There wasn't an elegant exit strategy to be had. Still, a planned settlement between regulators and ten major banks will put an end to a troubled foreclosure review process and send more cash to borrowers than any other regulatory effort to date.
Quick cash was the emphasis of a Monday press briefing by officials from the Office of the Comptroller of the Currency. Specifically, the OCC officials talked up $3.3 billion in direct cash payments to borrowers who faced foreclosure and $5.2 billion in other remediation. The new plan, the regulators argued, "achieves the original goals" of identifying bank servicing failures and compensating homeowners who are at risk of losing their homes.
The OCC has not yet worked out details that are at the crux of making any compensation plan fair and effective. Those details include how to divvy up the money and sort out borrowers. The OCC's previous effort to administer a program with loan-by-loan reviews proved unworkable and the administration of the new deal is likely to be the focus of considerable controversy.
Replacing the previous review process with the newly announced settlement will "result in more consumers getting more money in a quicker time frame," an OCC official said on the Monday call. The OCC insisted that, as a condition for participating in the briefing, reporters not identify by name the officials who spoke.
Under the new deal, banks will contribute to a central settlement fund, and the OCC will divvy it up based on rough profiles of bank customers. Among the categories: borrowers in bankruptcy at the time of foreclosure and those who'd been denied loan modifications.
The OCC's initial sampling suggested that 6.5% of borrowers suffered substantive harm as part of foreclosure reviews, officials said. Yet under the settlement plan, all 3.8 million borrowers whose loans were serviced by banks party to the settlement will receive compensation. So far ten servicers have agreed to participate in the settlement. Four other servicers have declined to participate so far; they can either join or complete their foreclosure reviews under the previous plan.
Neither banks nor regulators will seek to determine what errors, if any, banks in the settlement made on specific loans.
Payments will be made "whether there was harm or not," an OCC official told reporters on the call.
A $3.3 billion settlement spread among 3.8 million borrowers works out to an average cash payout of $842. The minimum payment will be $250, the maximum $125,000. Borrowers who applied for a review under the previous foreclosure review program will receive some extra payment, though the OCC has not determined how much.
Important details of the deal — which formally remains a signed agreement in principle, not yet legally binding — are still up in the air, including how much each bank will pay toward the $3.2 billion in cash.
Those payments will be far easier — and may even be cheaper — than completing the foreclosure reviews already begun. According to the OCC, banks had paid more than $1.5 billion to consultants as of mid-fall.
When a reporter on the call asked how the OCC arrived at the $3.3 billion figure, one official responded: "I think the best way to think about is that it was a negotiated amount."
Even if the deal is a nod to efficacy, it is rich by the standards of banks' $1.5 billion cash payout made under last year's national mortgage servicing settlement.
Still, borrower advocates have called the $3.3 billion payment woefully inadequate and questioned whether it provides enough money to compensate borrowers and prevent foreclosure.