By Alan Zibel
WASHINGTON -- U.S. bank regulators said Thursday that banks
could be forced to pay up to $125,000 per customer to compensate
borrowers who were subject to foreclosure-processing errors, more
than a year after finding widespread abuses in the industry.
The Federal Reserve and the Office of the Comptroller of the
Currency released a system for compensating consumers for a slew of
errors. Those errors include starting a foreclosure for a borrower
who wasn't in default, denying loan assistance in error, a mistake
on a loan modification and wrongfully foreclosing on a member of
the military.
The compensation system announced Thursday is separate from a
$25 billion settlement that federal and state officials announced
earlier this year for foreclosure-abuse allegations with the
nation's five largest mortgage-servicing firms: Bank of America
Corp. (BAC), Wells Fargo & Co. (WFC), J.P. Morgan Chase &
Co. (JPM), Citigroup Inc. (C) and Ally Financial Inc.
The regulators' foreclosure-review process has faced criticism
from Democrats on Capitol Hill and consumer advocacy organizations
who question whether independent consultants hired to run the
process will truly give a fair review. Consumer advocates have
complained that the regulators and consultants haven't been doing
enough outreach to minority and low-income groups.
Regulators mailed out 4.4 million letters and forms to consumers
but only received requests for reviews from about 194,000
consumers. They are separately doings samples of about 145,000
consumers files.
More than a year ago, the Fed and the Office of the Comptroller
of the Currency required 14 large mortgage-servicing companies to
hire consultants to evaluate their foreclosure practices. Consumers
who suffered "financial injury" could be in line for compensation
after the consultants review homeowners' cases.
The review process is one of several efforts to compensate
consumers, after revelations surfaced in the fall of 2010 about
banks' use of so-called robo-signers, or bank employees who signed
off on thousands of foreclosure filings and falsely claimed to have
personally reviewed each case.
The regulators also extended the deadline for consumers who want
to apply for the review until September 30. The previous deadline
had been July 31.