Enlarge This ImageWASHINGTON — Most of the checks that borrowers will receive from mortgage servicers as a result of an independent foreclosure settlement will be small and likely to disappear quickly.
More than half of the roughly 4 million borrowers affected by the settlement will receive a mere $300. Overall, three-quarters of those borrowers who were in the foreclosure process between 2009 and 2010 will receive less than $1,000.
The $9.3 billion settlement with the 13 large mortgage servicers has been heavily criticized by lawmakers and consumer advocates after the Office of the Comptroller of the Currency and the Federal Reserve Board called off an independent foreclosure review process in January to get faster payouts to borrowers.
The payout details released Tuesday are likely to add more fuel to that fire.
"To me, it's a disappointing moment in an otherwise very disappointing process," said Debby Goldberg, special project director at the National Fair Housing Alliance. The categories "make it unnecessarily complicated and it creates a big spread between folks at the top and folks at bottom with no basis for doing that."
Regulators determined how much each borrower would receive based on their status of foreclosure or modification as well as whether the borrower filed a request for review before a regulatory deadline.
While affected borrowers will receive at least some money, the amounts do not take into account whether there was actual harm, critics say.
The cash compensation spans from $300 to $125,000 per person, most of which will go out this month with the final round sent out by mid-July.
A majority of the borrowers who are receiving the lowest amount had either been approved for modification, or the servicer did not engage a modification or loss mitigation as of the end of 2011. The 1,135 borrowers receiving the highest amount of $125,000 went through full foreclosure and were either service members who did not get appropriate legal protection or were not actually in default.
Yet some borrowers still in the foreclosure process — who were not actually in default — will receive far less. Such borrowers will receive $5,000 instead of the full $125,000 if their foreclosures were not completed by late 2011.
"It's just too little, much too late given the magnitude of the problem," said John Taylor, the head of the National Community Reinvestment Coalition. "It's a dismal part of history when it comes to mortgage finance."
According to statistics provided by regulators, there were more than 600 cases where borrowers were in the foreclosure process despite never being in default. At a minimum, that statistic is likely to be used to combat claims by banks that they did not foreclose on borrowers who were on-time with their payments.
Yet the lack of details on the statistics leave open the possibility that there were other legitimate reasons behind the foreclosure, even if critics are likely to be skeptical.
Some borrowers will also receive less if they failed to file for remediation.
Nearly 90% of the borrowers identified as part of the settlement will receive a smaller amount because they did not file a request for review with regulators by the deadline. Those who did file a request received almost twice as much in cash for the same categories. For example, the 763 borrowers who filed a review request after being foreclosed on while under bankruptcy protection will receive $62,500. But borrowers in a similar situation who did not file a request — a total estimated as 5,075 people -- will receive $31,250.
"The outreach process that was conducted was very flawed … there were a lot of people who never knew this process was going on," Goldberg said. "And they certainly never knew filing would make a big difference in how much money they would get."
