Federal regulators have announced the start of a nationwide review of foreclosures by the nation's largest banks. The goal is to reach homeowners who've been treated unfairly or who lost their house when they shouldn't have.
Banks have started mailing out letters to upwards of 4 million homeowners. The regulators have ordered the banks to find people who have suffered financial harm due to the banks' mistakes, and to offer "remediation."
Anyone in any stage of foreclosure during 2009 and 2010 is eligible for the review, but there's some skepticism about how rigorous all this will be. The effort is being overseen by the Office of the Comptroller of the Currency and the Federal Reserve, but critics don't like the fact that the regulators are allowing the banks themselves to hire outside companies to conduct these reviews.
They say that structure puts the banks too much in control of their own policing, but an OCC spokesman says the reviews will be independent and monitored by the regulators.
Millions Of Foreclosures, Plenty Of Mistakes
Many homeowners feel they've been harmed because they didn't get what's called a loan modification.
Gary Klein, an attorney who represents homeowners, says many should have qualified for lower interest rates through President Obama's foreclosure prevention program known as HAMP, or Home Affordable Modification Program.
"There are tens of thousands of people across the country who — because the banks were doing such a bad job of implementing the program — didn't get a modification and who are therefore out of their homes," Klein says. "It's really quite shocking."
State regulators too have tracked these kinds of mistakes made by the banks or mortgage servicers, and attorneys general from around the country are negotiating a settlement with the banks aimed at improving their foreclosure prevention efforts.
One Mistake Can Create A Lot Of Damage
Christina King, a homeowner in Neenah, Wis., appears to have been the perfect candidate for President Obama's HAMP program. But Bank of America rejected her for a loan modification.
The bank now acknowledges she should have been approved. The Kings had saved up a $20,000 down payment when they bought the house but they ended up stuck in an expensive 10 percent interest rate home loan from Countrywide.
"This is not a big, huge house. This is a $130,000 house," King says.
It's a small modest home, she says, so it's not like the family bought something they couldn't afford. Rather, her husband had his hours cut back at work in the architecture and engineering field, and after that, the high interest rate loan got just too hard to keep paying.
HAMP could have allowed the Kings to lower that mortgage interest down to around 4 percent, which would have dramatically reduced her required monthly payment and made the loan affordable. But when the family tried to get a loan modification, King says, Bank of America repeatedly lost documents, and then claimed she didn't make a payment that she did make.
King says she tried to prove that she made the payment; she had the paperwork to prove it. She says she tried to talk to bank officials, and they said there's nothing they could do.
"We showed them that I had photocopies of the cleared checks, [but] no, they refused," she says.
The Kings have eight children, which they said made this whole experience that much harder. Eventually King was told she was being evicted. Whether the bank took ownership is unclear, but King says the bank put a big foreclosure sign on the front door and changed the locks.
Today, King, her husband and their eight children are living in a local church rectory. The church is letting them stay there while they look for a place to rent.
The Bank Admits Its Mistake
This September, Bank of America sent the Kings a pretty surprising letter — more than a year after they had left their house. Part of the letter reads:
"We told you that your loan was not eligible for this program because you missed a trial period plan payment. However this was incorrect. We apologize for any inconvenience this may have caused you."
What the bank is doing, homeowner attorney Klein explains, "is they're acknowledging they made a very big mistake."
The letter goes on to offer the Kings a loan modification. But the problem now is that the their house has stood vacant for a year through a Wisconsin winter, and it's a wreck.
"There's over six feet of water in the basement, the furnace is destroyed, the sewer system backed up; there's sewage in the upstairs bathroom," King says. On top of all that, she says, the floorboards in the living room are buckling up and the place is now infested with mice.
Bank Pledges To Fix The House
After NPR contacted Bank of America about this case, the bank pledged to help the Kings. Dan Frahm, a senior vice president, told NPR the bank would repair the house.
"We are committed to working with them to ensure that their home is returned to the quality that they left it in," Frahm says. "We will absolutely invest to make the repairs necessary in the home. And in terms of what happens while those repairs are underway, we'll work with the King family to determine what's in their best interest but certainly we'll support them in their need for some temporary housing."
So in this case, it appears the Kings will get their house back.
But their case was not part of the new review process that's just getting underway, and there are bound to be tens or even hundreds of thousands of people who feel they've been harmed by similar mistakes.
Each case will probably require some legwork to dig into and sort out, and that will be a major undertaking. Some housing experts are skeptical that that many people will get a response from the banks like the Kings did.