“Only one lender, OneWest, the former IndyMac bank, would not settle, opting instead to continue with the review of loan files. After completing most of the review this year, OneWest, a California-based bank that has a former Goldman Sachs partner as its chairman, doled out a relatively modest $8.5 million and only to homeowners who had actually suffered financial harm…
…It is difficult to extrapolate too much from one bank’s review results. Still, OneWest’s decision to continue with the review turned out to be either a savvy bet or a lucky guess about the relative quality of its mortgage servicing operations. The review found that only 5.6 percent of the 192,199 homeowners with mortgages in some stage of foreclosure that were being serviced by OneWest qualified for a cash payout, according to the comptroller’s report. OneWest’s $8.5 million payment to those homeowners stands in contrast to the $114 million that Morgan Stanley agreed to pay when it settled its review, the report said. Under the settlement terms, 95,542 borrowers with loans serviced by Morgan Stanley qualified for payouts.”, New York Times, May 1, 2014
“I believe this is roughly the same team we had at IndyMac and reflects both the quality of our employees and management and demonstrates that (while it is a tragedy whenever anyone loses a home to foreclosure they wanted and tried to keep) this mortgage loan servicing settlement, which was forced on the industry, is a politically-manufactured farce. Why? Because the definition of mortgage loan servicing “errors” in the settlement agreement with the government was “negotiated” (it does not conform to the original legal/contractual obligations of the lender and borrower at the time the loan was made), so whatever the “error rate”, it does not mean that even a single home loan serviced by a single bank was in contravention of the legal/contractual terms of the note and deed of trust. In other words, the “settlement agreement error rate” is not related at all to the most important question that should be asked and answered. How many of these foreclosures violated the contractual/legal terms of the note and deed of trust, which both the borrower and lender signed and agreed to? (I would bet anyone that the answer is very few.) To this day, I have yet to see one article (including the one below) that fairly describes the fact that banks and investors absolutely want borrowers to stay in their homes and succeed; they lose a lot of time and money if they don’t. In other words, the bank/investor and the borrower’s interests are economically aligned.”, Mike Perry, former Chairman and CEO, IndyMac Bank
Big Banks Erred Widely on Troubled Mortgages, U.S. Regulator Confirms
A federal regulator confirmed on Wednesday that the country’s biggest banks committed widespread errors in dealing with homeowners who faced foreclosures at the height of the mortgage crisis, but the findings are unlikely to put to rest questions from lawmakers and others about the extent of the problems.
The report released by the Office of the Comptroller of the Currency is a post-mortem of the Independent Foreclosure Review, a costly but ultimately limited examination of how banks mistreated homeowners.
The latest analysis found that at least 9 percent of the errors discovered in the review involved banks improperly denying loan modifications that would have prevented foreclosures. The report also found that more than half of the errors related to administrative flaws and improper fees charged to homeowners during the foreclosures process.
Last year, 15 financial institutions settled with banking regulators, making payments that totaled $3.9 billion to more than four million homeowners. The settlements ended the independent reviews, which had been costly and lengthy. As part of the deals, the banks agreed to pay the homeowners, regardless of whether they had been harmed.
Only one lender, OneWest, the former IndyMac bank, would not settle, opting instead to continue with the review of loan files. After completing most of the review this year, OneWest, a California-based bank that has a former Goldman Sachs partner as its chairman, doled out a relatively modest $8.5 million and only to homeowners who had actually suffered financial harm.
While the new report from the comptroller’s office offers a snapshot of the extensive foreclosure problems during the crisis, it does not provide a complete picture of the morass that millions of homeowners encountered in 2009 and 2010.
Faced with criticism that the reviews were taking too long and costing hundreds of millions in consulting fees, banks and regulators reached settlements and stopped the process, after only a small fraction of the mortgage files had been reviewed.
The report released Wednesday shows that banks had made even less progress in reviews than previously disclosed.
Bank of America, for example, had reviewed only 6 percent of its files, revealing a financial error rate of 8.9 percent. Wells Fargo had examined about 9.6 percent of its records, finding an error rate of 11.4 percent.
MetLife did not complete any of its reviews, but was still required to pay $37 million to compensate homeowners, based on the average preliminary error rates calculated by regulators at the time the reviews were halted.
Before the reviews, regulators discovered many problems with the way banks had handled foreclosures after the financial crisis, including bungled modifications and the practice of “robo-signing,” where reviewers signed off on mounds of foreclosure paperwork without verifying its accuracy. Other errors included wrongful foreclosures and improper fees charged to homeowners.
Since 2011 and 2012, when regulators required the banks to undertake the Independent Foreclosure Review, the program has been a lightning rod for critics.Members of Congress and other critics
say halting the review prematurely prevented regulators from revealing all of the errors and have called for hearings on the matter.
The report by the Office of the Comptroller of the Currency was released a few days after a government watchdog criticized the way regulators negotiated certain aspects of the settlement.
In particular, the Government Accountability Office, an auditing arm of Congress, said this week that regulators had not demanded specific terms for $6 billion in foreclosure prevention measures that the banks agreed to undertake, in addition to the $3.9 billion in cash pay outs to homeowners.
It also said the decision to cut short the review left regulators with limited information about actual harm to borrowers when they negotiated the $10 billion settlement.
Regulators had calculated a preliminary error rate of 6.5 percent for all the banks when they negotiated the settlements last year, according to the G.A.O.
It is difficult to extrapolate too much from one bank’s review results. Still, OneWest’s decision to continue with the review turned out to be either a savvy bet or a lucky guess about the relative quality of its mortgage servicing operations.
The review found that only 5.6 percent of the 192,199 homeowners with mortgages in some stage of foreclosure that were being serviced by OneWest qualified for a cash payout, according to the comptroller’s report.
OneWest’s $8.5 million payment to those homeowners stands in contrast to the $114 million that Morgan Stanley agreed to pay when it settled its review, the report said.
Under the settlement terms, 95,542 borrowers with loans serviced by Morgan Stanley qualified for payouts.
A group of private equity investors and hedge funds, including Paulson & Company, the firm run by John Paulson who had made a fortune betting against subprime mortgages during the financial crisis, formed OneWest when they bought the assets of failed lender IndyMac from the Federal Deposit Insurance Corporation.
The group of investors, which included the private equity firm J.C. Flowers and Dune Capital, which was run by a former Goldman partner, Steven T. Mnuchin, snapped up IndyMac’s assets from the F.D.I.C. at a discount in March 2009.
It was one of the largest and most costly bank failures in American history. And the bank’s collapse could end up costing the F.D.I.C. even more money because of the Independent Foreclosure Review.
It is possible that the F.D.I.C. will have to cover at least some of the costs of the $8.5 million payouts, banking specialists said. Specifically, the F.D.I.C. could be responsible for any errors in the first three months of 2009 when the federal regulators owned IndyMac’s assets and ran its servicing operations, they said.
The sale of IndyMac was unusual because it was one of the first transactions involving lightly regulated private equity firms acquiring a bank holding company.
IndyMac collapsed after defaults mounted on mortgages and panicked customers withdrew more than $1.3 billion of deposits over 11 business days.
OneWest now operates 76 branches, according to the F.D.I.C., compared with 33 when it acquired IndyMac’s assets.
A spokesman for OneWest declined to comment.