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Pragmatism may kill massive foreclosure review process

January 2, 2013

It seems regulators and policymakers who want banks to pay for the foreclosure crisis just can't make up their minds as to how they plan to do so.

Now we know that federal regulators are possibly scrapping plans to review thousands of foreclosure cases for errors and instead focusing on another $10 billion settlement with the big banks that will in turn create funds for hurt homeowners. (News of the pending settlement, the second involving so-called 'robo-signing' abuses, originally broke in The New York Times over the weekend.)

So what is the reason for this game-changing plan?

As the Wall Street Journal uncomfortably points out, the foreclosure review process is "too expensive" and "not delivering enough assistance." And, apparently, both financial firms and their regulators reached this conclusion after sifting through an initial set of reviews.

As to why there may have been a push for a new settlement instead of more reviews, Edward Kramer, EVP of regulatory affairs at Wolters Kluwer, suggested it may simply be a lean towards what's more pragmatic.

"As far as the review, the review is supposed to cost so much per loan," he said. "You look at how many loans you have to do, how long it is going to take, and the OCC and other regulators are not happy with the results of the reviews."

From a financial standpoint, Kramer says it's likely the parties eventually concluded it would be better to obtain another $10 billion in settlement funds to assist homeowners rather than "paying all of these people to review the loans."

He added, "Maybe the decision was made that [a settlement] is a more equitable way to accomplish this."

Either way, the quick-changing regulatory landscape is enough to give a person whiplash.

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