THE BLOG
01/22/2013 06:41 pm ET | Updated Mar 24, 2013

Had Foreclosure Reviews Continued, Bank Of America Would Have Owed At Least $10 Billion: Naked Capitalism

Federal bank regulators and the mortgage companies claim the recent foreclosure abuse settlement is good news for homeowners who had applied to the review program it replaces.

Banks can now quickly channel $3.5 billion to homeowners, with nearly everyone who received a foreclosure notice in 2009 or 2010 getting a cut, they have said. But as we reported last week, the reviewers who were reviewing home loans until they were abruptly laid off at the beginning of the year say that
the original goal of the reviews as described by regulators -- to distribute "appropriate compensation to borrowers who suffered financial harm" -- is now impossible to meet.

People who wrongly lost their homes will get lumped in with applicants who claimed the same, but who actually simply stopped paying their mortgage and were correctly foreclosed on, they said. And no one will be checking the banks' work.

In a lengthy and detailed post on Tuesday, Yves Smith at Naked Capitalism writes that not only will the distribution of the settlement dollars be much less fair than originally intended, harmed borrowers will get much less money.

As we will demonstrate over our upcoming series of posts, conservative estimates of damages due to borrowers under the consent order who suffered improper foreclosures from Bank of America exceed $10 billion. That contrasts with the cash portion of the settlement amount for Bank of America of $1.2 billion. The amount owing for other abusive practices would have increased this total further.

Smith said she came to this calculation after "extensive debriefing of Bank of America whistleblowers."

No interviewee estimated harm as occurring in less than 30% of the files they reviewed; one put serious harm at 80%. The interviewees did not simply describe individual borrower suffering in graphic terms (as one put it, "I saw files that would make your stomach turn.") Multiple interviewees would describe widespread, sometimes pervasive patterns of impermissible conduct.

Presumably Smith will share her math in future posts. Until then, of course, it is impossible to say whether this calculation is accurate. Given, too, that the reviews were incomplete, and that the entire process was undermined by mistakes and errors, I'm not sure how any real determination of damage is possible. That said, I'm eager to see how she arrived at the $10 billion figure.

I reached out to a Bank of America spokesman to ask about Smith's calculation but did not immediately hear back.