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New VA Mortgage Settlement Raises Big Foreclosure Questions

The Justice Department has just announced a $39 million settlement to resolve allegations of wrongful foreclosures against vets and military families.

The government says that "under its 2011 settlements with BAC Home Loans Servicing LP, a subsidiary of Bank of America Corporation, and Saxon Mortgage Servicing Inc., a subsidiary of Morgan Stanley, 316 service members whose homes were unlawfully foreclosed upon between 2006 and 2010 are due to receive over $39 million in monetary relief for alleged violations of the Servicemembers Civil Relief Act (SCRA)."

While $39 million is a lot of money, the more interesting element of the settlement concerns the period covered by the agreement: between 2006 and 2010.

This time period is very curious because it is not anything like the $9.3 billion settlement which major lenders and the Office of the Comptroller of the Currency (OCC) are trying to work out among themselves.

The OCC deal -- which includes loans insured by the VA -- instructs major loan servicers to examine properties foreclosed between 2009 and 2010 -- in other words, unlike the Justice Department settlement there is no relief for wrongful foreclosures which allegedly took place in 2006, 2007 or 2008.

According to the Government Accountability Office (GAO) "all borrowers who were eligible for foreclosure reviews under the consent orders are expected to receive payments ranging from hundreds of dollars up to $125,000, depending on the borrower’s category."

You can imagine that if you felt you were wronged you would prefer to have more compensation rather than less. To sort out who gets what the OCC ordered loan servicers to conduct foreclosure reviews to examine individual foreclosure files.

Those reviews, however, did not work out so well.

In February, Thomas J. Curry, Comptroller of the Currency, told Congress that "while servicers had expended nearly $2 billion on the consultants’ review through November 2012, we were still not ready to compensate the first borrower."

That's right: $2 billion was spent on reviews while victims received nothing. Zero. Goose egg.

In March 4.2 million postcards were sent out informing selected mortgage borrowers that they might be entitled to some of the OCC settlement money.

You can see what's going to happen next: Herds of lawyers will assemble to ask why one borrower got nothing, another received a few hundred dollars while a third was awarded several thousand dollars.

The related question, and perhaps a harder question, concerns those who lost their homes and will not receive any compensation because their foreclosure was not wrongful.

But how do we know how any particular borrower should be treated? The only way to answer such a question is to individually review each foreclosure file....

Oh, and haven't we tried that recently...

If you faced foreclosure between 2006 and 2011 hang on to all paperwork and communication between you, your lender and your servicer. In addition to the OCC settlement, as much as $116,785 may be available to wrongfully-foreclosed vet and military families under the $25 billion robo-signing agreement of 2012, an agreement which goes back to January 1, 2006.