In most respects, Sandy Christine's is the story of the foreclosure crisis in full.
The Wasilla, Alaska, resident and her husband both lost their jobs, then became embroiled in a dispute with their bank, Ally Financial, over fines and fees they said they didn't owe. They sought a modification of their home loan, but were rejected for reasons they claim violated rules of the program. Their house was auctioned at a foreclosure sale for much less than what they paid for it.
But unlike millions of borrowers with similar stories who will begin receiving checks this week from their mortgage company as part of a foreclosure abuse settlement -- some $3.6 billion is set to be distributed over the next few months -- Christine doesn't know when, or if, she will see the compensation she says she deserves.
That's because Ally Financial did not join the settlement, and its mortgage unit, ResCap, is mired in bankruptcy. Complicating matters, lawyers for ResCap have petitioned a federal bankruptcy judge to treat thousands of homeowner claims like any other "unsecured" creditors -- pushed to the back of the line, with payouts uncertain.
"Homeowner relief could now be subject to the whims of a bankruptcy court," said Ira Rheingold, executive director of the National Association of Consumer Advocates. "If you are looking for money, you should be incredibly frustrated."
For homeowners and their advocates, the situation for Ally Financial borrowers is yet another instance where regulators have failed to hold the financial institutions that manage homeowner accounts, known as mortgage servicers, accountable for abuses inflicted during the foreclosure process.
Common errors included misapplied fees, foreclosures processed while a borrower was in the midst of a government-sponsored refinancing and an endless cycle of lost and misplaced paperwork. Homeowners and advocates have complained for years that these abuses were systematic, but until this week little was done to officially calculate the scope.
On Tuesday, regulators released new details about the foreclosure settlement struck with 13 mortgage companies earlier this year. It included a startling number: banks made errors on 30 percent of the households whose properties were foreclosed on in 2009 and 2010. More than 244,000 of those borrowers eventually lost their homes, government data show.
These figures are all the more concerning because they likely underestimate the depth of the harm: the foreclosure reviews were never completed and were largely discredited. Insiders have described them as untrustworthy and riddled with abuses. An independent audit recently determined they were done without proper government oversight.
The scope of the mortgage settlement, and the regulator review, encompassed about 4 million borrowers who received a foreclosure notice in 2009 or 2010 from one of 13 mortgage companies, which included giants like Bank of America and Wells Fargo. These borrowers all will receive some payout -- an average of less than $1,000 each, regulators said. Not included are millions more homeowners who received a notice in another post-crash year, and who stand to get nothing from the settlement.
Ally Financial homeowners, meanwhile, are trapped in a legal and regulatory morass with little communication from those purportedly in charge of looking out for their interests. More than three months after the foreclosure settlement was announced, abruptly ending most of the foreclosure reviews, they continue for about 27,000 Ally borrowers who applied. The reviews are costing about $300,000 per day.
Though other, larger financial institutions have attracted much more attention for the role they played in causing the financial crisis -- and for the taxpayer bailouts they required to survive it -- Ally stands out for its especially aggressive attempts to distance itself from housing crash fallout, and for its inability to rebound.
Ally, previously the mortgage and auto lending arm of General Motors, changed its name from GMAC in 2009 after requiring a $17 billion taxpayer-funded bailout to keep it afloat. The bank is still majority-owned by the U.S. government, which holds a 74 percent stake, and it recently failed a key portion of a stress test to gauge its financial stability.
In 2012, Ally placed its foundering ResCap unit into bankruptcy in an attempt to wall itself off from damage from still-failing mortgages and rampant complaints from homeowners that it was not treating them fairly. The bank pledged that the move would not threaten its obligations under a $25 billion state-led mortgage settlement reached last year, nor would it stop it from participating in the government's Making Home Affordable loan modification program.
Ally also continued to participate in the audit of its mortgages mandated by federal bank regulators, known as the Independent Foreclosure Review. Under that program, mortgage companies hired outside consultants to comb through the loan files of borrowers who received a foreclosure notice in 2009 or 2010 looking for evidence of bank errors.
Earlier this year, most of the other participants, including giants Bank of America and Wells Fargo, agreed to scrap the reviews in exchange for a blanket settlement meant to quickly resolve the claims and speed cash to 4.4 million eligible homeowners. Though seen by most homeowners and their advocates as inadequate, about 37,000 borrowers will receive payments ranging from $3,750 to $125,000.
Ally did not join the settlement. In February, citing the cost and the settlement with other mortgage companies, lawyers for ResCap asked U.S. Bankruptcy Judge Martin Glenn in Manhattan to treat its obligations under the review as a "general unsecured claim." This would essentially reclassify homeowners, placing them into the same bucket as anyone else seeking to recover money or assets from the company.
"It's like they are changing their mind midway through the proceeding," said John Rao, an attorney at the National Consumer Law Center, which advocates for borrowers, of the action taken by ResCap's lawyers. "I don't see why the foreclosure commitments should be different from the others."
Ally Financial and ResCap did not respond to requests for comment. Silverman Acampora, a law firm appointed by a committee of creditors in the bankruptcy as special counsel to guard homeowner interests, also did not return calls. A spokesman for the Office of the Comptroller of the Currency did not respond to a message left Wednesday afternoon.
Judge Glenn has not ruled on the motion, but did order the bank to continue to negotiate with federal regulators. If a deal with regulators is reached, it would likely mean that all Ally borrowers who received a foreclosure notice during the qualifying period of 2009 or 2010 -- some 232,000 all told -- would receive some cash payout. The status of those negotiations is not known.
For now, borrowers like Christine are stuck in legal limbo. Last year, she and her husband gathered two four-inch thick binders of documentation and waited patiently, she said, for communication from the reviewers. She said she read with despair the news accounts that suggested the "independent reviewers" might have connections to the banks. Then she read news accounts that said the reviews were cancelled for almost all of the borrowers.
Her review, however, has continued -- though she said she has been unable to learn anything about it.
"We were hoping this review would help us on our way to owning another home within our lifetimes, but we are in our 60s and left behind with the other [Ally] suckers to wait out our lives with the original foreclosure review," Christine said. "The injustice of all of this is more than I can bear."
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