In the latest in a long line of mishaps in the national mortgage fiasco, the foreclosure-abuse checks mailed out in April by the Federal Reserve bounced.
This debacle goes back to the wrongful foreclosing of thousands of homes around four years ago in the housing crisis. Due to the high number of delinquencies coming to their notice, many banks decided to take shortcuts and "robo-sign" foreclosures. What inevitably happened was that thousands of homes were accidentally foreclosed, robbing people of their houses for absolutely no reason.
In 2011, several large banks and 14 top mortgage companies finally agreed to review such cases of foreclosure fraud. They hired the independent consultant firm Independent Foreclosure Review (IFR) to investigate and pinpoint cases of bank mismanagement. After a year's investigation, several delays, and doubts about the effectiveness of IFR's case-by-case model, during which the IFR consultants were paid $2 billion, the banks scrapped that investigation as well.
After another year of negotiation with the Federal Reserve, the companies agreed to use an algorithm to predict which home owners were due compensation. The algorithm returned 4.4 million owners (to repeat: that's 4.4 million people whose houses were taken from them with no reason) and the banks agreed on a settlement of $3.6 billion this January.
On average, a homeowner whose house had been wrongfully foreclosed, and who had been waiting years for the banks' abuse to be recognized, would receive a meager amount below $1000. The uppermost payments of $125,000 were reserved for certain groups, like military personnel.
Still, something is better than nothing, right? Maybe, if the home owners had gotten something at all.
The first round of checks was mailed out last Friday. According to the Fed, "some early recipients … were told their checks could not be cashed." That’s right, people scrambling to their bank to finally cash the long-awaited check were told that funds "were not available."
What went wrong this time? The Fed apparently hired a third-party company called Rust Consulting Inc. to deliver the checks, and Rust did not transfer funds to the proper bank account in time. Similar situations have happened with Rust in the past, with some officials speculating that the company purposefully uses this tactic to make more interest on the money.
Though Rust claims to know of only twelve such bounced checks, other estimates say it may be as high as 75% of the more than one million checks mailed out. As of today, the Fed has stated that the problem should be fixed, although there is no guarantee with the next three rounds of checks to follow.
If there is one lesson to be gained from this years-long debacle, it's that allowing companies to run rampant with no outside checks or regulations is a clear-cut formula for abusing the common people. Not only did widespread mismanagement set off the housing crisis itself, but it also fueled the false foreclosures, the wasteful process to identify the robbed home owners, and even the sending of defective compensation checks. Corporations will never look out for the individual consumer, but the government should. When it doesn’t, you end up with 4.4 million homeless people whose houses were stolen from under their feet.