Mortgage Lending and Foreclosure: Compensation for People Who Have Been Harmed

As temperatures plummet across much of the country, multiple developments related to foreclosure and fair lending are heating up. From yet another multi-million dollar settlement to attorneys general investigations and potential actions against mortgage servicers, it is clear that consumers have been heard and their concerns may prompt corrective actions on many fronts.

On December 8, 2010, the U.S. Justice Department (DOJ) announced a $2 million settlement with a national mortgage lender that charged higher prices on loans made to African-Americans. From 2006 through 2009, PrimeLending charged Blacks higher annual percentage rates for prime, fixed-rate home loans guaranteed by the Federal Housing Administration and Veterans Affairs.

During these same years, PrimeLending increased its lending operations and by 2009 became one of the nation's 20 largest FHA lenders. Even as the lender originated more than $5.5 billion in annual loans, it had no monitoring in place to ensure compliance with fair lending laws. Employees, according to the Department of Justice, were given the 'discretion' to increase their commissions by adding 'overages' to loans.

The DOJ settlement will also require PrimeLending to establish loan pricing policies, and monitor and train employees to better ensure fair lending practices. PrimeLending must now require employees to provide legitimate, non-discriminatory reasons for any adjusted loan prices.

Thomas E. Perez, Assistant Attorney General in charge of the Justice Department's Civil Rights Division said, "Vigorous enforcement of fair lending laws is a top priority, and we will continue aggressively to pursue compensation for the victims of such discrimination."

"Too many lenders making FHA-backed mortgages are doing Wild West lending," said Evan Fuguet, Senior Policy Counsel for the Center for Responsible Lending. "The FHA was created to make mortgages accessible, affordable, and sustainable. Without clear rules to prevent overcharging, abuses are inevitable. That undercuts the reason the program was created in the first place."

Then on December 14, 2010, Iowa Attorney General Tom Miller met with more than 100 people from 15 states representing community, faith and labor organizations, foreclosure victims and struggling homeowners. Miller is the leader of a 50-state foreclosure investigation by all 50 state attorneys general.

One meeting attendee, Shirley Broomfield, a struggling homeowner from Melbourne, Florida who works two jobs to pay her mortgage said, "The big banks have repeatedly weakened efforts to get to the root of the foreclosure crisis. They've failed to live up to their promises and outright ignored the rules of the game with little or no consequences. The Attorneys General have a chance to change this."

In response to Ms. Broomfield and others in attendance AG Miller said that effective solutions will involve reductions in loan balances, loan modifications, compensation for citizens defrauded of their homes, and criminal prosecutions against executives who broke the law.

"We will put people in jail," said Miller. "There should be some kind of compensation system for people who have been harmed…And the foreclosure process should stop while loan modifications begin."

Continuing Miller added, "To have a race between foreclosures and modifications to see which happens first is insane."

The session, first of a series of similar meetings with state AGs, was organized by a coalition of consumer advocates that included PICO National Network, National People's Action, SEIU, Alliance of Californians for Community Empowerment, Alliance for a Just Society, and IAF Southeast.

On December 15, 2010, the National Consumer Law Center (NCLC) and the National Association of Consumer Advocates (NACA) jointly released findings of a November 2010 survey that demonstrated mortgage servicers often improperly initiate foreclosure proceedings as a result of their own mistakes – because they have failed to properly process payments from homeowners or while homeowners are awaiting a loan modification. Nearly 90 percent of consumer attorneys from 34 states representing foreclosed homeowners had clients placed in foreclosure even though they were actively involved in obtaining a loan modification.

The survey exposes continuing errors in mortgage servicing even in the wake of the "robo-signing" scandal and widespread criticism of the servicing industry. Wrongful application of payments, improper fees, inflated or baseless charges of property inspection and late fees were the unfortunate but commonplace complaints.

As developments continue to unfold, the CRL remains a visible and vocal advocate for fairness in lending, working with allies to promote progressive reforms. Additionally, CRL also believes FHA should adopt the following policies:

-- Immediately apply pending Federal Reserve rules scheduled to be implemented in April, that will ban kickbacks and other incentives to overcharge for mortgages;

-- Establish reasonable limits on loan costs to prevent inconsistent and abusive pricing;

-- Maintain a strong focus on access to fair and affordable credit for all families regardless of race; and

-- Continue to strengthen efforts to enforce FHA rules.



Charlene Crowell is the Center for Responsible Lending's communications manager for state policy and outreach.