"Couple wearing festive outfits and crowns", via Big Cheese Photo.
"Couple wearing festive outfits and crowns", via Big Cheese Photo.
“Couple wearing festive outfits and crowns”, via Big Cheese Photo.

Hell has frozen over! After years of lawsuits and investigations by federal and state law enforcement agencies — not to mention some hard-ass negotiations by the U.S. Department of Justice and 49 state Attorneys General (shout-outs to AGs Eric Schneiderman of New York, Beau Biden of Delaware, and Kamala Harris of California) — mortgage servicers are finally being forced to repay some of the billions of dollars they stole from American consumers. Unfortunately, the timing couldn’t be worse.

It’s all because of the National Mortgage Settlement, an agreement with federal and state law enforcement agencies in which the largest mortgage servicers agreed to refund $21.5 billion to consumers who were seriously harmed by deceptive servicing practices. They are also being forced to refinance many of these underwater mortgages, according to the U.S. Department of Justice.

The problem is that consumers have become so mistrustful of financial institutions promising mortgage modifications, many assume the settlement will simply lead to more empty promises. In too many cases, their justified disgust for the big banks may be causing them to tune out the message and forfeit the fruits of their victory — however significant that turns out to be.

However, if you are a homeowner, please consider this your wake-up call because some of that $21.5 billion may actually belong to you.

Ever since the housing bubble burst nearly five years ago, pretty much everyone, anyone who wasn’t stuck on an ice floe or marooned on a South Sea island has figured out that fishy things were afoot in the world of mortgage servicing. Officially, servicers are merely the middlemen in the mortgage process. They open payment envelopes from homeowners, make sure that property taxes and insurance are paid and pass the remainder onto investors.

In reality, however, servicers wield tremendous power. The industry is dominated by megabanks and finance companies, including Citi, JPMorgan Chase, Bank of America, Wells Fargo and Ally/GMAC. Here are a few of the abuses the big servicers are alleged to have committed, according to the lawsuit brought by the Department of Justice and 49 states:

1. When a homeowner fell behind on insurance payments (or, commonly, if the servicer failed to record that insurance was fully paid), these giant servicers can and did “force-place” home insurance, which is often exorbitantly expensive. Servicers also have almost sole discretion regarding when to modify a mortgage, and when to foreclose.

2. Servicers often failed to record mortgage payments, wrongfully forcing homeowners who were current on their payments into delinquency. They then proceeded to treat “delinquent” homeowners like their own personal piggybanks, reaping huge profits by charging outrageous fees for insurance, default, and even basic maintenance like mowing the grass.

3. Servicers wrongfully declined to modify the mortgages of people who qualified for such help under federal programs including the Home Affordable Modification Program (HAMP). Many foreclosed on those who were faithfully making payments as part of a trial loan modification arrangement.

4. Servicers’ paperwork was such a disaster they often lacked the documentation required to prove they had the right to service loans. So what did they do? A number of them fabricated documents, and presented the forgeries to courts as real (hiring temp workers to sign thousands of these phony documents each day — thereby giving the “robo-signing” scandal its name). This led to the ultimate scandal: Thousands of people were illegally evicted from their homes, according to a lawsuit filed by Massachusetts Attorney General Martha Coakley, and stories by Credit.com including this and this.

Meanwhile, two-bit scammers flooded billboards, late-night TV, highway off-ramps and homeowners’ mailboxes with ads offering mortgage modifications. Many consumers jumped for the life raft but drowned in the process. Whether the offer came from a supposedly reputable megabank or Vinnie the Shark, the result was often the same: Lost money, foreclosed houses and broken dreams.

The National Mortgage Settlement could help to clean up this mess. It requires the five largest mortgage servicers to provide loan modifications and reduce the mortgage principal of millions of Americans by $17 billion, according to nationalmortgagesettlement.com, the website created by government regulators to help homeowners learn more about the settlement. Servicers were required to begin notifying homeowners of these changes by letter starting in June. If they fail to dole out all the relief to victims within three years, they could be forced to pay millions of dollars more in additional fines.

Servicers also must help borrowers who are current on their payments but whose loans are underwater by refinancing their loans with lower interest rates, saving homeowners another $3 billion. In addition, servicers must pay $1.5 billion to 750,000 borrowers who lost their homes to foreclosure between 2008 and 2011.

It sounds like a lot of money, and much of the settlement is a good start (I emphasize the word start), though $2,000 for a home that was illegally foreclosed upon seems pretty unconscionable to me.

That said, after years of wrongful conduct and denying help to millions of homeowners, the worm has turned and now the megabanks are under a hard deadline to pump out more than $21 billion to their victims.

Unfortunately, many homeowners are so tired of dealing with scammers of all sizes, and so cynical about the motivations of “too-big-to-fail” financial institutions, that what we have here is a “failure to communicate,” as Paul Newman said in his 1967 masterpiece film “Cool Hand Luke.” American Banker, for instance, recently took note of the widespread concern in the banking industry that many consumers are failing to respond to the banks’ new offers of help.

“There is a great deal of fatigue among borrowers looking to resolve their mortgage situation,” Eric Schuppenhauer, JPMorgan Chase’s mortgage servicing chief, told American Banker. The company is so worried, it’s paying extra to mail tens of thousands of letters via FedEx, hoping that will get consumers’ attention.

I have two very different reactions to this news.

On the one hand, I say: Finally! Consumers spent five years getting slapped around by mortgage servicers who broke the law. Now those guys are depending on the consumers they abused to meet a strict, do-or-die deadline. It’s refreshing to see the big boys sweat. Anyway, shelling out a few extra bucks for overnight shipping could help boost the earnings of fellow Fortune 100 companies Federal Express and UPS. That’s good for the economy, yes?

What bothers me is the idea that the people who suffered heartbreak and loss at the hands of these characters might never benefit from their own redemption. While it warms the cockles of my heart to see the would-be masters of the universe jumping through hoops trying to pay back their victims, it’s no joke for consumers to forfeit reparations. Cynical or not, those who fail to take mortgage servicers up on these loan modification and principal reduction offers are losing yet again.

Does the settlement fix all the servicing industry’s problems? Hell no. Servicers still operate with a fundamental conflict of interest, since they profit from foreclosures even when homeowners and investors lose. The servicers’ system for tracking property rights remains in utter chaos, leaving the door open to more perjury, wrongful foreclosures and evictions in the future. In short, former victims get some modicum of reparation; however, America’s mortgage market is still broken.

While these reparations are crucial, perhaps even equally important than the money involved, however, the settlement sends the message to America’s biggest banks that they can no longer treat regular Americans with utter disregard. When we make our monthly mortgage payments, we have the right to expect that we are building equity in our homes and saving for our futures, not padding the profits of a small segment of the financial elite that has repeatedly proven to be hapless, clueless and woefully bad at doing its well-remunerated job.

Normally in this space I advise folks to be wary of scams in the mail, including offers of loan modifications. Today I give the opposite advice. Pay close attention to the mail. When you see offers to improve your mortgage situation, open them. Read them. Some may be scams. But one may be a serious offer of meaningful financial support from a real mortgage servicer.

So, for just a moment, lay aside your cynicism. The good news is that for once you and your mortgage servicer are actually on the same side. Savor it. It may never happen again.

Originally posted at the Huffington Post.