The Federal Reserve has announced that 96,000 homeowners were underpaid when they received their initial settlement checks from the Independent Foreclosure Review. New checks, which will represent the remaining amount due, will be mailed around May 17. Borrowers whose mortgages were serviced by subsidiaries of Morgan Stanley and Goldman Sachs comprise the 96,000 who were underpaid.
I find this revelation to be utterly unsurprising. I also wonder how it was determined that people were underpaid. After all, the entire point of the settlement was that the reviews were never completed. People were arbitrarily put into recovery categories by the banks -- the outside consultants had absolutely no involvement with determining how much each borrower received. Although the Fed has stated that Rust Consulting erroneously issued the short checks, there are more than 96,000 people involved in the settlement that feel they were underpaid.
At the end of the day, this is another example of how our regulatory system has failed to adequately regulate the banks. People who lost their homes due to improper foreclosure practices are receiving a few hundred dollars for their trouble, and the banks that caused the problem are paying a portion of a $9.6 billion dollar settlement. When broken down between the 14 banks involved, this amounts to a slap in the face for borrowers and a slap on the wrist for banks.
This is such a problem that legislation has been introduced in the U.S. House of Representatives. The legislation seeks to establish an independent reviewer that will provide oversight and ensure full compliance with the terms of the Independent Foreclosure Review Settlement. In hindsight, this should have been done when the IFR was announced. I also doubt that it will ultimately do too much good at this point. My hope is that, going forward, we'll see legislative solutions like this one operating in tandem with regulatory solutions.