BUSINESS

Maxine Waters Urges Congress To Investigate Foreclosure Settlement

02/05/2013 02:34 pm ET

The top Democrat on the House Financial Services Committee called Tuesday for Congress to "immediately" hold a hearing to investigate a controversial $8.5 billion foreclosure abuse settlement reached this year.

Rep. Maxine Waters (D-Calif.) said in a letter to Rep. Jeb Hensarling (R-Texas), the chairman of the committee, that she wanted bank regulators to explain what went wrong during a case-by-case review of foreclosed homes that ended "abruptly" earlier this year, why a cash settlement with the mortgage industry was reached instead, and what the deal means for struggling homeowners.

"There are many unresolved details concerning how the settlement will be implemented, including the types of remediation available, and how the direct payments and the indirect relief will flow to harmed borrowers," Waters wrote.

Waters' letter comes amid mounting concerns about the foreclosure abuse settlement, which was announced by the Office of the Comptroller of the Currency and the Federal Reserve on Jan. 7. The deal requires 11 large mortgage companies -- including such big banks as JPMorgan Chase, Wells Fargo and Bank of America -- to distribute $3.3 billion in cash payments to homeowners who received a foreclosure notice between 2009 and 2010. The lenders pledged an additional $5.2 billion to loan modification and other programs meant to prevent future foreclosures.

Last week, Waters, along with two other prominent lawmakers -- Sen. Elizabeth Warren (D-Mass.) and Rep. Elijah Cummings (D-Md.) -- wrote to urge the OCC and the Federal Reserve to turn over the results of the performance reviews by the independent contractors hired to examine the loan files, as well as detailed information about the reviews' preliminary results, to determine the extent of the harm to the 500,000 people who had applied to the Independent Foreclosure Review program.

Rep. Carolyn Maloney (D-N.Y.) has also asked bank regulators to explain what went wrong with the foreclosure reviews.

The foreclosure settlement was meant to resolve widespread complaints by homeowners who had received a foreclosure notice at the height of the housing crisis that their mortgage company, or bank, had mismanaged their foreclosure. Complaints included fees improperly charged to loan accounts and loan modification offers mishandled. Some borrowers said these errors caused them to lose their homes. In 2011, the mortgage companies agreed to conduct a systematic and independent review of these home loans.

But as The Huffington Post has previously reported, those reviews were dogged by questions about their independence and effectiveness from the very start. Former bank contractors who worked on the reviews for Bank of America, for example, claimed that they were pressured into ignoring bank errors that they discovered.

Regulators said that about 4 million people who received a foreclosure notice will receive some payment through the settlement, starting at $250 and topping out at $125,000. But with the review process ended, they say, it's impossible to separate the deserving from those who aren't.

The January deal comes on top of a settlement reached between five banks, 49 states and the federal government in 2012 to resolve alleged document forging and mortgage management, or "servicing," abuses. It replaces the Independent Foreclosure Review, a key piece of an earlier 2011 agreement that was plagued by problems from the very start.

In last week's letter, Waters had called the sudden end of the foreclosure reviews "troubling" and asked that regulators appoint an independent monitor to oversee the settlement.

In the Tuesday letter to Hensarling, Waters said that it is "essential" that the Government Accountability Office testify before the committee. The GAO was investigating the foreclosure review program at the time it was dismantled. As HuffPost previously reported, that investigation may have helped convince regulators that the program was too flawed to save. A GAO spokesman said that the report on the reviews would be available in March.

Hensarling did not immediately respond to a request for comment.

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