Business

Banks mess up on payouts when it comes to mortgages

Anybody missing $857.51?

That’s the average size of settlement checks sent out by banks to homeowners over botched mortgages — and about 12 percent of those checks haven’t been cashed because banks didn’t have the right address on file, according to a report released Wednesday.

That amounts to just one of the screw-ups committed by the biggest mortgage-servicing banks, which figured prominently in the Office of the Comptroller of the Currency report.

Under review was the Independent Foreclosure Review process, which was sparked by widespread reports of mishandled mortgage modifications.

Some of the most common errors, including denied changes to loan terms, were “aggravated by rapidly increasing modification-request volume without adequate staffing,” the report said.

“Looking at the mortgage fraud cases I’ve handled, the errors were pretty egregious and easy to spot,” said Patrick Hanly, a lawyer in Sacramento, Calif., who represented homebuyers charged with fraud.

“It seems like the banks knew the papers were bad,” he said.

The Independent Financial Review was supposed to assess how banks botched mortgages in 2009 and 2010, but was stopped prematurely after complaints that it cost too much.

The OCC negotiated a $10 billion settlement after the review was shuttered.

That settlement assumed that there was an error rate of 6.5 percent for the banks servicing mortgages.

PNC Bank had the highest rate of errors that resulted in financial harm, about 24 percent of the total, according to the OCC.

There are 15 banks in the review, including Bank of America, JPMorgan Chase and Wells Fargo.

The average error rate of 8.9 percent only applies to the mortgages that the banks reviewed, which could have been as little as 0.9 percent of the total, the report said.

More than half the errors were related to fees or administrative problems, according to the report.

Banks paid $643.7 million to Californians, the most of any state, while New Yorkers got about $92 million.

The 12 percent of checks that homeowners haven’t received were returned as undeliverable. Banks researched new addresses and issued new checks for the people who didn’t get them.

“Almost all returned and expired checks were reissued at least once,” the report said.

Overall, the largest banks trimmed more than 16,000 mortgages by an average of $614, the report revealed.

The average unpaid mortgage balance was $247,264.