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President Obama assured the nation in his State of the Union speech on Tuesday that the housing market is “healing,” although mortgage credit remains extremely tight. But that’s not too surprising considering that banks have been forced to shell out $2 billion for a government-mandated paper chase.
The case in point is the so-called Independent Foreclosure Review, which was initiated in 2010 by the Office of the Comptroller of the Currency (OCC). Allegations of banks’ abusive foreclosure practices in the wake of the 2008 housing collapse prompted the agency to order a review of customer files. A total of 14 mortgage servicers were required to hire independent consultants for the job.
Fourteen months later, not a single case of improper foreclosure was resolved—despite consultant payments exceeding a whopping $2 billion. Comptroller Thomas J. Curry, by way of explanation, said the review “proved to be much more complicated than anyone anticipated.” To his credit, Curry called a halt to the profligacy.
The OCC originally planned for the consultants to review a sample of 159,000 cases for patterns of abuse. But government officials instead went all out to recruit complainants. The “outreach efforts” included a $35 million campaign involving multiple letters; advertising in print, radio, and television in target communities; public service announcements; and grassroots efforts by numerous community groups and counseling organizations.
Lo and behold, more than 500,000 borrowers requested said review.
Exacerbating matters was the fact that the review encompassed a multitude of “checkpoints” related to the extraordinarily complex state and federal regulation of mortgages and foreclosure.
To be sure, a number of court cases have revealed many questionable foreclosure practices by mortgage companies. But the OCC had little to show for all the resources sunk into the foreclosure review. Consequently, officials decided to scrap the review in favor of negotiating a mass settlement of sorts.
Under new consent orders, the mortgage servicers will pay $3.6 billion to millions of eligible borrowers, as well as $5.7 billion in foreclosure prevention assistance. Payments will not take account of individual circumstances but will instead be based on 11 broad types of foreclosure errors that might have occurred. The checks are slated to go out next month.
Two billion dollars probably doesn’t seem like a whole lot of money to an Administration that wracks up a trillion-dollar deficit each year. But consumers pay a big price in the availability of products and services when misguided government schemes waste private-sector capital.