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OCC Follies: Troubled Borrowers Get Shafted Yet Again

Rust Consulting underpays harmed borrowers in the latest Independent Foreclosure Review 'mistake'

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Remember, there was no way for the banks to make payments based on actual harm. First, they never completed the reviews, remember? Second, even if they had figured out who was harmed, the amount agreed to be paid per bank was too small relative to the number of people who’d suffered. Recall the estimates from the Bank of America whistleblowers, of serious harm averaging 30% to 40% across the files they’d seen.

We’ve had numerous complaints from readers, with details, about why they should have gotten more. The Times has an example too:

But anecdotal evidence suggested that Rust had encountered separate problems, beyond Goldman and Morgan. Housing advocates point to the case of Ms. Lawson.

Under a federal law, banks are required to obtain court orders before foreclosing on active-duty members like Ms. Lawson’s husband. Some military members who were wrongfully evicted are eligible to receive up to $125,000 in compensation through the settlement. Ms. Lawson, whose home near Jacksonville, Fla., was sold at a foreclosure auction in 2010, said the “piddling amount” of $600 was an injustice.

Mr. Cummings, the congressman from Maryland, also notes that Rust does not include an explanation of what homeowners are owed under the settlement.

“Borrowers are not being told how their compensation under the settlement is determined,” he said, “so it’s impossible for them to know whether they are receiving the correct amount, which just adds insult to injury.”

Earth to Representative Cummings, this is well-meaning but obtuse. This failing isn’t Rust’s doing. It is fundamental to how the settlement was arrived at. The party to blame for the mystery and nearly always too small payment amounts is the OCC. And providing explanations along with checks was never part of the deal.

Determining who got what was inherently arbitrary. From our transcript of the April 17 Senate hearings on the IFR:

Sen. Menendez: Well, it’s a question that we’re going to look to work with you. I know that Congresswoman Waters also is joining us in this effort from the House side, and Ireally want to know that. Because if people went through harm, then at the end of the day you have to have the resources to address the harm. And to come to a figure that is defective, from my perspective, because you don’t have the sound science, so to speak, to make that determination, is at best a guess. Miss Goldberg, do you have any comment on that?

Ms. Goldberg, NFHA: I’d say it’s probably a low-ball guess.

Goldberg provided more detail in response later in the hearing:

Ms. Goldberg, NFHA: I’d like to correct one thing, Senator Merkley, which is thatwhen the independent reviews were stopped, the decision was made not to find harm, not to worry about finding harm. So the categories, as I understand it, the categories that borrowers were placed in for purposes of payments was based on how far along they had gotten in the loss mitigation process, or the foreclosure process, with their servicer. So the fact that a particular borrower was in a particular category wasn’t a reflection of whether they were actually harmed, but just kind of what stage of the process they had gotten to.

The Times does provide a good recap of Rust’s numerous lapses:

Once Rust issued the first round of checks in April, it failed to move money into the bank account used for the settlement. The decision prevented some homeowners from cashing their checks.

Rust played down the mistake at first, saying in a private e-mail to banks that the “perceived issues” with a handful of checks lack “merit,” according to a copy of the e-mail reviewed by The New York Times.