GAO: Lack of Foreclosure Reviews Led to $1.5 Billion Loss


WASHINGTON, D.C. – May 8, 2014 – (RealEstateRama) — If regulators had conducted a comprehensive review of bank foreclosure files, they could have netted an additional $1.5 billion in cash payments, the Government Accountability Office reported April 29, The Wall Street Journal reported.

The report evaluated federal bank regulators’ decision last year to cancel an extensive review of bank foreclosure-processing and loan-assistance errors. Controversial from its start three years ago, the probe was designed to evaluate settlement amounts for negatively impacted borrowers.

Because some lawmakers disputed the fact that regulators had allowed banks to hire consulting firms that had provided previous work for them, the Office of the Comptroller of the Currency and the Federal Reserve ultimately decided to settle the investigation early last year.

In response to the report, Rep. Maxine Waters, D-Calif., issued a statement that said the settlement “was reached without adequate investigation into the harms committed by the servicers. Many of the files did not contain complete data, making it impossible to know whether borrowers were disqualified from the possibility of the greatest cash payouts,” the Journal reported.

The GAO report indicated a more thorough foreclosure review could have netted as much as $5.4 billion in cash payments to consumers rather than the $3.9 billion agreed to in last year’s settlement.

However, the GAO acknowledged that completing the review would have taken two more years and cost banks about $4.6 billion, the Journal reported.

When regulators prematurely ended the reviews last year, 15 banks agreed to pay out $3.9 billion in cash to affected consumers.

The Journal reported that 3.7 million borrowers have received almost $3.3 billion in cash payments.

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