A new report by a national regulator confirms that the country’s biggest banks committed widespread errors in dealing with homeowners who faced foreclosures during height of the mortgage crisis.
The report, released Wednesday, examined the Independent Foreclosure Review process, which was ordered after widespread evidence emerged about the way banks had mistreated homeowners who had defaulted on their mortgage payments.
At least 9 percent of the errors made by banks resulted in homeowners who were improperly denied loan modifications that would have staved off foreclosures, the report said.
The review also found that banks improperly charged more than half of the homeowners certain fees during the foreclosures process.
The findings were revealed in a report by the Office of the Comptroller of the Currency, which ordered the now-halted Independent Foreclosure Review. The new report offers a snapshot of the problems that mortgage holders experienced during the crisis, but it does not provide a complete picture of the morass that millions of homeowners faced when they fell behind on their mortgage payments in 2009 and 2010.
Regulators cut short the review last year, after independent consultants had looked at only a fraction of the mortgage files. Faced with criticism that the reviews were taking too long and costing too much in consulting fees, regulators decided to halt the review and negotiated a $10 billion settlement with the banks. Regulators reached that figure by estimating that banks, on average, had an 6.5 percent error rate when servicing mortgages.
The report released Wednesday, however, shows that banks were even slower than previously believed after they were ordered to review their files.
Bank of America, for example, had reviewed only 6 percent of its files, revealing a financial error rate of 8.9 percent. Wells Fargo had looked at about 9.6 percent of its records, finding an error rate of 11.4 percent. MetLife didn’t complete any reviews, but was still required to pay $85 million to compensate homeowners, based on the average estimate of suspected errors in the industry.
Since regulators required the banks in 2011 and 2012 to undertake the independent foreclosure review, the program has been a lightning rod for critics. Members of Congress and other critics say halting the review prematurely prevented regulators from revealing the full extent of the errors.
The new report shows that error rates at some banks were even more severe. PNC, a bank that had finished almost half of its review, reported an error rate of roughly 24 percent.
But another bank, Onewest, which was formerly IndyMac, the California bank that failed in July 2008 under the weight of soured real estate loans, was allowed to complete all of its reviews and had made errors in only 5.6 percent of its files.
The report by the Office of the Comptroller of the Currency comes a few days after a government watchdog criticized the way regulators negotiated certain aspects of the settlement.
In particular, the Government Accountability Office said this week that regulators failed to demand specific terms for $6 billion in foreclosure prevention measures that the banks agreed to undertake.
Many the banks told G.A.O. investigators that they could satisfy the terms of the settlement without taking on any additional prevention measures.
Regulators had discovered many issues with the way banks had handled foreclosures during the aftermath of the financial crisis, including bungled modifications and the practice of robo-signing, where reviewers signed off on mounds of foreclosure paperwork without verifying them for accuracy. Other errors ranged from wrongful foreclosures to improper fees charged to homeowners.
The settlement between the banks and regulators included $3.9 billion in cash that is supposed to be paid to 4.4 million homeowners. Banks are also required to provide an additional $6 billion in foreclosure prevention measures.
