Nearly 200,000 borrowers want foreclosure review
WASHINGTON (MarketWatch) -- Nearly 200,000 borrowers have requested a review of their mortgage foreclosures to see if they are eligible to receive compensation or other remedies because of errors, federal regulators said Thursday.
The Federal Reserve and the Office of the Comptroller of the Currency also extended until September 30 the deadline for borrowers to submit their request for a foreclosure review to bank regulators. The previous deadline was July 31.
The foreclosure reviews are required by major banks that were sanctioned by the OCC and other regulators in April 2011 for negligence in residential mortgage loan servicing and foreclosure processes.
Borrowers are eligible for a review if their mortgage was active in the foreclosure process between Jan. 1, 2009, and Dec. 31, 2010.
The agencies said that until the end of May 2012, nearly 4.4 million people were sent letters explaining how to request a free review of the mortgage file if they believe they have suffered financial harm because of servicer errors.
Also, as part of the review, independent consultants selected 144,817 mortgage files from the servicers' portfolios to be checked.
Based on guidance released, banks could be forced to pay between $500 and $125,000 for errors made. Those errors could include foreclosing on a borrower who was not in default on their mortgage or denying a homeowner's loan modification application even though it should have been approved under government guidelines.
Mortgage servicers, typically owned by big banks, could also be sanctioned if they failed to offer loan modification options as required by existing government programs or if the servicer gave a borrower a mortgage modification with a higher interest rate than should have been charged under the program.
The top four U.S. mortgage servicers are owned by
The agencies said the reviews will take several additional months to complete to determine if errors occurred and whether those errors resulted in financial harm.
The foreclosure review update comes as the inventory of homes in foreclosure has leveled off in the first four months of the year, according to a report from data firm CoreLogic Inc. released May 30. The number of homes in the foreclosure inventory stood at 1.4 million at the end of April, compared to 1.5 million in April 2011 and 1.4 million in March.
Lawrence Yun, chief economist of the National Association of Realtors, said that in so-called judicial foreclosure states, like New York, New Jersey and Connecticut, shadow inventories haven't moved much. Shadow inventories represent homes near or in foreclosure that haven't yet hit the market. See story on existing-home sales.
That overhang could impede a recovery there, Yun said. In those states, judges rather than trustees determines whether a property can be foreclosed.
Distressed sales, representing both foreclosures and short sales, accounted for 25% of all transactions, the lowest figure since the NAR started tracking the data in 2008 and down from 28% in April. Read about how sales of U.S. existing homes fell 1.5% in May
The foreclosure review is separate from a broad $26 billion settlement that states and the federal government reached with five big banks in February. Borrowers who believe they were wrongfully foreclosed upon are eligible to apply and receive compensation from a $1.5 billion fund established as part of that settlement. Read earlier story on settlement.