Payments for Improper Bank Foreclosures Are No Undeserved Windfall

The Barbiere family goes through foreclosure eviction. Getty ImagesNo one disputes that the housing crash has had huge economic impacts throughout the nation. But once you start talking about evicted homeowners getting cold hard cash, tempers often flare among people who disagree about whether taxpayer dollars are going to the right place.

With a recent announcement from the Federal Reserve and the Office of the Comptroller of the Currency, though, it's hard to argue that homeowners are getting an unfair windfall. Given what happened to these homeowners, the compensation they're getting seems perfectly reasonable as a quick way to settle what otherwise could become a massive morass of litigation.

Foreclosures gone wrong

Last week, the Fed and the OCC announced a framework under which banks that improperly foreclosed on homeowners' properties would compensate homeowners for their mistakes. The figure that has drawn the most headlines is that homeowners could receive as much as $125,000 from banks under the program.

But this isn't just another government handout. For one thing, money is coming directly from the 14 mortgage servicing companies that made the mistakes. So while shareholders of the companies, which include PNC Mortgage (PNC) and Citigroup (C), could suffer, taxpayers won't see any hit.

What's fair is fair

More important, though, is that the biggest payments are reserved for situations in which homeowners actually had their homes taken away from them improperly, and in which the bank or other mortgage servicer can't undo the damage and get the home back in the hands of the homeowner.

In particular, the $125,000 payments apply to situations in which the company either violated a federal law protecting members of the U.S. armed forces, foreclosed on a borrower who wasn't in default, or failed to apply an already-approved permanent modification to the homeowner's loan. In any of these cases, homeowners would have legal recourse against the servicing companies regardless.

Moreover, if the bank or servicing company can get homeowners back in their homes, then any payments are far less. For instance, banks that rescind foreclosures and correct both credit reports and their own records would only have to pay $15,000 under the plan. That's not much when you consider the inconvenience that many homeowners have suffered from these mistakes.

Also, much smaller payments apply to less serious situations. For instance, servicers that violated the terms of federal loan modification programs by not contacting eligible homeowners would only have to pay $1,000.

Some of the complaints that homeowners have unfairly benefited from government programs related to housing are valid. But in this case, it's hard to argue that homeowners who were unfairly thrown out of their homes don't deserve what they'll get under this framework.

For more on housing and real estate: Fool contributor Dan Caplinger won't get a dime from any of these programs. He doesn't own shares of the companies mentioned. You can follow him on Twitter here. The Motley Fool owns shares of Citigroup and PNC Financial.

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You read throught these posts and you see that many people don't understand what the the banks, mortgage companies and Wall Street did to people. There are people underwater in their mortgage and no fault of theirs but the surrounding homeowners.

June 30 2012 at 10:25 AM Report abuse rate up rate down Reply

If financial institutions would have hired competent, mature individuals, those who would have fully understood and followed the laws of bank foreclosures, none of this would be necessary now. But no, they just keep hiring these vibrant young people who are are supposedly more "tech savy" and better looking. And here is the result. Yet another massive and expensive cleanup project.

June 27 2012 at 10:53 AM Report abuse rate up rate down Reply

Of course its an outrageous "undeserved windfall". Borrowers who don'to pay their mortgages should do so, and if not, move out (not become squatters in the lender's property). What a preposterous "story".

HuffPuff is truly a disgusting Obama-propagandist.

And WHY the arrogant pompous pretensious disgusting PHOTO of Obama, above (that shows up on every "story" by Obama-propagandist HuffPuff/AOL)?

June 27 2012 at 6:09 AM Report abuse +1 rate up rate down Reply
2 replies to ha6ai's comment


June 27 2012 at 10:14 AM Report abuse rate up rate down Reply
Greg and Mel

"situations in which the company foreclosed on a borrower who wasn't in default, or failed to apply an already-approved permanent modification to the homeowner's loan." ....The situations are not hard to understand! You can keep insisting the home owners did not pay their mortgages all you want, but it wont ever change the fact that is not what was happening. Get it?

August 02 2012 at 6:27 AM Report abuse rate up rate down Reply
Carole Ann

Many of these people weren't even behind and had applied for changes to there mortgages and were foreclosed on by mistake. I think these banks should pay for their mistakes the same as anybody else.

June 26 2012 at 6:28 PM Report abuse rate up rate down Reply

Just let the bankster do what they want, the GOP will back them up.

June 26 2012 at 5:28 PM Report abuse -3 rate up rate down Reply

Any person who was delinquent on their mortgage to the point of reaching the stage of forclosure should not get a windfall based on a mere technicality (robo signing, etc.). If a person was making all their payments and there was just a paperwork glitch that caused a completely above board customer to get foreclosed, then yes, the windfall is valid, in my opinion.

June 26 2012 at 5:18 PM Report abuse +6 rate up rate down Reply