Frustration with the failed execution of various weakly-constructed legal settlements stemming from widespread foreclosure fraud bubbled over today into a protest at Justice Department headquarters that culminated in homeowners being arrested.

Using tactics and rhetoric familiar from 2011’s Occupy Wall Street demonstration, a group of activists and foreclosed homeowners marched on the Justice building in downtown Washington, D.C. According to tweets and photographs from activists on the scene, protesters moved past a police barricade and attempted to establish a sit-in, at which point police began arresting homeowners and activists.

Why the renewed fervor? Despite agreeing to various settlements since 2008 requiring a total of $5.7 billion in payments to homeowners, “banks have paid less than half” that amount to date, according to the Washington Post:

Critics point to the 2011 agreement the Office of the Comptroller of the Currency (OCC) and the Fed struck with more than a dozen mortgage servicers as a prime example of the dysfunction. […]

After 12 months, no homeowners had received a dime. But the eight consultants managing the process on behalf of the banks were paid nearly $2 billion. […]

Problems are also emerging in the largest mortgage settlement — a $25 billion deal between state and federal authorities and five banks accused of using forged paperwork to quickly foreclose on struggling homeowners.

The banks agreed to pay $1.5 billion directly to borrowers. No checks have been sent, though the first are likely to go out later this month.

While banks have been slow to fulfill the meager direct payments provisions of the settlements, they’ve spent much more heavily to get properties empty and ready for resale.

These settlements are very small in relation to the problem they’re meant to ameliorate and the allegations they’re meant to justly resolve. Even if the banks had complied with alacrity, the $5.7 billion total direct payments to homeowners tallied by the Post pales in comparison to the total harm caused by “robo-signing” and other forms of mortgage origination and foreclosure fraud.

New York Attorney General Eric Schneiderman, a primary negotiator of the 2012 settlement, has announced he will sue Wells Fargo and Bank of America for failure to comply with the terms of that $25 billion package. But just $1.5 billion of that settlement was ever intended to come as direct compensation to “robo-signing” victims and other wrongfully foreclosed homeowners.

The total value of underwater mortgages in the market when that settlement was finalized – three years after the financial crisis – was estimated at $700 billion. The 2012 settlement was divisive at the time, with critics arguing it was insufficient and designed in such a way that banks could abuse its terms. Subsequent settlements have been similarly afflicted and ineffective.

Today, President Obama announced that he will nominate Rep. Mel Watt (D-NC) to be the director of the Federal Housing Finance Agency (FHFA), the agency that regulates housing giants Fannie Mae and Freddie Mac.

As a veteran of the House Financial Services committee, Watt is well-qualified to lead the agency. Among his accomplishments on the committee is the spearheading of one of the earliest federal efforts to combat predatory lending, and had Watt’s bill passed, it could have prevented some of the worst practices that led to the housing crisis.

Watt’s nomination comes at a crucial time for the agency, as the companies it regulates currently guarantee approximately two-thirds of new mortgages. FHFA is currently run by Ed DeMarco, an unelected and unconfirmed civil servant who is using his virtually unlimited powers to reshape housing finance in America. These decisions will impact nearly all American families whether they own their home, hope to become homeowners someday, or are simply seeking affordable rental options.

Yet instead of using Watt’s nomination to begin an open discussion about the future of housing finance, the right is already signaling they will gin up a misinformation campaign in an attempt to derail his nomination.

The first salvo appeared in a blog post from the Wall Street Journal bluntly called “Obama, Housing, and Blacks.” (Is it a coincidence that this piece was published on the same day that the Administration nominated Watt, who is African-American, and was once a chairman of the Congressional Black Caucus?)

The Journal piece begins by referencing an Urban Institute report describing the massive loss of wealth by Hispanic and black families during the Great Recession, a large part of which was due to collapsing home prices. But the piece blames this loss of wealth on “federal policies that pushed lenders to loan money to people unlikely to be able to repay it.” The piece goes on to claim that “well-intentioned housing policies aimed at low-income minorities” have only “[saddled] a lot of minorities with foreclosed homes, huge debt burdens and bad credit scores.”

Read more

Our guest blogger is David Sanchez, a special assistant with the economic policy team at the Center for American Progress Action Fund.

Could federal regulators and their cast of private contractors possibly do a worse job of getting relief to families who were wronged during the foreclosure crisis?

First, private contractors botched their initial review of banks’ foreclosure files. Then, the Office of the Comptroller of the Currency cut a bad deal with mortgage servicers that pays very little – about two-thirds of borrowers will receive only $300.

Finally, adding insult to injury, borrowers are having trouble cashing the disappointingly small checks!

Apparently, in order for borrowers to cash the compensation checks they received, their bank must contact Rust Consulting, the company handling the distribution of compensation funds for the U.S. government in order to verify the checks are cashing. However, when these banks followed typical protocol and contacted the bank issuing the checks, Huntington National Bank, the issuing bank was unable to verify and give approval to cash the check.

In the grand scheme of things, this bureaucratic slip-up can be resolved fairly easily, and the Federal Reserve has assured the public that borrowers should be able to access their compensation going forward. However, this most recent debacle underscores how this entire process has failed millions of families who have already lost their homes and savings during the foreclosure crisis.

A major problem throughout this process has been poor communication and outreach to borrowers. Last summer, the General Accountability Office reprimanded the OCC for ineffective outreach to more than 4 million borrowers who could be eligible for compensation. What’s more, the closed review process by the bank contractors – for which reviewers were paid more per hour than most borrowers will end up getting in total compensation – offered borrowers no opportunity to provide additional information as the contractors were determining whether or not they were wronged and if so, the amount of compensation they were owed.

As that review process became increasingly costly and bogged down, the OCC made a deal with 13 banks which, yet again, provides little meaningful redress to the vast majority of those whose foreclosure were mishandled.

Perhaps it could be amusing – or even inspire a comedy TV show – if a small-town sheriff was bungling its affairs this badly. But it’s no laughing matter when the primary federal regulator of big-bank safety and soundness and its high-priced contractors look like the Bad News Bears.

Our guest blogger is Sarah Edelman, a Policy Analyst at the Center for American Progress Action Fund.

Amid reports that Wall Street’s largest banks are violating the terms of the mortgage fraud settlement they reached with the federal government and state attorneys general last year, California Sen. Barbara Boxer (D) is calling on regulators to investigate whether banks are complying with the settlement’s terms and a new California law meant to protect homeowners.

A report issued early in April found that the five banks subject to the settlement — JP Morgan Chase, Ally Financial, Bank of America, Citigroup, and Wells Fargo — have violated it in various ways, including by continuing to foreclose on homeowners even as they seek loan modifications. That process, known as dual tracking, was banned by California law in 2012 and prohibited by the settlement. In a letter to federal regulators last week, Boxer called for an investigation into the practices, The Hill reports:

“It is essential that you take swift action to ensure that the banks are meeting their obligations under the terms of the settlement and that struggling homeowners receive the assistance they need,” Boxer said in a letter to Attorney General Eric Holder, Secretary of Housing and Urban Development Shaun Donovan and National Mortgage Settlement Monitor Joseph Smith on Friday.

“Too many Californians already have lost their homes unnecessarily during the foreclosure crisis due to bank malfeasance or error,” she wrote.

Reports have also found that banks are still discriminating against minority homeowners, as they did in astounding numbers before the housing crisis, and are failing to sufficiently provide relief required by the settlement.

The reports are yet another indication that the mortgage settlement is coming up short of its goals, as banks have found various ways to get around the requirements that were meant to make them pay for the fraud, abuse, and discrimination they perpetuated before the housing bust and during the foreclosure crisis. Dual tracking and other practices were responsible for an untold number of improper and potentially illegal foreclosures, but after months of banks lagging on their obligations, it now seems the settlement hasn’t yet put an end to the practices.

Sen. Elizabeth Warren (D-MA) embarrassed government regulators during a Senate Banking Committee hearing on Thursday morning as she demanded to know why they won’t reveal how frequently big banks illegally foreclosed on homeowners. In January, regulators abandoned a case-by-case review of foreclosure fraud conducted by some of the nation’s largest banks in favor of a $9.3 billion settlement. Under the deal, most of the 4.4 million homeowners who were foreclosed on in 2009 or 2010 received less than $1,000 each.

Fair housing advocates and Democratic lawmakers panned the agreement, claiming that it short-circuited a more detailed review process (known as Independent Foreclosure Review) and let banks off the hook for illegally foreclosing on millions of homeowners. Regulators had initially claimed banks broke the law or made errors in 6.5 percent of all the loans reviewed, though the number has since been revised upward.

During the hearing, Warren pressed officials from the Office of the Comptroller of the Currency and The Federal Reserve for answers about how frequently banks broke the law, only to discover that regulators didn’t know the exact number before reaching their settlement and were now unwilling to publicize the error rate. “You’re saying that the [you] did not have an estimate in mind of how many banks had broken the law and how many home owners were the victims of illegal activities?” Warren asked in disbelief. She pressed for public disclosure, but was told that the information about banks’ illegal activities is proprietary and may not ever be released:

WARREN: So you have made a decision to protect the banks but not a decision tell the families who have been illegally foreclosed against?

RICHARD ASHTON (FEDERAL RESERVE): We haven’t made a decision about what information we would provide to individuals. [...]

WARREN: So I just want to make sure I get this straight. Families get pennies on the dollar in the settlement for having been the victims of illegal activities or mistakes in the banks’ activities. You now know individual cases where the banks violated the law and you’re not going to tell the homeowners or at least it’s not clear if you’re going to do that?

Watch it:

Last week, the Government Accountability Office issued a report of the reviews and concluded that regulators at the Fed and OCC gave banks “too much leeway” in how the reviews were conducted, implying that the shoddy review process led to a hastened settlement instead of a complete review process. “On Tuesday, regulators released new information suggesting that banks may have made errors in as many as 30 percent of all loans that qualified for a review,” the Huffington Post reported.

A duo of Democratic lawmakers is pressing federal regulators to release documents related to the Independent Foreclosure Reviews of loans issued by the largest banks so that the government can conduct proper oversight of the process. Massachusetts Sen. Elizabeth Warren (D) and Maryland Rep. Elijah Cummings (D) sent a letter to the Federal Reserve and the Office of the Comptroller of the Currency this week asking for documents related to foreclosure abuses carried out by big banks and mortgage lenders.

Regulators halted the independent review process earlier this year when they reached a $10 billion settlement with the banks, a decision that largely let banks off the hook for problems with their foreclosures. In the letter, which was obtained by The Hill, Warren and Cummings said they were told by regulators that documents related to the process are “trade secrets” that can’t be released without violating confidentiality agreements. Warren and Cummings took issue with that argument, The Hill reports:

“We strongly believe that documents should not be withheld from any Member of Congress based on the flawed argument that illegal activity by banks is somehow their proprietary business information,” they wrote.

“Breaking the law is not a corporate trade secret. As regulators, you identified systemic and widespread abuses two years ago, and concealing important information about these violations limits our ability to fulfill our responsibility to conduct oversight over the actions of mortgage servicing companies and to develop legislation to protect our constituents from further abuse.”

A watchdog report from the Government Accountability Office (GAO) last week found that regulators at the Fed and OCC gave banks “too much leeway” in how the reviews were conducted, implying that the shoddy review process led to a hastened settlement instead of a complete review process. Warren and Cummings also assert that the review process failed to detail how many homeowners were subject to wrongful foreclosure practices.

The $10 billion settlement was the second major deal reached between the federal government and banks over foreclosure abuses, after federal regulators and state attorneys general reached a $25 billion settlement with the five largest banks related to mortgage fraud and abuse. That settlement too has had its problems, as banks have been able to game its requirements to keep from providing the required assistance to homeowners they wronged with widespread fraud and abuse before, throughout, and after the housing crisis.

Bank of America will pay $36.8 million to members of the military it improperly foreclosed on between 2006 and 2010, according to a settlement it reached with the federal government in 2011, the Justice Department announced this week.

Bank of America was already paying 142 military members under the original 2011 agreement, but a further review required by the settlement found 155 additional military homeowners who were subject to improper foreclosures, the Justice Department said. In total, Bank of America will pay more than 300 military members, as Reuters reports:

Each of 316 service members will receive at least $116,785, plus compensation and with interest, for any home equity lost. [...]

“Our men and women in the military should not have to worry about a bank foreclosing on their home while they bravely serve our country,” Eric Halperin, Special Counsel for Fair Lending in the Civil Rights Division, said in a statement.

In 2011, federal regulators said banks may have improperly foreclosed on more than 5,000 members of the military and violated the Servicemembers Civil Relief Act, which provides certain financial protections to military members. Bank of America was also one of the five banks that reached a settlement with the federal government over widespread mortgage and foreclosure abuses. The Justice Department is still reviewing foreclosures from all five banks for violations of the Servicemembers act.

When federal regulators reached their second foreclosure fraud settlement with the nation’s largest lenders in January, lawmakers and housing advocates panned it for letting banks “sweep past abuses under the rug.” Regulators ended the foreclosure review process banks to which banks had been subject to reach the $8.5 billion settlement, allowing them to pay far fewer costs than fair lending advocates say they would have had the reviews continued.

Now, government watchdogs are also criticizing the review process and federal regulators. In a report issued this week, the Government Accountability Office said the Federal Reserve and the Office of the Comptroller of the Currency, the two regulatory agencies that oversaw the review process, gave lenders “too much leeway” in the reviews, The Hill reports:

The Office of the Comptroller of the Currency (OCC) and the Federal Reserve gave mortgage servicers and their consultants too much leeway in reviewing their mortgage loans, resulting in a complex and widely varied process that made it difficult to oversee as a whole, according to a draft GAO report obtained by The Hill. [...]

While the report explicitly does not weigh that specific decision, the GAO did find that the review process was complex and bogged down by a host of factors. Millions of mortgages were up for review, and the process ended up involving dozens of institutions, including 14 servicers, 14 third-party consultants from 7 different firms (some with subcontractors), and more than 10 law firms.

The GAO report does not criticize the settlement itself, but the implication is that the complicated review process led to a hastened settlement instead of comprehensive reviews to find out how many homeowners were wronged by foreclosure abuses. Rep. Maxine Waters (D-CA), who opposed the decision to halt reviews, said the report “confirms what I had long suspected – that the OCC’s oversight of the supposedly-independent consultants hired by the servicers was severely deficient,” and added that the process was “deeply flawed.”

This isn’t the first foreclosure settlement to be widely criticized by housing advocates. A little more than a year ago, the federal government and state attorneys general reached a settlement with big banks over foreclosure abuses that included robosigning and other fraudulent practices, but that settlement has also come up short in helping affected homeowners. Instead, big banks have gamed many of the settlement’s requirements, while there is little accounting for whether they are spending money to help homeowners in ways they were supposed to.

Florida’s Senate Banking and Insurance Committee this week approved legislation that would speed up the state’s foreclosure process, a move that would remove some protections for homeowners and could increase the likelihood of bank fraud. The committee, which passed the bill 8-2, passed similar legislation in 2012 that did not advance farther.

The bill is an effort to clear Florida’s backlog of foreclosures that piled up as a result of the financial crisis, but as we pointed out when it was introduced in February, it is likely to have unintended consequences that make it easier for banks to deceive homeowners or process unlawful foreclosures. Banks’ past efforts to speed up the process led to fraudulent techniques like robo-signing, and banks foreclosed on homes they didn’t own, homeowners that were seeking to modify their loans, or because of minor clerical errors the banks themselves had made.

While Florida does have a lengthy backlog of foreclosures, its process is not atypically long. The average Florida foreclosure takes more than 600 days to process, about the same length of time it takes the average home nationally to enter foreclosure.

Consumer advocates have pointed out many problems with the foreclosure bill. In addition to potentially inviting fraud, the bill would remove homeowners’ right to reclaim their property after an improper foreclosure. Instead, they would only be eligible for compensation.

Federal regulators earlier this year cut a settlement with the nation’s biggest banks that short-circuited an earlier review of foreclosure abuses. The new deal is meant to provide $9.3 billion in aid to distressed homeowners, while foregoing a thorough review process.

However, as the New York Times noted, that $9.3 billion headline number is much higher than the amount homeowners will actually receive:

Under the settlement, banks receive credit for the size of the outstanding loan balance, rather than the amount of actual assistance provided. For example, if a bank cut a borrower’s $100,000 mortgage debt by $10,000, the lender could then reduce its commitment under the settlement by $100,000. In a previous foreclosure settlement, the banks received credit only for the $10,000.

This obviously incentivizes banks to give small amounts of aid to homeowners with large mortgages, tallying the larger amount under the settlement while not providing much in the way of help. As Karen Weise detailed at Businessweek, the settlement also gives banks a helping hand in a variety of other ways.

“All in all, the settlement moves further away from compensating borrowers and actually identifying mistakes banks may have made,” she wrote. The Times notes that regulators initially “declined to attach any conditions to the assistance,” and were then steamrolled by the banks when they sought to add conditions later.

Rep. Maxine Waters (D-CA), ranking member of the House Financial Services Committee, has called for an investigation into why regulators decided to stop the prior settlement’s foreclosure reviews and instead opt for a new settlement. And this is certainly not the first time that banks have been able to get away with stiffing homeowners under the guise of a settlement. Last year’s $25 billion foreclosure fraud settlement has also been gamed by banks, while state legislators have siphoned off some of its funding for purposes other than helping homeowners.