Reporting From Washington — Delinquent borrowers who think they've been treated unfairly by their mortgage lenders and the companies that service their loans will soon have their day in court.
Well, not court, per se. But within the next few weeks, federal regulators will announce a new complaint procedure for borrowers who think they've been unjustly harmed by errors, misrepresentations or other deficiencies in the foreclosure process.
Under the process, which is being spearheaded by the Office of the Comptroller of the Currency, aggrieved borrowers whose primary residence was in any stage of the foreclosure process between January 2009 and December 2010 will be eligible to have their cases reviewed by an independent consultant.
The new complaint procedure isn't universal. It covers just 14 servicing companies and banks, but they include some of the largest in the field — household names such as Bank of America, Wells Fargo, Citigroup and JPMorgan Chase. An estimated 4.5 million loans are in the pool.
"We are looking not just at those foreclosures that resulted in foreclosure sales, but at foreclosures that were pending at any point" during the two-year review period, acting Comptroller John Walsh said. In other words, a foreclosure action that might have been canceled for one reason or another. Or, given how long the process takes these days — a borrower in foreclosure has gone an average of 599 days since making a payment, according to Lender Processing Services — an action that could still be pending.
Either way, cases would be eligible for review by an independent consultant unaffiliated with the lender or servicer if the borrower thinks he's been given the runaround, been given wrong information or not been afforded due process under the law.
The process is intended to fix what is wrong in the loan servicing arena. That includes the issue of so-called robo-signing, in which employees and sometimes machines signed off on foreclosure documents they hadn't read or verified as accurate.
The comptroller acknowledged that many people who went through the gut-wrenching foreclosure process have been jaded by what he called "the confusion and inefficiency" of the experience. But he vowed that everyone with a complaint will be heard. It could take several months to conclude each review, he said, but anyone who requests a review will get one.
"While I wish there was a faster way to address the problems," he said, "the fact is that this process will take some time to complete."
If the auditor identifies instances of financial injury or harm, servicers will be required to develop a remediation plan and make appropriate restitution. You may not be able to get your house back if it has already been repossessed, but you could be eligible for a monetary settlement. And the payout could be substantial.
Walsh promised that since each borrower's situation is different, corrective actions will not be approached on a one-size-fits-all basis. "The nature and severity of any financial injury will be case-specific," he said, "so remedies will vary substantially."
Besides BofA, Wells Fargo, Citigroup and JPMorgan Chase, the complaint procedure covers Ally Financial, HSBC North America Holdings, PNC Financial Services, U.S. Bancorp, MetLife, SunTrust Banks, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.
All 14 were part of an enforcement order issued last spring by the Office of the Comptroller of the Currency and the Federal Reserve that directed the lenders to clean up their acts by ensuring that troubled borrowers are treated fairly and afforded every protection under the law.
"We intended to fix what was broken, compensate those who were harmed and, where appropriate, assess penalties for abuses," said Walsh, whose agency oversees federally chartered servicers that, together, handle roughly two-thirds of all mortgages.
The Office of the Comptroller of the Currency isn't the only agency addressing servicing issues. The new and still controversial Consumer Financial Protection Bureau is working with other federal and state regulators to develop "common sense" national mortgage servicing standards. And the bureau's de facto head has vowed to use its enforcement powers to make sure servicers are playing by the rules.
Raj Date, whose official title is special advisor to the Secretary of the Treasury, said the sector is "plagued by pervasive and profound consumer protection issues," not the least of which is that consumers do not get to choose their servicers, who sell loans back and forth like kids trading baseball cards.
Although a servicer can, in effect, fire a borrower by foreclosing, borrowers can't fire a servicer and switch to another. That alone reduces the incentive to treat borrowers fairly.
Until national standards are put into place, here's what borrowers can expect from the Comptroller of the Currency's complaint process: