As much of a mess as the folks on Wall Street made of the the mortgage market between 1999 and 2008, and at their efforts to try to unwind their incompetence by modifying mortgages in the years thereafter it appears that Federal and State Government Efforts to investigate and punish lenders and compensate homeowners have been even a bigger mess.
The Wall Street Journal reports today that Promontory Financial Services was paid an astounding $927 Million in its aborted effort to review files for the Office of the Comptroller of the Currency. That is money that could have been used to reduce principal on mortgages or to bring homeowners current or to help displaced homeowners with rental assistance. As you may remember, Promontory’s efforts were discarded when the OCC abruptly ended their review of the largest loan servicers in the country and allowed them to make their own internal decisions about who they harmed and then to decide how much to compensate them. This Billion Dollar expenditure benefited no one but the well connected company that the OCC forced lenders to pay.
In Ohio, news today that $375 million in Federal Funds designated for “Hardest Hit” homeowners remain unused sparking a battle to reallocate those funds for home demolition. There is no question that Ohio needs to spend more on home demolition to protect devastated neighborhoods in Cleveland, Columbus, Cincinnati, Youngstown Dayton and Toledo and their inner ring suburbs, but the untold story here that our clients know too well is that the major banks slow walked through efforts to modify loans for homeowners who qualified for the Hardest Hit funds making it so hard to access the funds that many homeowners gave up. For those who persevered, the lenders insisted that the funds be used to pay in many cases unnecessary forced place insurance costs, legal foreclosure fees that could have been avoided by the bank and late charges that should have never been assessed.
It is hard to imagine, but the Government efforts to assist homeowners may end up more disorganized and corrupt than greedy players on Wall Street who created the crisis to begin with.