Ten of the nation’s largest banks agreed earlier this week to settle charges of foreclosure abuse with federal regulators. After the housing bubble burst, banks allegedly processed foreclosures improperly and mishandled homeowners’ applications for mortgage modifications. The resulting foreclosure crisis hurt all working families. Homes lost value, especially in communities of color that were among the hardest hit.
The settlement brings to an end an independent review process of foreclosures that bank regulators established in 2011. Investigative journalists raised serious questions about whether the consultants hired by the Big Banks were truly independent and whether they were giving homeowners’ claims a fair hearing. While these consultants received $1.5 billion in fees, little money had been paid to foreclosure victims.
Instead of trying to fix the independent review process, federal regulators announced this week that they will scrap it altogether. Under the settlement, banks will pay $3.3 billion in cash to foreclosure victims and offer another $5.2 billion in mortgage assistance, including loan modifications. This latest agreement follows a similar bank settlement that was reached last year by state attorneys general.
Unfortunately, the settlement funds are not enough to match the scale of the foreclosure crisis. According to The New York Times, around 4.4 million homeowners went through foreclosure during the period covered by the settlement. If the cash is divided evenly, each will receive about $750—a drop in the bucket compared with the financial and emotional damage suffered by the families who lost their homes to foreclosure.
Consumer advocates have argued that the new settlement agreement unfairly limits how much the banks may be required to pay victims of improper foreclosures. Homeowners might have received more compensation if the foreclosure review process had been conducted properly in the first place. While any help is welcome, more should be done to hold the Big Banks accountable for mishandling foreclosures.