Did the OCC finally agree that the costs of the foreclosure look-back process overwhelmed its benefits, or was the government simply under-staffed and over-budgeted? It appears to be the financial world’s equivalent to the chicken or the egg question. Nonetheless, the OCC announced this week that it and the Federal Reserve had reached a deal with the ten mortgage servicing companies subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing. Pursuant to the deal, the participating servicers are allowed to cease the Independent Foreclosure Reviews of individual foreclosure files, and replace the process with a “broader framework.”

The OCC did not provide details about the agreed upon “broader framework,” other than advising that the deal requires the mortgage servicers to pay $3.3 billion in payments to eligible borrowers and $5.2 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments. Eligible borrowers will not need to take further action, and are not required to have previously filed a request for review. A payment agent will be appointed to administer the payments and to contact the eligible borrowers. The OCC’s press release claims that eligible borrowers are expected to receive compensation ranging from hundreds of dollars up to $125,000, depending on the type of possible servicer error. Moreover, the borrowers are not required to waive any of their potential legal claims against their respective servicer in order to receive payment.

The OCC defended its decision to accept the deal, stating it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process. The OCC further explained that the agreement ensures that more than 3.8 millions borrowers whose homes were in foreclosure in 2009 and 2010 with the participating servicers will receive cash compensation in a timely manner. 

From a broader perspective, this deal provides the benefit of allowing the borrowers and servicers to move on and focus on the future—a future that will hopefully be more positive for both the servicers and the borrowers.