Last week, the Office of the Comptroller of the Currency (OCC) announced that it had come to an agreement with 10 major banks to settle the long standing charges regarding foreclosure abuse. Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo agreed to an $8.5 billion settlement with the Office of the Comptroller of the Currency and the Federal Reserve Board putting to bed a painful episode in mortgage banking. The settlement which consists of $3.3 billion cash and $5.2 billion in loan modifications and other aid will be distributed to the group of consumers who were foreclosed upon during the period when the abuses happened. This settlement replaces an inefficient process whereby the banks had engaged independent consultants to contact millions of perspective victims in hopes of identifying abuse on a case by case basis. Interestingly, very few consumers actually responded to the consultant’s communication efforts.
Gretchen Morgenson’s January 6 column in the New York Times criticized the deal as being one sided in her article “Surprise, Surprise, The Banks Win.” She feels that the settlement is too small and will not provide adequate relief because the pot will be split among a large pool of consumers. She discounts the fact that the consultants could not find many abused borrowers implying that the consultants did not do an adequate job trying to find abused consumers because they were hired by the banks themselves.
My view is that the settlement is a win for consumers, regulators, and the banks. The new approach will get funds in the hands of consumers quicker (a good thing); the regulators can point to the settlement and demonstrate that the banks paid a very heavy price for lapses in procedure and will certainly be much more careful in the future; and the banks can put this painful era behind them, quantify their losses, and move forward. Banks can now stop spending millions of dollars tracking down abused borrowers and instead focus on building capabilities to do a better job meeting the credit needs of deserving customers.