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FED: Payment Agreement on Track

The Federal Reserve Board published a report Monday defending and showing the progress of the Independent Foreclosure Review (IFR) and subsequent Payment Agreement between the board and 15 large mortgage servicers.

Between April 2011 and April 2012, the Office of the Comptroller of the Currency (OCC) and the Federal Reserve issued enforcement actions against 16 mortgage loan servicers for inadequate foreclosure and mortgage loan servicing practices.

The actions compelled the servicers to hire independent consultants to conduct individual file reviews to determine if borrowers had suffered unwarranted financial damage and were eligible to be compensated.

After nearly two years of the consultants combing through each individual file, concerns began be raised that compensation was not going to reach borrowers who had been damaged because the review was taking too long.

Because of the length of time the review was taking and because the files that had been reviewed did not present a pattern systematic malfeasance, the OCC and the Federal Reserve Board entered into a settlement with fifteen of the sixteen servicers under investigation.

The Payment Agreement required large mortgage servicers to provide approximately $10 billion in cash payments to eligible borrowers and other foreclosure prevention assistance. The servicers agreed to provide $3.9 billion in direct cash payments to borrowers and approximately $6.1 billion in foreclosure prevention assistance.

The Report defended the Federal Reserve’s approach to making sure that injured borrowers are compensated as quickly as possible.

“The Payment Agreement provides the greatest benefit to consumers in a timelier manner than would have occurred under the IFR and ensures that servicers cannot ask or require borrowers to waive any legal claims against their servicer as a condition of payment.”

But the suspension of the IFR and institution of the Payment Agreement has come under fire from lawmakers in recent weeks. In April Congressman Elijah Cummings (D-Md.), ranking Democrat on the powerful House Committee on Oversight and Government Reform, sent a letter to committee chairman Darrell Issa (R-Calif.)requesting a hearing on the matter.

“It is unclear why the regulators believed it was in the best interests of borrowers to end the IFR when high error rates were identified during preliminary reviews, and more detailed reviews had been prepared to identify the full extent of harm,” Cummings wrote.

The Payment Agreement has resulted in the largest total cash payout of any federal banking regulatory foreclosure-related action to date.

About Author: Derek Templeton

Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.

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