Series: Foreclosure Crisis How Banks and Government Fail Homeowners

As the sixth year of the foreclosure crisis comes to an end, the percentage of loans in foreclosure remains a staggering eight times higher than it was in 2005. About 5.3 million homeowners — about 11 percent of all borrowers — are behind on their payments.

But 2012 was also the year that home prices hit a bottom and have started to very slowly climb. The number of new homeowners falling behind on their payments has dropped substantially since the peak. The government also took a dramatic step: a $25 billion settlement with the five biggest mortgage servicers.

Earlier this year, ProPublica focused on one homeowner — Sheila Ramos, who lost her home in Florida and ended up living in a tent in Hawaii — to pull together all the threads of the crisis and give readers a single story that explains the causes of the crisis, the bumbling response by the big banks and Washington, and the human toll exacted by the whole debacle. It is also available as a Kindle Single, which includes extra material.

We've also been keeping a close watch on whether the government is keeping its promises about compensating victims of the crisis.

The largest program is a review overseen by federal regulators covering more than 4 million loans. It launched back in 2011, but as of mid-December, no homeowner had received any compensation. Office of the Comptroller of the Currency spokesman Bryan Hubbard said regulators had been "working toward beginning compensation for a limited number of people [this month] with reviews and remediation continuing through 2013."

The program — called the Independent Foreclosure Review — has been beset with questions about its fairness, transparency and integrity since it launched. At least partly due to those problems, many borrowers aren't even bothering to apply for compensation. As of November, only 315,000 borrowers have sent in forms requesting to be reviewed, according to the OCC's Hubbard, about seven percent of people eligible to apply. The final deadline to apply is at the end of this month.

Federal regulators designed the program to work like this: Each of the banks would hire an "independent consultant" (approved by the regulator) to conduct reviews of the bank's foreclosure cases. The bank was supposed to foot the bill, but the consultant, not the bank, was supposed to decide which of the bank's customers deserved compensation and how much.

But ProPublica has revealed evidence that the banks themselves are heavily involved in the reviews, calling their independence and integrity into question. After our story about Bank of America's involvement in its review, the bank and its consultant changed their review process. Bank of America also engineered a de facto appeals process; if the consultant decided a BofA customer deserved compensation, the bank could provide more information that it wasn't at fault. Borrowers have no such ability to appeal.

To lead its role in the review, JPMorgan Chase installed an executive named by the Justice Department for allegedly facilitating a scheme to defraud Fannie Mae and Freddie Mac. She declined to comment for our story.

In a telling irony, it seems likely the review will end up steering far more money toward the consulting companies hired by the banks than will go to harmed homeowners.

Finally, some banks have been shockingly slow to begin their reviews. Regulators have ordered Goldman Sachs and Morgan Stanley to conduct reviews of their former mortgage servicing subsidiaries, for instance, but they still haven't begun. The process covers loans that were in foreclosure in 2009 or 2010, but the review won't get going until at least 2013. That seems likely to further deter harmed borrowers from applying for compensation.

A Federal Reserve spokesperson said a company, Navigant Consulting, had been selected to conduct the review for both servicers, but the contracts had not been finalized. It's unclear when the review would begin.

The government's other big reaction to the foreclosure crisis, the National Mortgage Settlement, has also had its disappointments. The deal involved 49 states, the federal government, and the five largest mortgage servicers. The headline number was $25 billion, but only $5 billion of that is actually cash that the big banks would pay out. The other $20 billion is composed of "credits," awarded when the banks take steps to avoid foreclosures, for instance by offering loan modifications that cut the amount homeowners owe.

Of the cash, half — $2.5 billion — was to go to states to address the foreclosure crisis. But as we've reported, almost $1 billion of that is actually being used to patch state's ailing budgets. (See our state-by-state breakdown here.)

$1.5 billion will be sent to borrowers who lost their homes to foreclosure, with each borrower receiving only about $1,000-$2,000. That process has finally gotten underway, and the deadline for borrowers to make a claim to receive that payment is early next year. (See more info about this in our FAQ.)

As for the $20 billion in credits, the banks appear to be in the process of fulfilling those obligations, but there are plenty of questions about how much good it's doing. Some credits are for actions banks were taking already (like demolishing abandoned homes). And although government officials touted the agreement as a way to boost the number of modifications that reduced borrowers' debts, much of the banks' activity hasn't focused on keeping borrowers in their homes. Rather, the number of short sales — an agreement by the bank to sell the home for less than the amount owed — has been far higher.

As the foreclosure crisis and the government's sputtering response enter their seventh year, ProPublica will be keeping watch.