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The Bottom Line – What Homeowners Fight For

Paul Kiel at Pro Publica, who has done good work on the foreclosure crisis, follows up on the story I wrote about earlier today, concerning OCC’s attempt to basically whitewash the investigation into servicer practices. There’s a serious disconnect between findings and remedies here. You have the head of the OCC announcing the finding of “critical deficiencies” in servicer operations, and also saying that they didn’t result in anything major (??) and that the penalty will be relatively mild.

Both The Wall Street Journal and Huffington Post reported this morning that the OCC wants to go easier on the banks than other regulators, specifically the FDIC. The OCC has proposed “relatively modest fines,” reports the Journal. It’s not clear what would be considered “modest” for a bank the size of Bank of America, the largest servicer, and one with a poor track record […]

There are signs in Walsh’s testimony of the OCC’s more favorable views toward servicers. A review of about 2,800 homeowner foreclosure cases, he’s careful to say, found that servicers had indeed been “in contact with troubled borrowers and had considered loss mitigation alternatives, including loan modifications.” Only a “small number of foreclosure sales” were illegitimate, he said. The people in foreclosure were actually delinquent.

What Walsh’s analysis misses is the possibility that homeowners fell behind because of their servicer’s errors. For example, homeowners have been pushed into delinquency after the servicer wrongly told them that to be considered for a modification they should miss payments.

Paul is right. There’s a whole spectrum of servicer-driven defaults, from appraisal to illegal fee-laddering and on and on, that isn’t getting covered here at all. The assumption is made from the get-go that loans in default are there for a reason, much like the conceit that a defendant on trial had to have done something wrong.

And so at a time when loans in foreclosure are at an all-time record, with clear evidence that servicer abuse, both driving borrowers into default and refusing to modify loans for qualified applicants, is a part of that record, OCC wants to basically give them little more than a slap on the wrist.

The coalition at Crime Shouldn’t Pay has come up with a bottom line for the minimum requirements of a resolution that would meet their satisfaction, and you should read it:

1) Problem: Bankers are kicking millions of Americans to the curb instead of modifying our loans in a way that benefits both homeowners and our economy.

Solution: Bankers shouldn’t decide who gets loan modification and who is left out. All responsible homeowners deserve fair, affordable, permanent loan modifications. Save our homes. Save our economy.

2) Problem: One out of four American families owes more for their home than what it is worth. This puts the brakes on the economic recovery and makes our communities unwelcoming places to live.

Solution: Ensure forward momentum for our economy, our workers and our nation. Restore fairness to the housing market by charging homeowners what their house is really worth, not the inflated figures bankers invented to make record profits.

3) Problem: Homeowners are set up to fail by big banks, before they even begin the fight to live in their home. While homeowners jump through loan modification hoops, the greedy bankers proceed with foreclosure and eviction.

Solution: No seizing homes without investigating all other options, including loan modification and opportunities to appeal any loan denial.

4) Problem: Millions have already lost their homes, including countless numbers illegally.

Solution: Homeowners that have been forced from their home due to fraudulent and criminal behavior by greedy bankers must receive financial restitution for the full market value of their home or the return of their home if not already sold.

5) Problem: There is no one to make bankers follow the laws.

Solution: Attorneys General must require the big banks, and not state governments, to pay for any enforcement needs and capacities laid out in the settlement.

6) Problem: Throughout the entire mortgage process, from origination to servicing and modification, banks and bank executives have consistently broken the law. But so far, not a single bank or bank executive has had to face justice or pay for their crimes.

Solution: As the top law enforcement officials in our states, Attorneys General must seek criminal penalties as they discover bankers and servicers who broke the law. Banks and bank executives are not above the law and should not escape the consequences for their illegal actions.

These are the minimum requirements and anything less violates the rule of law. Period. You can register your support for this at the link.

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David Dayen

David Dayen