In a July 7 report, the Federal Reserve defended its decision to halt its review of banks’ foreclosure practices last year in favor of a general $9.3 billion settlement to reimburse borrowers who may have wrongly experienced foreclosure, The Wall Street Journal reported.
The Fed said that about 83 percent of impacted borrowers have received checks reimbursing them for financial injury. The multibillion-dollar settlement with 13 of the nation’s banks included $3.6 billion in cash payments to borrowers and $5.7 billion in noncash assistance.
The settlement ended an independent review that began in April 2011 and looked into banks’ foreclosure practices. That review was supposed to determine how many borrowers deserved compensation for foreclosure errors, but the Fed criticized it for taking too long and costing too much, the Journal reported.
The Fed argued that its settlement actually resulted in faster and greater payments to borrowers than would have been achieved had the independent review continued.
However, some lawmakers and public advocacy groups argued that the settlement may have allowed some banks with higher error rates to escape sufficient punishment for poor foreclosure practices, the Journal reported.
The Fed’s report noted that it found an aggregate error rate of about 4.6 percent on independent consultants’ foreclosure reviews before the process ended.
The review noted that among banks included in the settlement, GMAC Mortgage, formerly a unit of Ally Financial, had an foreclosure error rate of 11.4 percent; SunTrust Banks had an error rate of 3.3 percent; Morgan Stanley and Goldman Sachs Group had no errors — but their reviews had barely begun when the settlement was reached, the Journal reported.