U.S. Banks to Pay $125,000 to Many Hurt in Foreclosures

By Jesse Hamilton on June 21, 2012

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Companies Mentioned

• JPM

  JPMORGAN CHASE & CO
  • $35.51 USD
  • -0.94
  • -2.65%

• C

  CITIGROUP INC
  • $27.83 USD
  • -1.03
  • -3.7%

• BAC

  BANK OF AMERICA CORP
  • $7.82 USD
  • -0.32
  • -4.09%

• WFC

  WELLS FARGO & CO
  • $32.34 USD
  • -0.47
  • -1.45%

Company Lookup

 

U.S. banks including JPMorgan Chase & Co. (JPM) (JPM)and Citigroup Inc. (C) (C) will pay as much as $125,000 plus equity to individual customers most harmed by mishandled foreclosures in 2009 and 2010, according to a remediation plan released by federal regulators.

“While we’ve made great strides since we took enforcement action against large mortgage servicers last year, much work is still ahead,” said Thomas Curry, U.S. comptroller of the currency, in a statement. This industry guidance “helps people who are considering requesting a free review to understand how they may be compensated for the financial injury they may have suffered,” he said.

A group of the largest mortgage servicers were ordered by the Office of the Comptroller of the Currency and other banking regulators last year to clean up their foreclosure practices and hire independent consultants to see whether their methods in 2009 and 2010 unfairly hurt customers. The 14 firms, also including Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) (WFC), could be instructed to give lump-sum payments between $500 and $125,000 in each case involving improper practices, the regulators said.

Besides lump-sum payments, loan servicers who improperly handled foreclosures may have to rescind them, modify loans or correct credit reports, according to industry guidance issued today by the OCC and the Federal Reserve.

“I think the range of potential recovery is surprisingly large,” said David Dunn, a lawyer who represents lenders at Hogan Lovells U.S. LLP in New York. “Is there a rationale for those numbers? I haven’t seen it if there is.”

Potential Claimants

The universe of potential claimants includes an unknown portion of the 4.4 million borrowers to whom regulators sent letters informing them they can ask for reviews. Of those, 4.4 percent, or 193,630, had done so by the end of May, according to a six-month report on the process also released by the regulators today. The independent consultants picked another 144,817 files to examine. About 12,000 cases have gone through review so far.

The guidance says a person whose house was foreclosed on when the mortgage wasn’t officially in default should be given $125,000 if the foreclosure can’t be rescinded. That borrower would also be entitled to any positive difference between what was owed on the mortgage and what the house was worth at the time of the error.

People who lost homes to foreclosure in 2009 and 2010 are being given a deadline extension from July 31 to Sept. 30 for filing to have their cases reviewed for potential errors and misrepresentations, and can do so through www.independentforeclosurereview.com.

Top States

Borrowers from California have so far led the requests for review with 35,480, followed by Florida and Texas, according to the report.

“The servicers see this guidance as an important step toward completion of the Independent Foreclosure Review process,” according to a statement from the Housing Policy Council of the Financial Services Roundtable, a Washington-based trade group representing the largest mortgage servicers.

Consumer groups are concerned the payouts won’t amount to much in regions with high real-estate costs.

“Whether it’s enough really depends a lot on where you live,” said Paul Leonard, the California director for the Durham, North Carolina-based Center for Responsible Lending. “If you no longer have your home, $125,000 may or may not get you back in a home in California.”

To contact the reporter on this story: Jesse Hamilton in Washington at jhamilton33@bloomberg.net.

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net.

The One Thing Jamie Dimon Got Right This Week

By William D. Cohan May 11, 2012 8:19 AM PT

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About two-thirds the way through JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon’s stunning May 10 conference call, in which he announced that the hedging strategy originating in the firm’s vaunted “chief investment office” had cost the firm $2 billion, he seemed to hit his stride.

“It is very unfortunate,” he said, “this plays right into the hands of pundits out there. But we have to deal with it.”

About William D Cohan

William D. Cohan is the author of the recently released "Money and Power: How Goldman Sachs Came to Rule the World" and the New York Times bestsellers "House of Cards" and "The Last Tycoons."

More about William D Cohan

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Photographer: Ben Baker/Bloomberg

Well, Jamie, as a former JPMorgan Chase managing director turned Wall Street pundit, here you go: The problem with the unexpected loss and its hasty announcement was not so much the sheer magnitude of the losses -- a firm with a trillion-dollar balance sheet can withstand them -- but that for weeks you and your fellow senior executives have been pooh-poohing the risks posed by the huge proprietary bets being made by your bank’s Bruno Michel Iksil (aka. the London Whale).

After Bloomberg News revealed the extent of the gambling that was going on in JPMorgan’s London office on April 5, Dimon called it a “complete tempest in a teapot” and heaped scorn on the journalists who revealed the extent of the bet and how it was roiling debt markets throughout the world. The firm’s chief financial officer, Doug Braunstein -- my onetime boss, who fired me in 2004 -- told the press on April 13 that the chief investment office “balances our risks. They hedge against downside risk, that’s the nature of protecting that balance sheet.” Braunstein added that he was “very comfortable with the positions we have” and that all of the positions are “very long term in nature.”

What’s worse, in February, during the company’s annual investor day, Dimon further belittled the journalists in attendance by mocking their questions about Wall Street’s inordinately high compensation structure, whereby -- generally speaking -- 40 percent to 50 percent of every dollar of revenue generated goes to the employees who work there. At JPMorganChase, the compensation expense ratio in 2011 was around 35 percent, while at Goldman Sachs Group Inc. (GS) and Morgan Stanley it was higher -- in the 50 percent range -- and at Lazard Ltd. (LAZ), it was 63 percent.

Why Wall Street feels the need to pay the people who work there so much money is the question of the moment. Whom do these firms serve? The shareholders who own them, or the employees who work there? For far too long, the answer has been -- sadly -- the bankers. Why don’t Dimon and his fellow industry leaders understand that the less that gets paid out to employees, the more that goes to the bottom line?

But Dimon would have none of it, at least during the investor day conference on Feb. 29. He even thought it would be funny to dig out a comparable statistic from a newspaper company and found one that showed that journalists’ compensation had eaten up 42 percent of the paper’s revenue. That’s “damned outrageous,” he said. “Worse than that, you don’t even make any money! We pay 35 percent. We make a lot of money.” He’s right about that. In 2011, JPMorgan made $19 billion in profit. Dimon received compensation of $23 million.

Dimon at least had the good sense to sound a note of contrition yesterday. He said the firm’s new “value-at-risk” model had proved inadequate and the company was going back to using an older model. He said the money-losing trade was “flawed, complex, poorly reviewed, poorly executed and poorly monitored.” He said it was “sloppy” and that “all appropriate” measures would be taken. He said there were “egregious mistakes” made and that the wound “was self-inflicted.” Before he answered questions, he said, “We will admit it, we will learn from it, we will fix it and move on.”

In answer to a question about whether the hedge, or the bet, violated the so-called Volcker rule -- which if it ever gets put in place will limit the amount of proprietary trading Wall Street firms can do -- Dimon said, “This doesn’t violate the Volker Rule, but it violates the Dimon Principle.” To whether he knew of any other big banks with a similar loss, he said, “Just because we were stupid doesn’t mean everybody else was.” He was asked by Mike Mayo, a respected banking analyst, what, in hindsight, he should have watched more closely. “Trading losses,” he replied, before adding, “newspapers.”

Until this moment, Jamie Dimon has been Teflon. He has boasted about his firm’s “fortress balance sheet” and about how his skills as a risk-manager were far superior to those at other Wall Street firms. He has no doubt enjoyed Goldman Sachs and its chief executive officer, Lloyd Blankfein, becoming the objects of public scorn -- even though this incident proves that Goldman Sachs is the far superior risk manager. Dimon has been quick to remind people that the federal government chose his firm to rescue both Bear Stearns Cos. and Washington Mutual Inc. He has criticized the new, post-financial-crisis regulations -- Basel III, Dodd-Frank, the Volcker rule and the new rules governing derivatives -- as being Draconian. He has whined that the time to criticize Wall Street has come and gone.

Now he has been proven right about one thing: He has given the pundits (and politicians) a gift. “The enormous loss JPMorgan announced today is just the latest evidence that what banks call ‘hedges’ are often risky bets that so-called too-big- to-fail banks have no business making,” Senator Carl Levin, a Democrat of Michigan, told Bloomberg News after Dimon’s press conference. “Today’s announcement is a stark reminder of the need for regulators to establish tough, effective standards.”

Not a moment too soon.

(William D. Cohan , a former investment banker and the author of “Money and Power: How Goldman Sachs Came to Rule the World,” is a Bloomberg View columnist. The opinions expressed are his own.)

Read more opinion online from Bloomberg View.

To contact the writer of this article: William D. Cohan at wdcohan@yahoo.com.

To contact the editor responsible for this article: Tobin Harshaw at tharshaw@bloomberg.net.