Foreclosure relief checks bounce for some recipients

Relief checks issued as part of a multi-billion dollar settlement over foreclosure abuses have bounced, an unfortunate twist for consumers who have already been caught up in problems over reviews of mortgage loans.

Months after brokering a $9.3 billion settlement with the nation’s biggest banks, the Federal Reserve and the Office of the Comptroller of the Currency announced last week that 1.4 million checks would be sent out to struggling homeowners, many of whom have gone for two years without assistance.

Problems have emerged again, however, in what has proved to be a deeply flawed review of foreclosures and the ensuing settlement. The Federal Reserve and the comptroller’s office said Wednesday that some homeowners were greeted by startling news: Their checks bounced because of insufficient funds.

The regulators said the problems had been corrected and that consumers should now be able to cash the checks.

In January, the banking regulators scuttled a sweeping review of millions of loans in favor of a broad settlement. A central part of the pact was the distribution of $3.6 billion in cash relief to injured homeowners. The first round of checks, distributed by Rust Consulting, were sent out last week, according to the regulators. But Rust failed to move the money into a central account at Huntington National Bank in Ohio, the bank that issued the checks to homeowners.

Many banks, after spotting a phone number for Huntington on the back of the checks and confirming the legitimacy of the money, agreed to process the payments. But some credit unions, check cashers and community banks apparently looked only at the account number on the unfamiliar looking checks and ultimately found a zero balance, the people briefed on the matter said.

Rust says it does not know how many homeowners encountered the check mishap, adding only that it “was aware of 12 situations.”

The issue of bounced checks is the second hiccup in the process, which has been marred by delays. Authorities initially planned to release payments to roughly 4.2 million homeowners at the end of March, but the relief was pushed back because of a temporary delay, according to several people briefed on the matter.

On Wednesday the Federal Reserve said Rust Consulting had rectified the problems.

In a statement Wednesday, James Parks, a senior executive at Rust Consulting, said, “We apologize to anyone who experienced problems trying to cash their checks.”

He also assured homeowners that the checks were valid.

Business, Pages 25 on 04/19/2013

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