There’s no doubt that millions of homeowners were the victims of shady foreclosure practices at the country’s biggest banks when the recession hit. So many of those people were likely hoping for a positive resolution to their woes when the government said it was going to figure out how to compensate homeowners with its Independent Foreclosure Review, an investigation into banks’ mistakes in servicing mortgages. But after waiting years for an answer, about three million eligible borrowers will only be seeing checks for between $300 and $500.

ProPublica’s Paul Kiel takes an in-depth look at how federal regulators have finally decided to distribute payments to homeowners who suffered a variety of slights at the hands of banks. It’s a process that the Government Accountability Office has already criticized as being inconsistent and overcomplex, and boy, is it.

After years of mulling over the problem and looking at piles of documents from homeowners, regulators kind of gave up on the review process earlier this year. Instead of weighing each individual case, regulators ordered banks to simply cut checks for homeowners who had been in foreclosure.

Earlier this week the Office of the Comptroller of the Currency finally published the various categories four million borrowers would fall into. Here’s how it breaks down:

Modification request approved: 1.1M homeowners will get $300-$500
Modification request denied: 0.9 M homeowners will get $1,000-$6,000
Modification request received but no underwriting decision made: 0.4M homeowners will get $400-$800
Servicer did not engage with borrower in a loan modification or other loss mitigation action: 0.9M homeowners will get $300-600
Two separate “Other loans” categories: 0.6M in this category will get $300-$500 while 36,000 will get $3,000-$125,000

Basically, most borrowers won’t get much — about 2.4 million will get just a few hundred bucks.

This is all kind of confusing as borrowers could ostensibly fall into more than one category and likely won’t be able to figure out which one they fit into until the check is in hand — and maybe not even then. The OCC has said in the past that if a borrower falls into multiple categories, they’ll get the higher amount.

It’s also odd as some homeowners who ended up losing their homes could be compensated the same as others who didn’t, based simply on which category they fall into.

The OCC says that regulators deemed the potential for error higher — and thus, resulting in a bigger payout — when the servicer denied a request. Because it’s entirely possible that a servicer didn’t make a decision on a mortgage modification or something else because the borrower didn’t complete the right documents.

In other words, it’s kind of a crapshoot, notes Alys Cohen from the National Consumer Law Center.

“People who managed to get far enough along in the [modification] process, many of them will get a decent payment,” she told ProPublica. “But people who suffered servicer neglect clearly are not getting compensation for the harm they suffered.”

The first checks will be sent to borrowers at the end of this week, and almost all payments are expected to be sent out by the end of the month.

For more on the OCC and its handling of borrower compensation, check out ProPublica’s coverage in the source link below.

For Most Homeowners, Gov’t Foreclosure Deal Brings A Few Hundred Bucks [ProPublica]

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