 3-point — over three billion? Who will get it and how much will they get?
DIANE THOMPSON: I think it’s a very good question.
You know, if you do the numbers, it’s clear that on average people are not going to get anything like what most of us would think was reasonable compensation for losing your home. And without the individual file review, it’s not clear how they will determine who gets how much money.
DIANE THOMPSON: I do anything that speeds up the process and provides a fairer result than we were getting with the reviews is a good thing. But we’re going to need a lot of oversight and a lot of transparency if we’re going to have any public confidence in the results of this process.
GUY CECALA: It appears that the government is giving up on finding out who was actually harmed due to any of these foreclosure abuses, and just focusing on borrowers who went through the foreclosure process.
MARGARET WARNER: You mean anybody who — there were what, 3.8…
GUY CECALA: Eight million.
MARGARET WARNER: … million, nearly four million homeowners.
GUY CECALA: They’re all eligible for a piece of this, potentially?
I believe some small piece perhaps.
DIANE THOMPSON: I mean, my understanding is that the numbers — the numbers are going to vary dramatically.
They have talked about payments in the hundreds of dollars ranging to $125,000. How they’re going to decide who gets what is not clear. Some of these homeowners have already submitted complaints for review. Some of them have not.
How you equalize all of that and make sure the distribution is going to all demographic groups evenly and fairly is going to be a very difficult problem.
MARGARET WARNER: So, meanwhile, of course, foreclosures continue, Mr. Cecala. Have the banks changed the way they handle foreclosures as a result of this?
GUY CECALA: Theoretically, back in 2011, once the federal bank regulators came out with this original agreement, 14 of the largest bank services did agree immediately to change their foreclosure practices to avoid the type of abuses that we saw in the past.
They also agreed to do things like not do duel tracking of a loan modification and foreclosure at the same time. In theory, those practices went in effect in 2011, are in effect now. There have been different reports on whether that compliance has been full, but, technically, that’s the law of the land right now.
MARGARET WARNER: Ms. Thompson, you have represented — you represent quite a few people in this situation. What’s your view of whether the banks have changed their practices and are more transparent and do it properly?
DIANE THOMPSON: It’s true what Mr. Cecala says, that this has been the law of the land since 2011. It actually was the law of the land long before 2011. None of the practices that the banks got their hands slapped for were ever legal. They were always illegal.
The practices that they engaged in were always impermissible. And they have continued to engage in them since. The previous foreclosure review process wasn’t effective in stopping those practices.
We hope very much that, with this process now under way, that there will be effective enforcement of these standards, so that homeowners who are entitled to loan modifications, where the loan modifications would benefit both investors and homeowners, will actually get the loan modifications in a timely way, instead of losing their homes.
MARGARET WARNER: And that gets us back, of course, to enforcement.
Mr. Cecala, briefly, has enforcement, has regulatory oversight been toughened up since those days?
GUY CECALA: A basic problem is most of the banking regulators, certainly the ones involved in this, the Office of the Comptroller of the Currency and the Federal Reserve, are primarily safety and soundness regulators. Their primary goal in life is to make sure the banks don’t go under and cause losses to the taxpayers.
They haven’t ever been very strong on the consumer front. To some extent, that’s why Congress in the Dodd-Frank legislation several years ago created the Consumer Financial Protection Bureau, which is about to finalize new servicing regulations, with the hope that a new agency charged with protecting consumer rights, particularly in the mortgage process, will do a better job of what banking regulators…
MARGARET WARNER: Well, looks like this is certainly not behind us yet.
Guy Cecala and Diane Thompson, thank you both.