Last Monday, January 7, the Federal Reserve and the Office of the Comptroller of the Currency (OCC) released the news that they and ten participating banks had decided to abandon the Independent Foreclosure Review (IFR) in favor of a new settlement. While the IFR mandates reviewers to look for evidence of illegal actions and demonstrable financial harm to borrowers, under the new settlement, regulators likely will use a simpler process to allocate money to each of the borrowers foreclosed upon by one of the settling entities in 2009 or 2010. On January 16, investment banks Goldman Sachs and Morgan Stanley, too, entered into a separate $557 million settlement with the Federal Reserve that closely resembles the Jan. 7 deal, although Goldman and Morgan Stanley were not part of the IFR process. In a move that highlights how much less labor-intensive the distribution process will be under the Jan. 7 agreement rather than the IFR, JP Morgan Chase has fired hundreds of workers in Brooklyn, New York and Florence, South Carolina, who originally had been assigned to perform the mortgage reviews.
How will the federal government determine how much money each borrower should receive under the new settlements? The OCC and Federal Reserve in their Jan. 7 statement and the Federal Reserve in its Jan. 16 statement offer only that the borrowers’ settlement amounts are contingent on the details of their foreclosure processes. According to ProPublica’s article on the Jan. 7 settlement, OCC regulators told journalists that the ten banks would slot each of their cases into separate categories to help determine the settlement amounts. Critics such as Democratic Senator Sherrod Brown of Ohio and New York Times columnist Joe Nocera are already concerned that this simplified process might mean that borrowers whom the banks seriously wronged might not get adequate compensation, as the funds may be spread rather thinly to a large number of people.
We will be sure to provide an update once the federal government releases its guidelines for the settlements.