2012-04-26 "Few borrowers applying for foreclosure reviews" by Kathleen Pender
If foreclosure irregularities are as widespread as regulators, consumer advocates and Occupy protesters say, why have so few borrowers jumped at the chance to have their foreclosures reviewed and receive compensation if they were financially harmed?
That's one of the big conundrums of the foreclosure mess.
In response to the robosigning scandal and other issues, federal banking regulators last year ordered 14 mortgage servicers to send a letter to every borrower whose primary residence was in any stage of the foreclosure process in 2009 or 2010 and give them the opportunity to have their case reviewed by an independent auditor at no charge. To get the free review, borrowers have to submit a five-page form.
If the reviewer determines the borrower suffered "financial injury" resulting from "errors, misrepresentations or other deficiencies" during the foreclosure process, the servicers must provide "compensation or other remedy" to the borrower, according to the Office of the Comptroller of the Currency and the Federal Reserve, which ordered the review process. Borrowers do not have to be out of the house to be eligible.
Only 3% want review -
The letters went out to 4.3 million people in November and December, but only 3 percent have requested a review. Less than 6 percent were returned as undeliverable.
The response was so low that regulators extended the application deadline by three months, to July 31. They also ordered servicers to send a second mailing in June and mount another public awareness campaign.
Some people say the tepid response proves that foreclosure errors were rare.
"While the response rate is lower than the regulators had hoped, it is not out of line with expectations of some observers," Bank of America spokesman Rick Simon said in an e-mail.
BofA identified 1.3 million customers in the foreclosure pipeline in 2009 and 2010. "We believe the processes and basis for foreclosures were accurate in the vast majority of these cases, and to the extent customers recognize that is their situation, we would not expect a large percentage to respond to the (independent review) process," Simon adds.
Others say foreclosure errors were rampant but the review offer was poorly publicized, hard to understand and indistinguishable from the flood of junk mail people in foreclosure get from outfits - sometimes posing as government agencies - offering mortgage assistance for a fee.
"The letter came to me, but I was so overwhelmed with all these groups trying to sell you services, I may have destroyed it," says Clarindo Gomes, who was denied a modification in 2009 and was proceeding with a short sale when his house was sold in foreclosure on March 7.
Gomes decided to apply for a foreclosure review this week at independentforeclosurereview.com.
People can also request an application by calling (888) 952-9105. The form is not posted online because regulators don't want scammers to copy it.
Bryan Hubbard, a spokesman for the comptroller's office, says he "would not want to speculate" on why so few people responded to the offer. "We are not targeting a specific response rate. We want to make sure this process has the credibility it needs," he says.
Some have questioned how independent the system will be because the reviewers - companies such as Deloitte, PricewaterhouseCoopers and Promontory Financial - are hired and paid by the banks.
So far no borrowers have received a dime from the program. Remedies could range from "a few hundred dollars for minor errors to more than $100,000 plus interest in the most egregious cases where people were wrongfully foreclosed and lost their home," Hubbard says. He adds that if the payment is large, consumers might have to give up their right to other settlements.
Paul Leonard of the consumer group Center for Responsible Lending says, "The communication and outreach functions of this program so far have been plagued by a number of problems. They haven't done a good job of announcing it, penetrating the mass media, telling people to expect it and what the program will offer."
Holiday season -
Most of the letters went out between Thanksgiving and Christmas, the busy holiday season. And there was no testing of the mailing to see if consumers would open or understand it. "The letter looked very formal. The reading level was for college-educated folks," Leonard says.
The form gives several examples of situations that might have led to financial injury, such as "The mortgage balance amount at the time of the foreclosure action was more than you owed," "You were doing everything the modification agreement required but the foreclosure sale still happened," or "Fees charged or mortgage payments were inaccurately calculated, processed or applied."
But the mailing does not explain what kind of compensation people might get.
"There is a lack of clarity around what compensation means," says Helene Raynaud, vice president of development with the National Foundation for Credit Counseling.
The foundation, an association for consumer credit counseling agencies, is one of 11 nonprofit organizations that got a total of $3 million in grants from Bank of America to help raise awareness of the independent review process. The foundation has set up a toll-free hotline - (877) 339-6322 - where consumers can "get additional information, find out if they are eligible and get assistance in submitting a request," says Raynaud. She admits that applying "is kind of a lot of work."
Tiffany Norman, a San Francisco lawyer who works with distressed homeowners, says most ignored the mailing because "they are really jaded by what's going on. Most of the people were trying to get a loan modification for a couple years, they turned in the same documents over and over. They don't really think the courts or the banks are going to do anything to help them, even though they say it's independent."
That describes Pamela Hall, who has been trying to get the mortgage on her San Leandro home modified for 2 1/2 years.
Although her loan is with Countrywide/BofA, she took the time to join a group - Alliance of Californians for Community Empowerment - that was protesting foreclosures outside of Wells Fargo's annual meeting in San Francisco Tuesday. Yet she didn't bother to return the review request last year.
"I figured why waste my time. Filling out paperwork hasn't worked so far," she says. "If Wells Fargo feels like something may have been done incorrectly, why not just modify me?"
Not feeling entitled -
Rick Harper, director of housing with the Consumer Credit Counseling Service in San Francisco, speculates that some homeowners didn't return the form because they don't feel entitled to compensation.
"If you knew you had missed your payments and lost your house because of it, you probably wouldn't think that maybe somebody had made a technical error in the way they foreclosed on you and therefore there may be some opportunity to have that unwound or maybe get some monetary gain," he says.
Others, he says, simply "want to put it behind them and go on."