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Released: July 13, 2012

Serious flaws in servicers’ program threaten help for borrowers

Contact: .(JavaScript must be enabled to view this email address), Consumer Action (301) 718-2511 Deidre Swesnik, National Fair Housing Alliance (202) 277-4437

Washington, DC – The recent Government Accountability Office (GAO) report on the Independent Foreclosure Review (IFR) process reveals serious flaws that threaten to undermine the program’s success. The IFR is intended to compensate borrowers for mistakes their mortgage servicers made in the foreclosure process.

The report critiques the public outreach that has been conducted for the IFR, under which federal banking regulators have ordered 15 major mortgage servicers to review loans in foreclosure in 2009 and 2010 in order to find any mistakes.  The IFR has the potential to help as many as 4.3 million families.

“Communities of color have suffered higher rates of foreclosure and disproportionate loss of wealth because they were targeted for risky, unsustainable loans,” said Debby Goldberg, Special Project Director, National Fair Housing Alliance. “It is critically important that these borrowers have fair access to the IFR program.”

GAO points out that the regulators have not asked the servicers to gather the information needed in order to see what types of borrowers are requesting help.  “Without this basic information,” Goldberg continued, “we’ll never know whether borrowers in communities hardest hit by the foreclosure crisis are being helped by this program.” 

The IFR process is the most significant effort the federal government has launched to help people who should never have faced foreclosure at all, or who were harmed by errors their servicers made in the process.  The GAO report identifies major problems with the servicers’ approach to informing borrowers of their right to have their loan files reviewed. 

These problems include materials that are hard to understand and fail to tell borrowers what compensation they may receive if harmed.  This may account for the program’s very low response rate. Very limited outreach has been done in languages other than English, which may prevent borrowers with limited English proficiency from getting a fair shot at help through the program. 

In addition to the problems documented by GAO, the IFR program has a number of other serious flaws.  To correct these, the regulators must:

• Eliminate unfair distinctions among groups of borrowers who all faced foreclosure because of mistakes made by their mortgage servicers.  For example:
• Borrowers who completed applications and qualified for but were wrongly denied a loan modification should receive the maximum $125,000 plus lost equity;
• Borrowers whose servicers initiated or completed foreclosure while they were paying under a forbearance plan should be eligible for compensation;
• Increase the compensation provided for other types of servicer errors;
• Provide an appeals process for borrowers;
• Make information available to borrowers, their advocates, and the public about the method used to determine whether borrowers suffered harm;
• Report regularly to the public on the progress of the file reviews and the errors that have been found; 
• Extend the application deadline through the end of the year. 

“This may be the last, best chance for homeowners - and former homeowners - to see some compensation for the gross inequities they have suffered. Regulators owe it to these families to ensure that the financial remedies fit the offense.”  Ruth Susswein, Consumer Action

“It is crucial to get this right. The banking regulators must fix the problems with the IFR, both for the sake of the borrowers who were harmed and for the country’s economic recovery.”  Ellen Taverna, National Association of Consumer Advocates

“The regulators must change the compensation structure to make it fair.  Very few homeowners will qualify for the maximum compensation of $125,000. The vast majority of homeowners who lost their homes to foreclosure when they asked for, were qualified for, and should have been given loan modifications will receive a maximum of only $15,000.  This simply is not fair.”  Bruce Marks, Neighborhood Assistance Corporation of America

“It has been over a year since the OCC and the Federal Reserve began this process, and yet the vast majority of California families harmed by abusive foreclosure practices are no closer to relief. The regulators must extend the deadline, reexamine and redouble their efforts, and demand better outreach to ensure that all communities have equal access to compensation for harm suffered due to shoddy and unfair servicing practices."  Kevin Stein, California Reinvestment Coalition

About Consumer Action

Consumer Action has been a champion of underrepresented consumers nationwide since 1971. A nonprofit 501(c)3 organization, Consumer Action focuses on financial education that empowers low to moderate income and limited-English-speaking consumers to financially prosper. It also advocates for consumers in the media and before lawmakers to advance consumer rights and promote industry-wide change.

By providing financial education materials in multiple languages, a free national hotline, and annual financial product and services, Consumer Action helps consumers assert their rights in the marketplace and make financially savvy choices. More than 8,000 community and grassroots organizations benefit annually from its extensive outreach programs, training materials, and support.

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Consumer Action (www.consumer-action.org)
California Reinvestment Coalition (www.calreinvest.org)
Center for Responsible Lending (www.responsiblelending.org)
Empowering and Strengthening Ohio’s People (www.esop-cleveland.org)
National Association of Consumer Advocates (www.naca.net).
National Consumer Law Center (www.nclc.org)
National Council of La Raza (www.nclr.org)
National Fair Housing Alliance (www.nationalfairhousing.org)
National People’s Action (www.npa-us.org)
Neighborhood Assistance Corporation of America (www.naca.com)
Neighborhood Economic Development Advocacy Project (www.nedap.org)