I'd dearly love to stop writing about flawed efforts to help victims of wrongful foreclosures, such as the recently announced settlement with a group of major banks, but we're running out of chances to get this right. There are still ways to make something semi-decent out of a bad situation, but it's no surprise that this latest deal has generated howls of protest.
As I wrote late last year, the Independent Foreclosure Review -- intended to give borrowers recourse if they were foreclosed upon due to erroneous or improper behavior by their bank -- was a mess. On January 7, federal officials announced an $8.5 billion settlement intended to replace the IFR and speed relief to struggling homeowners. That's great in theory, but the early signs about this deal are not good and time to fix it is running out.
There are lots of issues, but let's begin with something really basic: Do the Feds have any sort of plan to explain the settlement and its impact to the millions of borrowers who were eligible for reviews and possible relief? As of Jan. 18 -- 11 full days after the deal was announced -- the IFR website still hadn't been updated. A banner at the top of the home page informed visitors that "The Submission Window Has Closed," and neither the home page nor the FAQ gave the slightest hint that anything had changed other than the passing of the previously-announced application deadline.
This is ridiculous. And given the other widely-aired complaints about the deal, such as the small amount of money borrowers are likely to receive, it just adds insult to injury.
Meanwhile, basic questions about how the settlement will work remain unanswered. The terms of the deal have been announced in broad terms -- $3.3 billion in cash relief to foreclosed borrowers and $5.2 billion in loan modifications and other aid to those still struggling to keep their homes -- but we know nearly nothing about how the money will be allocated. Who's going to get cash payments or loan modifications? How will these decisions be made? We have almost no clue.
And while it's nice that at least some semi-timely relief may get to some who need it, something significant has been lost: The IFR process, imperfect as it was, was a real chance to determine at least some of what happened during the foreclosure crisis, get a better idea of who was responsible, and potentially hold some of those firms and individuals accountable. That opportunity for at least a bit of accountability seems to have slipped away.
If any real good is to come from this settlement, things need to change moving forward. The process must be transparent, developments must be communicated clearly, and officials should listen to the communities affected. Changes need to happen on several fronts.
First, where the money goes is critical. In the initial IFR, there was an unlimited amount of money available to compensate eligible borrowers. With the new settlement, there seems to be a cap on the dollars available to those who have been wronged. The Office of the Comptroller of the Currency and the Federal Reserve, who have been overseeing this effort, need to create a separate uncapped pool of money available to those who suffered the most from errors and illegal practices in the foreclosure process. This will ensure that those eligible for the maximum compensation are not hindered by the new cap and pool currently available under the settlement.
The IFR also included a promise to correct the credit reports of borrowers who were injured due to errors, misrepresentations or other deficiencies in the foreclosure process. Unfortunately, we have not heard whether the new settlement will honor that promise. It must. Borrowers whose credit reports were tarnished through no fault of their own should not be haunted for years by a bad credit rating caused by their financial institution's dishonesty or ineptitude.
And all of the new information must be communicated -- clearly and energetically -- to every one of the millions of borrowers potentially affected. In its final months, the IFR outreach program improved dramatically, so the template is in place. With so much at stake, it is simply unconscionable to leave millions of families in the dark -- which is precisely where they are today.