Third extension on foreclosure review program addresses concerns over its viability

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Borrowers who feel they were wronged by abusive foreclosure procedures now have until the end of 2012 to file a claim and net as much as $125,000 plus lost equity for wrongs.

Questionable program administration procedures warranted the latest extension.

The Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (Fed) recently announced the third extended deadline, now Dec. 31, 2012, for consumers to obtain a review under the Independent Foreclosure Review (IFR).

The Fed said the new deadline provides additional time for borrowers to request a review if they believe they suffered financial injury as a result of errors or abuses in foreclosure actions on their homes in 2009 or 2010 by one of the servicers covered by enforcement actions issued in April 2011.

The new deadline extension also provides more time to increase awareness about the foreclosure review process, to let more eligible borrowers know they can request a review, and to encourage the broadest participation possible — something original efforts have been criticized for not doing, according to a federal study.

Federal agencies say they will work with the servicers to expand their foreclosure review outreach and marketing efforts through the end of the year to encourage as much participation as possible and to overcome some of the flaws in the program.

Among the flaws revealed by a U.S. Government Accountability Office (GAO) study, include:

• Problems with creating the notifications. Regulators didn’t conduct readability tests or use focus groups to create the notifications. Those steps are considered best practices for consumer outreach materials.

• Readability problems. Notices sent to consumers were difficult to understand and didn’t include the possibility of compensation if the mortgage servicer was found to have botched the foreclosure.

• Most notifications were in English, which could place borrowers with limited or no English speaking or reading skills at a disadvantage.

• No data had been requested to learn and track who is responding to IFR notifications. Without such data, GAO couldn’t learn who was getting a fair shot at foreclosure abuse remediation. Overall, response to the program has been well below expectations.

To address these flaws, federal banking regulators are calling for:

• The elimination of distinctions between groups of borrowers in compensating them for mistakes made by their servicers. Currently, there are different levels of compensation for those who were wrongfully denied a loan modification and those who were foreclosed during a forbearance plan. According to the GAO, some of these distinctions and the compensation awarded are unfair.

• An increase in the compensation awarded to borrowers for other errors by servicers.

• The right for borrowers to appeal a decision.

• Borrower and public access to the methods servicers are using to determine who is eligible for IFR, and what, if any, harm has been suffered by the borrower.

• Public notification of the IFR progress and servicer errors found.

Not to be confused with the National Mortgage Settlement, the Independent Foreclosure Review also addresses abusive foreclosure practices.

Under the foreclosure review deal originally issued in April 2011, the agencies required 14 large mortgage servicers to retain independent consultants to conduct a comprehensive review of foreclosure activity in 2009 and 2010 to identify borrowers who may have been financially injured due to errors, misrepresentations, or other deficiencies in the foreclosure process.

If the review finds that financial injury occurred, the borrower may receive remediation such as lump-sum payments, suspension or rescission of a foreclosure in process, a loan modification or other loss mitigation assistance, correction of credit reports, or correction of deficiency amounts and records. Lump-sum payments can range from $500 to as much as $125,000, plus equity.

Requesting a review is free and does not preclude borrowers from taking other actions related to their foreclosures.

A mortgage servicer is not permitted to require a borrower to sign a waiver of the borrower’s ability to pursue claims against the servicer in order to receive compensation under the Independent Foreclosure Review.

More information, including how to apply online, is available at the Independent Foreclosure Review web site.

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