11 of the 14 banks involved in the Indpendent Foreclosure Review reached
a settlement with the OCC and the Fed. Not too long ago, I wrote about
the payments data released by ProPublica.
I just came across
a chart published by the Federal Reserve. It details the payment agreement for Morgan Stanley (Saxon Mortgage)
and Goldman Sachs (Litton Loan). During the 2009-2010 eligibility period,
the two banks processed 223,758 foreclosure files.
Of those borrowers, 63 were servicemembers foreclosed upon when they were
protected by the Servicemembers Civil Relief Act. 49 lost their homes
and received $125,000.00 in compensation. 14 saw their foreclosures rescinded
or halted. They each received $15,000.00.
Another 68 borrowers were foreclosed upon even though they were
never in default. We may never know how these files were flagged for foreclosure because
the settlement of the IFR halted the reviews. Don't forget that the
OCC and the Fed haven't decided whether they can or will release any
of this data to the public. (Protip: they won't release the data.)
If anyone had a solid lawsuit against their lender that would survive
the generally short statute of limitations on consumer lawsuits, then
these 68 borrowers are those people.
The compensation received for this category? Between $5,000.00 and $125,000.00.
55 of these files were flagged as "in process" and netted the
$5,000.00 payment. 10 were flagged as "rescinded." Those borrowers
received $15,000.00. The other 3 were homes that were taken from their
owners -- people who had never defaulted on their loans. Those three people
received $125,000.00 each.
This is a sample set of 223,000 files out of 4 million total files. If
there were 131 completely avoidable errors in this set of files, then
how many are there in the entire pool?
If the Goldman/Morgan set only had 131 total errors, then perhaps these
numbers wouldn't be as shocking. However, the entire chart demonstrates
that these two servicers simply did not care about the accuracy of their
files or the procedures in place to prevent wrongful or prohibited conduct.
1,244 borrowers in this set sought protection under federal bankruptcy
laws and the servicer either initiated or completed a foreclosure while
the automatic stay was in effect. There is absolutely no reason why this
should be the case. The Bankruptcy Noticing Center must have the correct
contact information for these major servicers. It might even have an email
address that is set up to receive a notice of a bankruptcy filing.
If we assume that the servicers must have known that their customers were
filing bankruptcies, then what's the excuse for violating the automatic
stay? If a home is actively in foreclosure and the borrower is not making
payments, then any bankrutpcy judge in the world would grant a motion
for relief from the stay. These are not complex documents -- a few pages
and some exhibits will win the day.
But, for some reason, these servicers failed at the simple task of flagging
a file for a bankruptcy filing. Was it a software glitch that caused the
problem? Were the proper human systems not in place? We will probably
never know. A look at the numbers reveals one possible reason -- fixing
the problem is more expensive than violating the law. Those 1,244 borrowers
who sought protection under federal bankruptcy laws received a total payout
9.5 million dollars out-of-pocket isn't that much money when you consider
that the sum was being paid as part of a settlement with federal regulators.
Morgan Stanley and Goldman Sachs get to continue to do business and will
continue to post massive profits. The aggrieved borrowers? Well, most
of them received $4,650.00. For an automatic stay violation. Had those
borrowers fought those stay violations in court, I'm willing to bet
that they would have received more money than that.
This is why it is important to take action when your rights are violated.
Letting the bank do as it pleased did not help any of those 1,244 borrowers
in bankruptcy. At the end of the day, the bank got caught, got a slap
on the wrist, and has moved on. 1,244 individual actions filed against
these servicers would have had a bigger impact than this settlement with the feds.