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Payment For Banks' Foreclosure Errors Could Be As Little As $500

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A group of borrowers who experienced wrongful foreclosure will get compensation from an independent review board, the Office of the Comptroller of the Currency said this week.
A group of borrowers who experienced wrongful foreclosure will get compensation from an independent review board, the Office of the Comptroller of the Currency said this week.

For homeowners trying to get reparations in the wake of the foreclosure crisis, it's been a hit-or-miss experience. This week, another group of Americans bruised in the housing bust will get payouts from the banks, money meant to help them get on their feet again, but the cash may prove disappointing for many.

The money is coming from 14 banks -- including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup -- by way of the Office of the Comptroller of the Currency, a Treasury bureau supervising a program known as the Independent Foreclosure Review. The IFR grants cash compensation to borrowers who experienced wrongful foreclosure in 2009 and 2010.

The OCC announced this week the agency has chosen the borrowers who will receive payments through the IFR. According to Bloomberg, these borrowers will receive between $500 and $125,000 each, plus equity, with the biggest payouts intended for homeowners who lost a house to foreclosure when their mortgage wasn't actually in default.

The smaller payments are another example of what has been perceived as inadequate compensation now common for borrowers trying to put their lives back together in the wake of the crash. And as one consumer advocate points out to Bloomberg, even $125,000 may not be enough to guarantee financial security in certain parts of the country.

As many as 4.4 million people might be eligible for IFR-directed payments, but only a tiny fraction of those have tried to take advantage of the program. The Federal Reserve has attempted to drum up awareness of the IFR with a YouTube campaign, but its results remain unclear.

The upcoming payouts won't be the first time banks and the government have responded to homeowners' post-crash distress with underwhelming reparations. The IFR has come under criticism for not paying more to people who were unjustly denied loan modifications -- especially since many of those people ended up in foreclosure, according to American Banker.

Meanwhile, the $25 billion mortgage settlement filed in March between the U.S. government and five of the country's largest lenders has also proved disappointing for many of the people it was intended to help.

Much of that settlement money has since been appropriated by individual states to fix budget shortfalls, and more than three-quarters of a million borrowers who have lost their homes are slated to receive a maximum of just $2,000 from the settlement.

CORRECTION: The previous title of this post incorrectly implied that a homeowner could receive as little as $500 if they had been improperly foreclosed on.

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