Big foreclosure compensation, but only for the right wrongs in the US

Last month, the government released information on the compensation victims of the banks' foreclosure practices might receive. For homeowners, it turns out that it's crucially important just how the bank messed up.

Can you put a price on the damage caused by a wrongful foreclosure? Banking regulators have. And it’s $125,000. Or $60,000. Or $15,000. Or… it’s unclear.

Last November, banking regulators launched a process to force the big banks to compensate homeowners victimized by their foreclosure abuses. Many crucial details remained unclear, including how much victims might receive.

More than seven months later, regulators finally released a “framework” that shows some of the possible outcomes. It’s a list of thirteen mortgage servicing “errors,” each with its own associated form of compensation. In addition to fixing the bank’s errors, remedies include cash payments ranging from $500 all the way up to $125,000.


It turns out that, for homeowners seeking compensation for those errors and abuses, it’s crucially important just how the servicer messed up. The logic for the differences in payment isn’t always apparent and in some instances seems to defy common sense.

Two homeowners who each had their bid for a modification mishandled, for instance, could emerge with either $125,000 or $15,000 depending on just where in the process the error occurred. Regulators also left unsettled how homeowners will be compensated for so-called robo-signing, the scandal that provoked the foreclosure review to begin with.

With consumer response to the review so far underwhelming, regulators also extended the deadline for homeowners to submit a claim to September 30. It was originally April 30.


Attorneys with the Office of the Comptroller of the Currency (OCC), the primary regulator for the largest banks, told us the compensation is appropriately tailored for differing circumstances.

Readers wanting to know whether they might qualify for the foreclosure review should see our detailed list of Frequently Asked Questions. The FAQ also covers the separate National Mortgage Settlement arrived at earlier this year.


The worst errors, the ones reaping the $125,000 payouts, fit into three categories. The first covers active duty members of the military who were foreclosed on while protected by the Servicemembers Civil Relief Act. The OCC attorneys said they arrived at $125,000 for these worst errors in part because it’s close to what the Justice Department used in recent legal settlements with banks for violating that law. (In all cases, the cash compensation drops to $15,000 if the servicer returns the home to the borrower.) The $125,000 payment is the same regardless the size of the borrower’s mortgage, but since homeowners aren’t being required to waive any legal claims to accept the money, they could go to court to recoup more.

The other two categories for max compensation encompass a far broader range of homeowners: those who ended up in foreclosure as a direct result of bank error (by mishandling payments, for example) and those who were in trial modifications when the bank foreclosed.

Over the years, we’ve reported extensively on the number of ways that mortgage servicers botched the applications of homeowners trying to avoid foreclosure through a loan modification. Servicers regularly lost homeowners’ income documentation,miscalculated incomes, and generally made homeowners run a gauntlet of errors, confusion and frustration to emerge with a modification. Trial modifications, which were supposed to last only three months and easily transition to a permanent modification, often lasted many months longer only to end badly. Many homeowners were foreclosed on prematurely.

A number of the 13 categories regulators have laid out focus on these modification errors. For instance, if the bank simply never evaluated a homeowner for a modification before foreclosing and the homeowner would have qualified, then the review will result in compensation of $15,000. If the bank denied a modification in error, that’s also $15,000.

But trial modification errors result in much larger compensation, resulting in a discrepancy that seems to make little sense. If the homeowner was accepted for a trial modification, made the payments as agreed, and then the servicer foreclosed without giving a final answer, that would be $125,000. But if the servicer did give an answer to that homeowner, even if it was entirely baseless wrong denial, and then foreclosed, it would be only $15,000.

The attorneys for the OCC said there were a number of reasons that homeowners foreclosed on while in trial modifications deserve much higher compensation than those who suffered other modification abuses. The first and main reason is that there’s a clear legal distinction between the servicer plainly violating a written agreement with the homeowner and other situations. That was one of the main guiding ideas in how they allocated the compensation, they said. The highest amounts are reserved for scenarios where the servicer either violated the mortgage by improperly handling the account or didn’t abide by the trial modification agreement.

If a homeowner fell behind on her payments, applied for a modification, but was foreclosed on before the bank even gave an answer, that’s an entirely different scenario, they said. The servicer’s failure to process the loan modification application “is not the reason why the borrower was foreclosed upon,” said one attorney. “They were foreclosed upon because they were delinquent on their mortgage terms.”

Furthermore, they said, that homeowner wouldn’t have much of a shot in court if she sued, even if it’s clear that the bank broke the rules of the government’s loan modification program (as they regularly did). That’s because the largely toothless program didn’t provide homeowners with any legal recourse for rule-breaking servicers. If, however, the homeowner could point to a clear violation of a written agreement, they might be able to win damages in court.


Such reasoning “turns the idea of remediation on its head,” said Diane Thompson of the National Consumer Law Center. “Borrowers who lose their homes wrongfully for any reason suffer the same amount of financial injury and harm, whether or not they could or would bring a separate lawsuit to challenge that wrongful foreclosure.”

It also sends the wrong message to mortgage servicers, Thompson said, to have such a mild penalty for failing to consider a homeowner for a modification at all when there’s such a significant payment associated with trial modification errors. “This essentially rewards servicers for having failed to process loan mods.”

The OCC said it arrived at its framework after seeking a variety of viewpoints, including those of consumer advocates.

One major aspect of the framework that remains unclear is what might be offered as compensation for robo-signing. The foreclosure review was prompted by revelations that the major banks had filed thousands of false affidavits in courts across the country when seeking to foreclose on homeowners. Banks have also often filed forged or flawed documents when attempting to demonstrate the right to foreclose. But the framework only says that compensation in cases where the servicer didn’t properly document the right to foreclose will be “determined on a case-by-case basis as state law dictates.” The OCC attorneys could give no further information about this.

We have updated our FAQ on the Independent Foreclosure Review to include a brief discussion of the framework, but homeowners wanting more information should see the framework itself and the lengthy FAQ that regulators produced about it.


To help us continue reporting on this issue, homeowners going through the process can also fill out our foreclosure questionnaire or contact us to let us know what's happening.




Making admission to IITs fair

Students of IITs are bright no doubt, but it is the IIT experience that brings out the best out of the one who entered the institute. The admission process should be such that the ‘best’ get a fair chance

More than 50 years back, Indian Institutes of Technology (IITs) were formed to provide engineering education of high standards to create able engineering manpower aimed at overcoming the poverty-ridden Indian nation. In addition to the objective of overcoming poverty, the nation had to look at making itself self-reliant in all walks of life and it was felt that it was possible only when we had a capable scientific and engineering manpower capable of not only executing projects but carry out research.

Education expenses were to be grossly subsidized at these IITs. This subsidy facilitated large number of talented students, right across the income levels and social spectrum to seek engineering education. To select the best for the limited seats, the Joint Entrance Examination (IIT-JEE) was evolved. The exam was tough and competitive and was equal playing field to students who had learnt their subjects at the 12th standard level and were quick in answering them at the IIT-JEE. Based on performance at this test, a merit list would get prepared for the students to select the stream of engineering they were to opt for. Admission to IITs was strictly on merit. No paper leak took place and everything appeared to be just to everyone. To sustain this standard over five decades is no mean performance. If changes are sought, it must be well thought out.

However, with the IT boom in the 1990s these young bright IIT graduates began to be picked up not just by universities but by IT firms in the US for employment. Hitherto they went to universities for higher education and many returned to IITs as faculty to teach and do research in their homeland. About 30% of faculty at IITs is IIT alumni. With the IT boom, competition to join IITs became severe and private coaching classes not only mushroomed all over but more so at a small town of Kota in Rajasthan, known till then for the sarees and floor tiles.

Students would concentrate on coaching rather than learning at the 11th and 12th standard classes and some even spent a year or two at Kota in preparation for the IIT-JEE. It was obvious that those who could afford these classes and reside at Kota would do so. They have looked at the education as business—focus, invest, get returns. It was only those who were so bright that they did not need rigorous coaching managed to be among the small number that were given admission out of two to three lakh aspirants. Many among those who missed a seat were equally bright; it was just that in that particular “one-day match” these aspirants fared marginally less than their potential.

When you pay much attention to your 11th and 12th standard course, there is an overall development. If you focus only on the JEE, it is at the cost of that development. IITs are not institutions churning out robots; they are to bring out thinking persons with all-round interests and abilities. Therefore IITs themselves have been thinking for some time now of how to make 11th and 12th standards relevant.

With this as background, let us jump to the “compromise formula” that has been agreed upon by IITs and the ministry of human resources—the Two Tier Exam. The first will be to shortlist a lakh of IIT aspirants from among now five lakh engineering course aspirants based on the merit list. The second tier examination will be the IIT-JEE style but with a rider that only those who rank among the top 20% of their respective boards will be eligible for admission to IITs.

Let us now look at whether critical criteria are met or not.

Currently all together IITs offer about 10,000 seats per year. This is 10% of a lakh being shortlisted from five lakh engineering aspirants in the country. The shortlisted one lakh anyway form 20% of five lakh, which is a substantial proportion. All aspirants would be eligible barring the exceptionally bright who might have fared poorly in their 11th and 12th standards. In the current system of near continuous evaluation in the 11th and 12th standards, it leaves very little scope to exceptionally bright student from not performing well enough to fall within the 20% of his or her board exam.

Now the question that is raised is about injustice to students of boards of better standards not falling within the top 20% of their boards but are by that virtue better than many of lower standard boards. Prima facie this appears to be true. But if you see that in the first tier exam this student from boards of better standards has not performed well and has got eliminated while the one from “lower standard board” has got through, first ‘just’ filtering has taken place.

The question to ask is whether IITs must take only the ‘best’ students or should they also have a collective ‘best’ which provided equal opportunity to the collective best? Doesn’t the nation have the responsibility of providing opportunity to the bright young student who was born to less affluent parents and also has belonged to boards by virtue of being resident in a particular state or town where no other “better standard” boards exist and also cannot get coaching but like Ekalavya, has worked hard with high motivation and crossed the first tier barrier? Should he or she be deprived of the education IITs provide? One must remember that this youngster is Ekalavya.

In our democratic polity, Ekalavyas must a find place. Students of IITs are bright no doubt, but it is the IIT experience that brings out the best out of the one who entered the institute. Ekalavyas will always shine if his or her thumb is not cut off as Guru Dakshina.

(Sudhir Badami is a civil engineer and transportation analyst. He is on Government of Maharashtra’s Steering Committee on BRTS for Mumbai and Mumbai Metropolitan Region Development Authority’s Technical Advisory Committee on BRTS for Mumbai. He is also member of Research & MIS Committee of Unified Mumbai Metropolitan Transport Authority. He was member of Bombay High Court appointed erstwhile Road Monitoring Committee (2006-07).  He is member of the committee constituted by the Bombay High Court for making the Railways, especially the suburban railways system friendly towards Persons with Disability (2011- ). While he has been an active campaigner against Noise for more than a decade, he is a strong believer in functioning democracy. He can be contacted at [email protected])


Sensex, Nifty overbought for the short-term: Wednesday Closing Report

Buy the dips; the medium-term uptrend is intact. Nifty may reach 5,450

Most Asian markets opened higher on expectations that central banks from the US to China to Europe may ease monetary policies to spur economic growth. Reflecting the trend, the domestic market opened in the positive as well. The Sensex opened at 17,473 and the Nifty opened at 5,310. We had mentioned that uptrend will continue to the level of 5,500 subject to dips. We are reducing the target to 5,450. The National Stock Exchange (NSE) saw a marginally lower volume of 73.83 crore shares.

China's services firms grew at their slowest rate in 10 months in June, easing back from May's 19-month peak, as new order growth cooled. The China HSBC services purchasing managers index (PMI) stood at 52.3 in June, down from 54.7 in May, indicating a marginal expansion of activity that capped job creation at a three-month low and bolstering expectations that Beijing will deliver further policy measures to boost growth.

On the other hand, India's services sector expanded for the eighth straight month in June although at a slower pace, but new orders picked up and firms hired workers at the fastest pace in a year. HSBC's services purchasing managers' index dropped to 54.3 in June from 54.7 in May. However, it has kept above the 50 mark that signifies growth since November. The survey showed order books filled at their strongest pace in four months, riding high on domestic consumption.

With the positive news, the Sensex and the Nifty hit their day's high at 17,524 and 5,318 in initial trade.

The benchmarks went into the negative after the European market opened. The indices, after being in the green all through the morning session, hit their intraday low in the noon session at 17,372 and 5,273, respectively. European stocks were trading in the red after Germany's services industries unexpectedly shrank last month.

The indices made a strong recovery in the post-noon session and ended in the positive. The Sensex closed at 17,463 (37 points up, 0.21%) while Nifty settled at 5,303 (15 points up or 0.28%)

The advance-decline ratio on the NSE was positive at 1179:637.

The broader indices outperformed the Sensex today as the BSE Mid-cap index advanced 0.87% and the BSE Small-cap index climbed 0.88%.

The sectoral indices were led by BSE Metal (up 2.12%); BSE Realty (up 1.91%); BSE Consumer Durables (up 0.68%); BSE Capital Goods (up 0.63%) and BSE Power (up 0.61%). The sectoral losers were BSE Oil & Gas (down 0.56%); BSE Fast Moving Consumer Goods (down 0.47%); BSE IT (down 0.38%) and BSE Healthcare (down 0.08%).

The top Sensex gainers were Sterlite industries (up 5.27%); Jindal Steel (up 3.37%); Maruti Suzuki (up 2.56%); Bharti Airtel (up 2.19%) and SBI (up 1.85%). The key losers were ONGC (down 1.68%); Dr. Reddy's (down 1.57%); Wipro (down 1.47%); Hindustan Unilever (down 0.98%); Coal India (down 0.79%).

Top two A Group gainers on the BSE were-Voltas (up 7.32%) and Dish TV (up 6.01%).
Top two A Group losers on the BSE were-Sun TV Network (down 2.81%) and IPCA Laboratories (down 2.31%).

Top two B Group gainers on the BSE were-Birla Ericsson (up 20%) and Vindhya Telelinks (up 20%).
Top two B Group losers on the BSE were-Gennex Laboratories (down 11.76%) and Ontrack Systems (down 11.23%).

The Nifty leaders were Sterlite Industries (up 5.45%); Sesa Goa (up 3.92%); Jindal Steel (up 3.69%); Jaiprakash Associates (up 3.27%) and Bharti Airtel (up 2.59%). The top laggards were ONGC (down 2.24%); Asian Paints (down 1.86%); Dr. Reddy's (down 1.71%); Kotak Mahindra Bank (down 1.37%) and Wipro (down 1.35%).

Australian retail sales climbed 0.5% in May, the Australian Bureau of Statistics (ABS) reported on Wednesday. Sales were up 0.1% in April. The ABS said that most industries recorded higher retail sales in May, with cafes, restaurants and takeaway food, along with household goods the main drivers of the growth.

Except for the Shanghai Composite and Hang Seng, all other Asian indices closed in the positive. The US market will remain closed today, 4 July 2012, for the Independence Day holiday.

Back home, foreign institutional investors were net buyers of shares totaling Rs589.71 crore on Tuesday while domestic institutional investors were net sellers of equities amounting to Rs543.97 crore.

Deepak Fertilisers and Petrochemicals Corporation has put on hold a planned $350 million ammonium nitrate manufacturing project in Australia on account of  environmental, technical and economic factors. The project, announced last year, had faced local opposition on concerns over possible harm to nearby cuttlefish populations and did not get past the planning stage. The stock rose 1.36% to close at Rs138.10 on the BSE.

Delayed monsoon has added to the woes of state-run NHPC as the company witnessed 5%-10% drop in generation in the past 10 days, due to scarce rainfall in the northern parts of India. NHPC generated 6,000 million units of electricity in the first three months (April-June) of the current financial year, which is 3% lower than the same period last fiscal. The stock rose 1.88% to close at Rs18.95 on the BSE.


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