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Homeowners Get Mortgage-Relief Checks That Bounce


Over the last couple years, the federal government and the financial industry reached a huge settlement over the faulty handling of mortgages during the financial crisis. Essentially, lenders and the banks that acquired the relevant mortgages, such as J. P. Morgan and Citigroup, appear to have cut a lot of corners with mortgages when the economy went bad — “robosigning,” foreclosing on homes that shouldn’t have been, etc. — so, at HUD’s behest, the banks agreed to spend billions of dollars hiring consultants to investigate the issue, and then billions more dollars cutting checks to distressed homeowners and paying fines to state governments and the federal government, and then sending a few billion dollars to homeowners whom they wronged with abusive loan-servicing practices. There has been very little reform of the underlying mortgage market, which is now basically run by the federal government (the Federal Housing Administration, now, not Fannie and Freddie) rather than Wall Street, but that’s no matter: People are getting paid. Except when they’re not, as in this story from the NYT’s Dealbook:

It is unclear how many of the 1.4 million homeowners who were mailed the first round of payments covered under the foreclosure settlement have had problems with their checks. But housing advocates from California to New York and even regulators say that in recent days frustrated homeowners have bombarded them with complaints and questions.

The mishap is just the latest setback to troubled homeowners. It took more than two years to resolve a federal investigation into the foreclosure abuses. Even after the settlement in January, the checks were delayed for weeks.

“It’s the perfect ending for such a debacle,” said Michael Redman, a paralegal who runs, a Web site for victims of foreclosure abuse. He said he had received 15 e-mails on Tuesday from homeowners whose checks bounced.

The first round of the settlement checks was mailed last week. In recent days, problems arose at Rust Consulting, a firm chosen to distribute the checks, people briefed on the matter said. After collecting the $3.6 billion from the banks, these people said, Rust failed to move the money into a central account at Huntington National Bank in Ohio, the bank that issued the checks to homeowners.

Since the federal government itself didn’t have the capacity to implement the settlement’s payments , they had to hire contractors to do so, and the above blunder is a good reminder of what can result from such massive contracts. Private-sector providers aren’t always paragons of efficiency or competency. But the problems here pale in comparison to the feds’ fruitless demand, during the process of the settlement, that banks spend billions of dollars hiring accounting and management-consulting firms to investigate their own loaning and loan-servicing practices, something the federal government also wouldn’t have had capacity to do. Those investigations led to no particular reforms, and weren’t really expected to — they were just acts of very expensive private-sector-delivered penance.


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