The Federal Reserve
has announced that 96,000 homeowners were underpaid when they received their initial
settlement checks from the Independent Foreclosure Review. New checks,
which will represent the remaining amount due, will be mailed around May
17. Borrowers whose mortgages were serviced by subsidiaries of Morgan
Stanley and Goldman Sachs comprise the 96,000 who were underpaid.
I find this revelation to be utterly unsurprising. I also wonder how it
was determined that people were underpaid. After all, the entire point
of the settlement was that the reviews were never completed. People were
arbitrarily put into recovery categories by the banks -- the outside consultants
had absolutely no involvement with determining how much each borrower
received. Although the Fed has stated that Rust Consulting erroneously
issued the short checks, there are more than 96,000 people involved in
the settlement that feel they were underpaid.
At the end of the day, this is another example of how our regulatory system
has failed to adequately regulate the banks. People who lost their homes
due to improper foreclosure practices are receiving a few hundred dollars
for their trouble, and the banks that caused the problem are paying a
portion of a $9.6 billion dollar settlement. When broken down between
the 14 banks involved, this amounts to a slap in the face for borrowers
and a slap on the wrist for banks.
This is such a problem that legislation has been introduced in the U.S.
House of Representatives. The legislation seeks to establish an independent
reviewer that will provide oversight and ensure full compliance with the
terms of the Independent Foreclosure Review Settlement. In hindsight,
this should have been done when the IFR was announced. I also doubt that
it will ultimately do too much good at this point. My hope is that, going
forward, we'll see legislative solutions like this one operating in
tandem with regulatory solutions.