The mortgage lending debacle that banks have been a part of since the global economic downturn of 2008 seems to be far from over with federal regulators recently releasing its remediation plan to compensate customers who has been wrongly subjected to a foreclosure. 
The new rules framed by the Federal Reserve and the Office of the Comptroller of the Currency (OCC) may force the 14 banks which are a part of the Independent Foreclosure Review to give out as much as $125,000 to each wronged customer, besides an equity compensation. Citigroup (NYSE:C), JPMorgan Chase (NYSE:JPM), Wells Fargo (NYSE:WFC) and Bank of America.
The remediation plan from the Fed and OCC aims at making the banks cough up the money they pocketed through improper foreclosures during 2009-2010. Thousands of customers would be eligible for compensation under the plan with independent consultants in the process of vetting the more than 200,000 applications from customers whose homes were foreclosed.
Compensation for individual customers can be anything from $500 to $125,000 with the worst affected ones also expected to receive equity from their bank.
The result – banks may end up paying up millions to affected customers in coming months. With mortgage banking business for the big banks already struggling to show notable profits, the additional payments will add additional pressure on margins. The impact of an increase in non-interest expenses on Citigroup’s total value can be understood by making changes to the chart above.Notes:
- Agencies release financial remediation guidance, extend deadline for requesting a free independent foreclosure review to September 30, 2012, Federal Reserve Website, Jun 21 2012 [↩]