By ARNOLD S. PLATOU
2:00 AM AKST, January 12, 2013
Nancy Shulley received a letter about a year ago that she thought might be junk mail, but, just in case, she put it in a desk drawer and eventually sent a reply.
Good thing she did.
Now, the Hagerstown woman’s letter might be the ticket to her receiving as much as $125,000 — a windfall after years of nightmarish wrangling with her bank, followed by foreclosure and personal bankruptcy.
Federal regulators announced an $8.5 billion settlement with 10 major U.S. lenders this past week in an attempt to resolve alleged sloppiness and wrongdoing in their handling of the mortgages of millions of Americans in recent years.
Under the settlement, $3.3 billion will go directly to borrowers who were in some stage of foreclosure proceedings on their principal residence in 2009 and/or 2010.
The payments could range from hundreds of dollars to any borrower to as much as $125,000 apiece.
In the Tri-State area, varying amounts of this money could go to more than 8,000 families, according to data released by federal regulators.
In Washington County alone, the data suggests, the money could go to as many as 1,752 borrowers.
But a federal source cautioned that the data is very imprecise.
In Washington County, the money won’t go to more than that number of borrowers, but it could go to fewer, said the source, who refused to comment unless neither he nor his agency were identified publicly.
Nonetheless, there is much skepticism among those who work with troubled local borrowers about the extent to which this new settlement will truly help those families.
“Would a couple thousand dollars, would a couple hundred help these people?” asked bankruptcy attorney Terri Lowery, who is based in Cumberland, Md., and has an office in Hagerstown.
“Sure,” the money would help such families with short-term needs, Lowery said.
“Would it catch them up on their mortgage? Would it get their house back? Well, no,” Lowery said.
But the settlement also provides $5.2 billion in other assistance for borrowers. This could include loan modifications and forgiveness of deficiency judgments, according to a statement from the Board of Governors of the Federal Reserve System.
Given the way many lenders have treated borrowers in recent years, Lowery and others are doubtful.
“I’m still battling with mortgage companies for people trying to get loan modifications three and four years later,” said Barb Spielman, senior housing adviser for the Hagerstown Home Store.
The independent, nonprofit organization counsels families facing foreclosure, as well as helps first-time home buyers.
And as far as using the settlement to pay each family who qualifies, but already has lost their house, “how do you find them?” asked Hagerstown attorney Alex Bognar, who specializes in bankruptcy cases.
“Most of my clients move,” Bognar said. “Bankruptcy clients are very transient.”
Lenders agree to settlement
To qualify for a slice of the $3.3 billion to be paid directly to the former borrower, the loan must have been serviced by any of the 10 lenders who agreed to the latest settlement.
The 10 lenders are Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo, according to a statement by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve Board.
In addition to being lenders, the 10 are mortgage servicers collecting monthly payments and doing such work as maintaining records and following up on delinquencies.
“The agreement ensures that more than 3.8 million borrowers whose homes were in foreclosure in 2009 and 2010 with the participating servicers will receive cash compensation in a timely manner,” the OCC and the Federal Reserve Board said in the statement.
The 10 lenders are to pay the $8.5 billion into a fund. The $3.3 billion for borrowers and the $5.2 billion to encourage the loan modifications and such will come from that.
Unlike previous settlements with lenders, this time, the borrowers won’t have to prove there was any wrongdoing involved in how the lenders handled their loans, OCC spokesman Bryan Hubbard said Thursday.
“No, we’re not examining for error,” Hubbard said.
Looking for errors was the driving point of the so-called Independent Foreclosure Review ordered in April 2011 by federal banking regulators.
They required 14 banking organizations — including the 10 that have settled — to hire independent consultants to do a comprehensive review “to identify whether borrowers who were in the foreclosure process during 2009 and 2010 suffered financial injury due to errors, misrepresentations, or other deficiencies,” the Federal Reserve Board said.
“If the review finds that financial injury occurred, the borrower may receive compensation or other remedy,” the board said.
As a result of the consultants’ work, the 14 banking organizations began mailing letters in November 2011 to the 4.4 million borrowers across the nation who had been identified as “potentially eligible for an independent review.”
In the letter, each borrower was asked whether he or she wanted the independent review necessary to determine whether their loan had been handled wrongly.
Few replies to letters
Nearly 8,700 of those letters were mailed to people in the seven-county Tri-State area.
As it turned out, few people replied.
Just 476 borrowers — out of the 8,698 area residents sent letters — requested the independent foreclosure review, federal data shows.
Of the 476, a total of 91 came from Washington County borrowers; 154 from those in Frederick County, Md.; 121 from Berkeley County, W.Va.; 40 from Jefferson County, W.Va.; seven from Morgan County, W.Va.; 60 from Franklin County, Pa.; and three from Fulton County, Pa.
Of the 4.4 million letters sent out nationwide, just 495,000 borrowers requested the special reviews.
The 10 lenders, who have now settled, sent out 3.8 million of those letters, federal officials said. They said they haven’t determined yet how many of the 495,000 were replying to letters just from those 10 lenders.
The independent consultants began detailed reviews of all 495,000 cases about a year ago.
But the process has been going too slowly, Comptroller of the Currency Thomas J. Curry said in a statement this past week.
“It has become clear that carrying the (review) process through to its conclusion would divert money away from the impacted homeowners and also needlessly delay the dispensation of compensation to affected borrowers,” Curry said.
So after negotiations with all 14 of the lenders, 10 settled and the independent reviews of the loans involving them are being ended. Negotiations with the other four — Ally Financial, HSBC, OneWest Bank and Everbank — continue, as do the reviews of loans involving them.
“Our new course of action will get more money to more people more quickly, and it will speed recovery in the nation’s housing markets,” Curry said.
Who will receive money?
How — and by whom — will it be decided which borrower gets how much money?
And, for that matter, how much money?
In essence, if you received one of those Independent Foreclosure Review letters in late 2011 or in 2012, you’re probably in line to get some money, even if you didn’t reply.
“Eligible borrowers will receive compensation whether or not they filed a request for review form, and borrowers do not need to take further action to be eligible for compensation,” the Federal Reserve Board said in a statement.
So you don’t need to do anything.
If you’re eligible, regulators said, you’ll be hearing soon from a company hired to do this work.
“Borrowers will be contacted by the end of March,” Hubbard said. The contact will be made “primarily in writing — probably slow mail,” he said, referring to postal mail.
Though many such people probably have moved, it’s “not very hard” to find them, he said. “Banks do a very good job of knowing who owes them money and tracking them. ... They may have a checking account, credit card. It’s not as complicated as other people make out.”
When the initial contact letter arrives, it “may include the check” in the amount of money for which you qualify, Hubbard said.
To determine how much money each borrower should get, several “categories of errors that could have occurred, based on general loan attributes” are being established by the OCC and the Federal Reserve, Hubbard said.
The categories “are not set in stone yet,” Hubbard said, declining to say what is being discussed. He said many of the details still have to be worked out.
What has been decided includes that the 10 mortgage servicing companies “are going to sort their borrowers into those categories, and the OCC and the Fed (Federal Reserve) are going to validate the sorting,” Hubbard said.
Asked whether regulators will examine every case to make certain each has been put into the correct category, Hubbard said, “I wouldn’t characterize it that way.”
Instead, he said, “We’re going to test the methodology — and (then) sample.”
The OCC and the Fed “will determine what category gets paid what amount,” Hubbard said. Everybody in, say, Category A, will get the same amount, and so on, with each category, he said.
The 10 servicers are to place each loan in the category that nets that borrower the highest payment, based on his or her own case, Hubbard said.
And you still will be paid even if there was nothing wrong in how your loan and foreclosure were handled, he said. “You will still be paid,” he said.
But, he was asked, how can the payment of borrowers whose loans were handled correctly be justified to taxpayers?
“Remember, this isn’t taxpayer funds,” Hubbard replied. “It’s all banker money.”
So if you are a borrower who requested the loan review, you’ll be paid a higher amount?
“You’ll be in whatever category you belong in, but (if you requested the review), you’ll be paid more than someone who did not request a review,” Hubbard said.
That’s because “the request for review provides some basis for greater payment,” he said.
He said the largest payment will be $125,000.
But, he added, “There will be relatively fewer cases that result in the largest payments.”
Whatever amount you are given, you should accept, Hubbard said.
“Borrowers give up nothing by accepting these payments. They’re not waiving any rights or additional action that may be available to them,” he said.
‘Upside down’ on mortgages
As anyone except a modern-day Rip Van Winkle would know by now, America’s recession took hold about five years ago after an economic boom fueled by lenders who approved subprime mortgage loans, often without regard to applicants’ income.
So the demand for housing shot up and as it did, prices and business accelerated in much of the rest of the economy — furniture stores, appliance stores, landscapers, interior designers, carpenters and other skilled trades, and lenders.
Officially, the recession began in late 2007. But unofficially, Main Street began to feel the economic slowdown the previous year as the riskiness of all of the new loans was realized.
As demand for housing and other services fell, home prices dropped and suddenly, many homeowners were “upside down” on their mortgages. They owed more than their homes were now worth.
By 2007, “foreclosure” was becoming a household word.
In Washington County, attorneys representing lenders filed 597 notices of foreclosure, compared to 319 in 2006, according to Clerk of the Court Dennis Weaver.
The number rose to 640 in 2008 and soared to 1,037 in 2009, Weaver said. In 2010, it dropped to 657 and in 2011, it fell to 322, he said.
But in 2012, it increased again, reaching 476 by Dec. 31, he said.
‘It’s just been a nightmare’
Officially, the nation’s recession ended in mid-2009.
But in the Tri-State, as elsewhere, many homeowners still were struggling. And now, others have just started having serious financial difficulties.
So say senior housing advisor Spielman and area bankruptcy attorneys Lowery and Bognar.
Indeed, Spielman said, five of the families she saw for financial counseling this past week were coming for their first time.
Why are such problems still arising?
“Due to the economy with reduced (job) hours, marital difficulties where (people) go from two incomes to one income,” Spielman said. “And most of these people bought at the height of the (real estate) market, so they tend to be upside down.”
The problems are hitting people of all economic strata — high income, as well as low and middle, she said.
Lowery said she thinks lenders are “a little better now” in trying to help homeowners who need mortgage relief. But there still are many snags and problem paths, she said.
Struggling homeowners still are being forced to wait for several months for lenders to review the loan modification papers required, Lowery said.
“You don’t hear anything and you don’t hear anything,” she said. And then, when the lenders finally respond, “They say, ‘We don’t have your recent information, don’t have the latest pay stub.’ Well, of course they don’t — because it’s taken all this time for them to respond.”
For homeowners to handle this effectively, “they have to be really, really organized,” Lowery said. “Well, people in distress often can’t deal with that or keep up with it.”
Lowery said another problem is that some lenders have been offering what they call “loan mitigation,” but what really turns out to be a short sale, in which the lender cuts its losses by agreeing to sell the house for less than is owed.
“What it is, you still lose your house,” she said. “... So it’s just been a nightmare.”
And, Lowery said, some lenders offer loan mitigation by increasing the length of a homeowner’s normal 30-year mortgage.
“I’ve had clients get 50-year mortgages. Ridiculous,” she said. “I’ve said (to clients), ‘Please don’t do this, the bank is going to get more (interest) money from you.’ But they want to keep their house,” so they sign, she said.
With the $5.2 million in loan modification or other assistance this past week’s settlement offers borrowers, Lowery said banking regulators and lawmakers ought to find a way to remove the additional tax burden that’s been hitting homeowners who cut deals.
The problem now is that if a lender reduces a homeowner’s loan, “that causes a debt forgiveness and you can be taxed on that forgiveness,” as income, she said.
However the rules are written, attorney Bognar said the failings of homeowner aid programs in the past make him skeptical that this new one will truly be helpful.
Bognar, who said he has handled more than 1,000 area bankruptcy cases in the past five years, said he’s seen lenders “get hit with fines” previously.
But “I’ve never seen (the money) trickle down to real people,” he said. “Hopefully, (this settlement money) will get down to where it’s supposed to go.”
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