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Independent Foreclosure Review By The Numbers -- Goldman Sachs and Morgan Stanley


11 of the 14 banks involved in the Indpendent Foreclosure Review reached a settlement with the OCC and the Fed. Not too long ago, I wrote about the payments data released by ProPublica.

I just came across a chart published by the Federal Reserve. It details the payment agreement for Morgan Stanley (Saxon Mortgage) and Goldman Sachs (Litton Loan). During the 2009-2010 eligibility period, the two banks processed 223,758 foreclosure files.

Of those borrowers, 63 were servicemembers foreclosed upon when they were protected by the Servicemembers Civil Relief Act. 49 lost their homes and received $125,000.00 in compensation. 14 saw their foreclosures rescinded or halted. They each received $15,000.00.

Another 68 borrowers were foreclosed upon even though they were never in default. We may never know how these files were flagged for foreclosure because the settlement of the IFR halted the reviews. Don't forget that the OCC and the Fed haven't decided whether they can or will release any of this data to the public. (Protip: they won't release the data.) If anyone had a solid lawsuit against their lender that would survive the generally short statute of limitations on consumer lawsuits, then these 68 borrowers are those people.

The compensation received for this category? Between $5,000.00 and $125,000.00. 55 of these files were flagged as "in process" and netted the $5,000.00 payment. 10 were flagged as "rescinded." Those borrowers received $15,000.00. The other 3 were homes that were taken from their owners -- people who had never defaulted on their loans. Those three people received $125,000.00 each.

This is a sample set of 223,000 files out of 4 million total files. If there were 131 completely avoidable errors in this set of files, then how many are there in the entire pool?

If the Goldman/Morgan set only had 131 total errors, then perhaps these numbers wouldn't be as shocking. However, the entire chart demonstrates that these two servicers simply did not care about the accuracy of their files or the procedures in place to prevent wrongful or prohibited conduct.

1,244 borrowers in this set sought protection under federal bankruptcy laws and the servicer either initiated or completed a foreclosure while the automatic stay was in effect. There is absolutely no reason why this should be the case. The Bankruptcy Noticing Center must have the correct contact information for these major servicers. It might even have an email address that is set up to receive a notice of a bankruptcy filing.

If we assume that the servicers must have known that their customers were filing bankruptcies, then what's the excuse for violating the automatic stay? If a home is actively in foreclosure and the borrower is not making payments, then any bankrutpcy judge in the world would grant a motion for relief from the stay. These are not complex documents -- a few pages and some exhibits will win the day.

But, for some reason, these servicers failed at the simple task of flagging a file for a bankruptcy filing. Was it a software glitch that caused the problem? Were the proper human systems not in place? We will probably never know. A look at the numbers reveals one possible reason -- fixing the problem is more expensive than violating the law. Those 1,244 borrowers who sought protection under federal bankruptcy laws received a total payout of $9,467,400.

9.5 million dollars out-of-pocket isn't that much money when you consider that the sum was being paid as part of a settlement with federal regulators. Morgan Stanley and Goldman Sachs get to continue to do business and will continue to post massive profits. The aggrieved borrowers? Well, most of them received $4,650.00. For an automatic stay violation. Had those borrowers fought those stay violations in court, I'm willing to bet that they would have received more money than that.

This is why it is important to take action when your rights are violated. Letting the bank do as it pleased did not help any of those 1,244 borrowers in bankruptcy. At the end of the day, the bank got caught, got a slap on the wrist, and has moved on. 1,244 individual actions filed against these servicers would have had a bigger impact than this settlement with the feds.