The government’s largest effort to compensate victims of the banks’ foreclosure practices is finally sputtering to an end. But for most of those eligible – nearly three million borrowers – it won’t be much of an ending: they’ll be receiving a check for $300 to $500.

For many borrowers, it’s a likely an unsatisfying end to a process defined by years of frustration. If you were a homeowner in danger of losing your home at the height of the foreclosure crisis, chances are you soon discovered that your bank’s mortgage servicing division was a mess. They were hard to reach, gave you misinformation, lost your documents, and generally screwed things up. In some cases, homeowners were even foreclosed on by mistake.

In 2011, federal bank regulators announced a process to right these wrongs. The Independent Foreclosure Review had a simple aim. If a borrower had suffered “financial injury” (the emotional toll would not be considered), then the review would make it right. Compensation payments would range as high as $125,000.

But for borrowers, it was yet another descent into confusion. Just as so many had waited months and often years for an answer from their servicer, homeowners sent in a pile of documents and watched and waited as 2011 turned into 2012 and then 2013.

The review process ended with a whimper early this year. The process was such a mess, regulators announced, that they’d decided it was better to call it quits. No more trying to determine each borrower’s “financial injury.” The banks would just cut a check for millions of homeowners who had been in foreclosure, regardless of whether they were wronged. 

But even this solution had its complications. Not all borrowers would get the same amount. Instead, regulators said they would break the four million borrowers into various categories. But regulators didn’t announce what the different categories would be or how much borrowers might be receiving. Borrowers would just have to wait a little bit longer.

On Tuesday, three months later, the regulators, the Office of the Comptroller of the Currency and the Federal Reserve, finally released a breakdown of the categories.

Most borrowers will receive little. To be eligible, a borrower must have been in some stage of the foreclosure process at any time in 2009 or 2010 and had their loan handled by one of the major banks covered by the agreement. That’s about four million borrowers. Most of them, about 2.4 million, will receive $300.

Borrowers who took the time to fill out a complaint about their bank receive a small bonus for their efforts: Most of them will get $500 or $600. Only about 11 percent of eligible borrowers filled out complaints, a low response rate both consumer advocates and the Government Accountability Office attributed to borrower confusion and poor outreach by regulators and the banks.

Typical of the subpar communication regulators and banks have had with homeowners, it will be hard for homeowners to divine why they were put into a certain category.

Many borrowers facing foreclosure dealt with their servicer over months or years, and the errors were legion. Borrowers will likely argue they could be put in several of the regulators’ categories. It was common, for instance, for borrowers to be rejected over and over again for a modification before receiving one. Does that mean such a borrower will be receive a payment based on the denials or the approval? OCC officials have said that borrowers who fit in multiple categories will receive a payment based on whichever category brings the highest payment.

It’s also hard to understand some of the differences in payments. In some instances, homeowners who ultimately lost their home are compensated the same as those who did not. In other cases, they reap far more.

At least 1.6 million, or 41 percent of the total pool of homeowners, ended up losing their homes. The data is based on information as of the end of 2011, so the actual number is likely higher, because it doesn’t account for foreclosures in 2012.

Another example of the confusion: The categories are broken down into types of “possible servicer error,” but all possible servicer errors are not created equal in regulators’ eyes. For instance, a borrower who was denied a loan modification and lost her home to foreclosure (a pool of about 370,000 borrowers) will receive $3,000 or $6,000, depending on whether she submitted a complaint. But in cases where the borrower applied for a modification, and the servicer never made a decision and then foreclosed (196,000 borrowers), the payment could range from $400 to $800. If the servicer never even began the modification process and foreclosed (568,000 borrowers), the payment ranges from $300 to $600.

Asked for the rationale behind these decisions, an OCC official explained that regulators deemed the potential for error higher in cases where the servicer actually denied a request. It’s possible, for instance, that a servicer never made a decision because the borrower did not send in the proper documents. Or maybe the borrower never responded to the servicer’s solicitations.

Borrowers waiting for their checks can only hope they suffered the right sort of servicer error.

“People who managed to get far enough along in the [modification] process, many of them will get a decent payment,” said Alys Cohen of the National Consumer Law Center. “But people who suffered servicer neglect clearly are not getting compensation for the harm they suffered.”

Regulators say the first checks will be sent to borrowers at the end of this week, and that almost all payments will have been sent out by the end of April.

Meanwhile, homeowners, let us know what you get in the mail and whether you think you’re in the right category.

The Independent Foreclosure Review was supposed to be a full and fair investigation of the big banks' foreclosure abuses, and it was trumpeted as the government's largest effort to compensate victimized homeowners. Federal regulators, who designed the review, forced banks to spend billions to carry it out. Millions of homeowners were eligible and hundreds of thousands submitted claims. But Monday morning, the very regulators who launched the program 18 months ago announced that it had all been a massive mistake and shut it down.

Instead, 10 banks have agreed to pay a total of $3.3 billion in cash to the 3.8 million borrowers who had been eligible for the review. That's an average of around $870 per borrower. But typical of a process that's been characterized by confusion, delays and secrecy, regulators said the details of how the money will be doled out were not yet available.

The headline number for the settlement is $8.5 billion, but that includes $5.2 billion in "credits" the banks will receive for actions they take to avoid foreclosures, such as providing loan modifications. That's very similar to the separate $25 billion settlement reached last year between five banks, 49 states and the federal government. That settlement has been criticized for awarding credit to banks for things they were already doing.

Officials from Office of the Comptroller of the Currency, one of the federal regulators that ran the review and negotiated the new settlement, did not say how they arrived at the $3.3 billion in cash. Pressed on this question during a conference call with reporters on Monday, an official would only say, "The best way to think about that is that it was a negotiated amount. It represents an acceleration of payments to consumers that results in more consumers getting more money in a much quicker time frame."

Critics had assailed the original review since it was launched. Regulators required each bank to hire an "independent" consultant to review the case of each eligible homeowner, evaluate if the bank had committed errors or abuses and, if so, determine how much money, up to $125,000, that the bank would have to pay the borrower.

But those consultants turned out to be companies that had other contracts with the banks and so relied on them for business, causing consumer advocates and some members of Congress, among others, to question how independent the consultants could be. Fueling suspicion was the fact that many details of how the banks and the consultants actually worked together were kept secret. Last year, ProPublica published a series of articles revealing that the banks' own employees were heavily involved in the supposedly independent review, calling into question its fundamental integrity.

Regulators dumped the review and struck a deal for two main reasons, OCC officials said on the Monday conference call with journalists. The officials spoke on the condition they not be named.

First, they said, the reviews had taken far too much time. That was great news for the consultants that had been hired by the banks to conduct the reviews, because the banks have paid them more than $1.5 billion. But all that work has not resulted in a single payment to a borrower.

Second, months and perhaps years from now, when the consultants finally finished their work, most borrowers still would not have received compensation. The officials said only 6.5 percent of the case reviews completed so far had produced evidence of harm to the borrower.

Given the flaws in the review, it's questionable whether that rate is "remotely accurate," said Alys Cohen of the National Consumer Law Center. "Because the reviews were flawed," she said, "basing a total settlement number on them would grossly understate the harm and really be an abdication of responsibility on the part of regulators."

Divvying Up the $3.3 Billion

The OCC officials said the details of how the $3.3 billion will be distributed had not been finalized and likely would not be made public for several more weeks. But they outlined the basic approach.

As originally designed, the review identified 13 categories of potential harm and put a price tag on each. For the worst errors, banks would have had to pay victimized borrowers up to $125,000, while for lesser problems they would have had to pay only $1,000 or even no cash compensation at all.

The new settlement will work in a similar way. Each of the 3.8 million homeowners will be placed in categories, they said. The categories would be broadly similar to the ones from the review. For instance, one category might be homeowners who were denied a loan modification and later lost their home to foreclosure. Another might be those who were put in foreclosure, but received a modification and are still in the home.

Each category will have an associated payment. Borrowers who fall in more than one category will receive the highest category payment they qualify for.

As for the amounts borrowers in each category might receive, it will likely range from $125,000 down to a few hundred dollars. Officials said the precise amounts had not yet been decided.

Unlike the original review, no case-by-case effort will be made to sort out who was really the victim of a bank error or abuse and who was not. Instead, basic criteria will be used to assign homeowners to a category, and everyone in the same category will receive the same amount.

The banks themselves will sort all the homeowners into the various categories, the officials said, but regulators will oversee that process. They argued that the banks had no incentive to game the process since the total amount each bank will have to pay out had already been determined. There is no way for a bank to reduce that sum.

495,000 borrowers submitted claims as part of the original review process. Those borrowers will receive a higher payment than borrowers who did not submit a complaint, but the officials would not say how much that would be.

It's unclear when regulators will release the full details of the process, but they did commit to a timeline: Borrowers will be contacted by the end of March with news of their payment amount.

ProPublica will continue to provide details as they become available.

As the sixth year of the foreclosure crisis comes to an end, the percentage of loans in foreclosure remains a staggering eight times higher than it was in 2005. About 5.3 million homeowners — about 11 percent of all borrowers — are behind on their payments.

But 2012 was also the year that home prices hit a bottom and have started to very slowly climb. The number of new homeowners falling behind on their payments has dropped substantially since the peak. The government also took a dramatic step: a $25 billion settlement with the five biggest mortgage servicers.

Earlier this year, ProPublica focused on one homeowner — Sheila Ramos, who lost her home in Florida and ended up living in a tent in Hawaii — to pull together all the threads of the crisis and give readers a single story that explains the causes of the crisis, the bumbling response by the big banks and Washington, and the human toll exacted by the whole debacle. It is also available as a Kindle Single, which includes extra material.

We've also been keeping a close watch on whether the government is keeping its promises about compensating victims of the crisis.

The largest program is a review overseen by federal regulators covering more than 4 million loans. It launched back in 2011, but as of mid-December, no homeowner had received any compensation. Office of the Comptroller of the Currency spokesman Bryan Hubbard said regulators had been "working toward beginning compensation for a limited number of people [this month] with reviews and remediation continuing through 2013."

The program — called the Independent Foreclosure Review — has been beset with questions about its fairness, transparency and integrity since it launched. At least partly due to those problems, many borrowers aren't even bothering to apply for compensation. As of November, only 315,000 borrowers have sent in forms requesting to be reviewed, according to the OCC's Hubbard, about seven percent of people eligible to apply. The final deadline to apply is at the end of this month.

Federal regulators designed the program to work like this: Each of the banks would hire an "independent consultant" (approved by the regulator) to conduct reviews of the bank's foreclosure cases. The bank was supposed to foot the bill, but the consultant, not the bank, was supposed to decide which of the bank's customers deserved compensation and how much.

But ProPublica has revealed evidence that the banks themselves are heavily involved in the reviews, calling their independence and integrity into question. After our story about Bank of America's involvement in its review, the bank and its consultant changed their review process. Bank of America also engineered a de facto appeals process; if the consultant decided a BofA customer deserved compensation, the bank could provide more information that it wasn't at fault. Borrowers have no such ability to appeal.

To lead its role in the review, JPMorgan Chase installed an executive named by the Justice Department for allegedly facilitating a scheme to defraud Fannie Mae and Freddie Mac. She declined to comment for our story.

In a telling irony, it seems likely the review will end up steering far more money toward the consulting companies hired by the banks than will go to harmed homeowners.

Finally, some banks have been shockingly slow to begin their reviews. Regulators have ordered Goldman Sachs and Morgan Stanley to conduct reviews of their former mortgage servicing subsidiaries, for instance, but they still haven't begun. The process covers loans that were in foreclosure in 2009 or 2010, but the review won't get going until at least 2013. That seems likely to further deter harmed borrowers from applying for compensation.

A Federal Reserve spokesperson said a company, Navigant Consulting, had been selected to conduct the review for both servicers, but the contracts had not been finalized. It's unclear when the review would begin.

The government's other big reaction to the foreclosure crisis, the National Mortgage Settlement, has also had its disappointments. The deal involved 49 states, the federal government, and the five largest mortgage servicers. The headline number was $25 billion, but only $5 billion of that is actually cash that the big banks would pay out. The other $20 billion is composed of "credits," awarded when the banks take steps to avoid foreclosures, for instance by offering loan modifications that cut the amount homeowners owe.

Of the cash, half — $2.5 billion — was to go to states to address the foreclosure crisis. But as we've reported, almost $1 billion of that is actually being used to patch state's ailing budgets. (See our state-by-state breakdown here.)

$1.5 billion will be sent to borrowers who lost their homes to foreclosure, with each borrower receiving only about $1,000-$2,000. That process has finally gotten underway, and the deadline for borrowers to make a claim to receive that payment is early next year. (See more info about this in our FAQ.)

As for the $20 billion in credits, the banks appear to be in the process of fulfilling those obligations, but there are plenty of questions about how much good it's doing. Some credits are for actions banks were taking already (like demolishing abandoned homes). And although government officials touted the agreement as a way to boost the number of modifications that reduced borrowers' debts, much of the banks' activity hasn't focused on keeping borrowers in their homes. Rather, the number of short sales — an agreement by the bank to sell the home for less than the amount owed — has been far higher.

As the foreclosure crisis and the government's sputtering response enter their seventh year, ProPublica will be keeping watch.

The Independent Foreclosure Review is the government's main effort to compensate homeowners for harm they suffered at the hands of banks — and, as its name indicates, it's supposed to be independent.

But until recently, that was hardly the case with Bank of America. Supposedly independent, third-party reviewers would sit at a computer, analyzing each homeowner's case by going through hundreds of questions, such as whether the bank had properly reviewed a homeowner for a modification or had charged bogus fees. But the reviewers weren't starting from a blank slate. Bank of America employees had already supplied the answers, which the reviewers would have to override if they did not agree.

No evidence has emerged that Bank of America pressured reviewers to accept its answers, and the bank did not supply answers for the final questions: whether the bank should pay compensation and, if so, how much. But those ultimate determinations depended on responses to the preceding questions, and for reviewers the path of least effort was to accept the bank's answers.

This practice only ended a month after ProPublica published a story showing that Bank of America was doing much of the work itself. When that story was published, ProPublica hadn't yet learned that the answers the bank supplied showed up on the reviewers' computer screens as defaults, and Bank of America strenuously denied that it had compromised the integrity of the review. Since November, the reviewers now begin their analysis without the bank's answers.

Bank of America spokesman Dan Frahm confirmed the change: "Steps were taken" so that the independent reviewer, Promontory Financial Group, "could not view answers supplied by the Bank of America Claim Researcher."

Frahm maintained, however, that the change didn't mean the reviews completed under the prior system were tainted. Promontory's employees have always had the ability to "override any answer supplied by the Bank of America Claim Researcher," he said.

Advocates for homeowners aren't convinced. "It's hard to imagine" that Promontory's reviewers weren't influenced by having the bank's answers right in front of them, said Alys Cohen of the National Consumer Law Center. "As a result it seems obvious that the earlier reviews should be re-reviewed."

Potential Conflict of Interest

The Independent Foreclosure Review is the government's largest program to compensate victims of the banks' foreclosure abuses. 4.4 million homeowners are eligible, but homeowners must submit a claim to ensure they're covered by the review. As of the end of November, only 315,000 homeowners had done so, according to regulators, a low response rate of about seven percent.

Victims could receive up to $125,000 in cash compensation or, if possible, get their home back. The review is overseen by the nation's bank regulators, who were spurred to action in 2011 by the robo-signing scandal.

The review has been dogged by criticism since the outset, partly because of how it works. Banks hire and pay consultants to be the independent, third-party reviewers. Bank regulators must approve them, which the regulators say ensures the independence of the review. But critics argue that the consulting firms have other contracts with the banks and so have a conflict of interest: If the consultants anger the banks, they may lose future business.

For its "independent consultant," Bank of America hired Promontory. Promontory is also conducting the review for Wells Fargo, which has the second largest number of loans eligible for review (about 933,000) after Bank of America (1.3 million) of all the banks.

"A Technical Change"

As ProPublica reported in October, all four of the country's largest banks planned to participate heavily in evaluating whether homeowners were harmed, according to their contracts with the consultants. Of course, homeowners claiming their bank abused them were never told the same bank would be integrally involved in the review.

In October, ProPublica uncovered internal Bank of America memos and emails indicating that, while Promontory made the ultimate decision as to a homeowner's compensation, the bank was doing much of the review work itself.

When ProPublica first presented this evidence to Promontory, Bank of America, and the bank's primary regulator, the Office of the Comptroller of the Currency, all three initially denied that Promontory was using analysis performed by the bank's own employees.

Now, even as Promontory and Bank of America confirmed they had changed their system to make the bank's analysis invisible to Promontory's reviewers, both companies insisted that the independence of the reviews had never been compromised.

"Promontory resources have always reviewed the files, performed all tests, and reached independent conclusions, without input or influence from Bank of America," said Promontory spokeswoman Debra Cope. "A technical change was made in November with respect to the visibility of information uploaded by Bank of America file preparers.... Although these responses were previously visible to Promontory reviewers, they never had any bearing on Promontory's independent testing processes."

OCC spokesman Bryan Hubbard said the OCC has a policy of not commenting on specific institutions, but added, "as we have stressed before, the OCC expects the independent consultants to exercise their independence in reviewing and evaluating each file. Our examiners are ensuring that occurs."

The NCLC's Cohen said the core problem with the Independent Foreclosure Review is that it is largely being handled in secret.

"At the end of the day, if the regulators and servicers want to put this behind them, they need the public to believe this is legitimate. Without transparency, you can't have real accountability."

An executive who the Justice Department says facilitated a scheme to defraud Fannie Mae and Freddie Mac is now spearheading JPMorgan Chase's role in the government's program to compensate victims of the big banks' abusive foreclosure practices.

The executive, Rebecca Mairone, worked at Countrywide and Bank of America from 2006 until earlier this year, when she left for JPMorgan Chase, according to her LinkedIn profile.

In a lawsuit filed last month in federal court in New York, Justice Department attorneys allege that Countrywide, which was bought by Bank of America in 2008, perpetrated a two-year scam to foist shoddy home loans on Fannie and Freddie. Neither Mairone nor any other individuals are named as defendants in the civil suit, and no criminal charges have been filed against her or anyone else in connection with the alleged misconduct. But Mairone is one of two bank officials cited in the suit as having repeatedly ignored warnings about the "Hustle," as the alleged scheme was called inside the company, and she prohibited employees from circulating some of those warnings outside their division.

Mairone was chief operating officer of the Countrywide lending division that allegedly carried out the "Hustle." She took the helm of JPMorgan Chase's involvement in the Independent Foreclosure Review this summer, according to a former Chase employee.

The review, overseen by federal banking regulators, requires the nation's biggest banks to compensate victims for harm they inflicted on borrowers. Victims can receive up to $125,000 in cash or, in some cases, get their homes back. But the review has already been marred by evidence that the banks themselves play a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by a central conflict of interest.

Mairone's role raises additional questions about the Independent Foreclosure Review.

The review "never seemed designed to place first the interests of those who were supposed to be helped — victimized homeowners," said Neil Barofsky, the former federal prosecutor who served as the special inspector general for the Troubled Asset Relief Program, better known as the bank bailout.

"Finding out that the person running it for JPMorgan Chase is a person whose conduct in the run-up to financial crisis was allegedly so egregious that she somehow managed to be one of the only people actually named in a case brought by the Department of Justice goes beyond irony," he continued. "It speaks volumes to the banks' true intent and lack of concern for homeowners when addressing the harm that they caused during the foreclosure crisis."

In response to ProPublica's questions about Mairone's role in the foreclosure review and the suit's allegations, Chase issued a brief statement confirming that Mairone is a managing director who is "working on the Independent Foreclosure Review process." The statement added, "It would not be appropriate for us to discuss another firm's litigation."

Chase declined to make Mairone available for comment, and she did not return a message left at her home number.

The Suit's Allegations

Countrywide was the industry leader in subprime loans, which are typically given to borrowers with a troubled credit history. In 2007, the subprime market began to collapse as more and more of those borrowers defaulted on their loans. Countrywide grew desperate to find ways to keep profiting from issuing mortgages.

Fannie and Freddie guarantee home loans, relieving banks of the risk that borrowers will default. So in 2007, the government's suit alleges, Countrywide began the Hustle to pass a huge number of risky loans, many with phony incomes attributed to the borrowers, on to Fannie and Freddie.

At that time, the two mortgage giants were restricting their underwriting guidelines, making it harder for lenders like Countrywide to find borrowers who qualified for Fannie and Freddie backed loans.

The suit alleges that Countrywide deliberately gutted its system for detecting unqualified borrowers, leading to a flood of flawed and outright fraudulent loans backed by Fannie and Freddie.

The new modus operandi was called the "High Speed Swim Lane"; its motto was "Loans Move Forward, Never Backward," according to the suit. The company allegedly paid bonuses to its employees based on the number of loans they pushed through, not on whether the loans were sound. According to the suit, the new system created a torrent of loans that often featured inflated borrower incomes, accelerated by employees who had every incentive to fabricate numbers to get the loans into the "High Speed Swim Lane."

The suit says a number of employees within Countrywide raised alarms about the Hustle before it launched, but that Mairone and the division's president "ignored" those warnings.

Once the new system was up and running, one concerned executive had underwriters run checks on the loans. Mairone allowed the checks, but said they should be run in parallel to the loan funding process so, according to the suit, they didn't "'slow the swim lane down.'"

The tests found a "staggering rate of defects," the suit says, but Mairone did not "alter or abandon the Hustle model." Instead, the suit alleges, she "prohibited" underwriters from circulating the results outside of the lending division. "As warnings about the Hustle went unheeded," the complaint alleges, "Countrywide knowingly churned out loans with escalating levels of fraud and other serious material defects and sold them to" Fannie and Freddie.

The Hustle continued "through 2009," the Justice Department alleges, well after Bank of America acquired Countrywide. The scheme led to more than $1 billion in losses at Fannie and Freddie as borrowers defaulted, according to the suit.

The government took over Fannie and Freddie in 2008, and since then taxpayers have pumped in $187.5 billion to keep them afloat.

The federal suit was first brought under seal as a qui tam suit under the False Claims Act by a former Countrywide and Bank of America executive, Edward O'Donnell, who says he tried to stop the Hustle. A qui tam suit allows a private citizen to sue on behalf of the government and receive a portion of the settlement or judgment if the suit is successful. The Justice Department joined O'Donnell's suit in October in Southern District of New York, filing its own complaint and trumpeting it in a press release.

A Bank of America spokesman disputed allegations in the suit that it had refused to repurchase the faulty "Hustle" loans from Fannie Mae after they defaulted in large numbers. "Bank of America has stepped up and acted responsibly to resolve legacy mortgage matters," said spokesman Lawrence Grayson. "At some point, Bank of America can't be expected to compensate every entity that claims losses that actually were caused by the economic downturn."

A Career Spans the Crisis

Mairone's career has spanned the entire life cycle of the foreclosure crisis.

After working for Countrywide and Bank of America's lending divisions, Mairone moved to the bank's servicing division in 2009. There, at the height of the crisis, she was in charge of deciding how to deal with homeowners who could not pay their mortgages and wanted to modify the terms of their loans.

It didn't go well. The big banks all signed up for the government's main foreclosure prevention program and agreed to provide modifications for qualified borrowers. But as we've reported over the years (we even interviewed Mairone herself in early 2011), the biggest banks often botched loan modifications and regularly subjected customers to errors and abuses, some resulting in mistaken foreclosures. The big banks in general did a poor job, but analyses have shown that Bank of America performed the worst of all. Homeowners had less of a chance of getting a modification from Bank of America than any other major mortgage servicer, studies show.

Such failings eventually led to government efforts to compensate homeowners for the banks' errors and abuses. The Federal Reserve and the Office of the Comptroller of the Currency launched the Independent Foreclosure Review in late 2011. About 4.4 million homeowners are eligible for the review, and those who are determined to have been harmed can receive up to $125,000 in cash compensation.

Regulators required each of the banks to hire an outside consultant to independently conduct the review, but as ProPublica has reported, there is abundant evidence that the banks themselves are playing a large role. The program has also been marked by low participation by borrowers and a lack of transparency.

Regulators have said the banks are only playing a supporting role in the review, and that the consultants are entirely responsible for deciding how borrowers are compensated.

Mairone's current employment at Chase was first reported by The Street, an online news service that covers finance, but the story did not say Mairone was working on the bank's Independent Foreclosure Review. She oversees hundreds of Chase employees who gather documents for the reviews, according to the former Chase employee. Chase declined to say how many employees Mairone oversees or detail her job responsibilities.

Chase's main regulator, the Office of the Comptroller of the Currency, said its policy is not to comment on specific individuals or ongoing litigation. "The OCC and the Federal Reserve are monitoring the conduct of the Independent Foreclosure Review to ensure reviews are conducted fairly and thoroughly," said spokesman Bryan Hubbard.

Jonathan Gandal, a spokesman for Deloitte, the consultant Chase hired for the review, said, "We are conducting an independent review of the files and it is our review and analysis alone that will drive our recommendations. Beyond that, we are not at liberty to discuss matters pertaining to our services."

Nov. 12: This index was updated with the certification cover letters for several more mortgage servicers.

In 2010 and 2011, ProPublica submitted Freedom of Information Act requests for documents showing how the government supervised its flagship foreclosure prevention effort, the Home Affordable Modification Program, or HAMP. More than two years after our first request, Treasury still hasn’t provided all the material we asked for. Here is an index of the documents the department has provided. We will update this list if we receive additional material.

2010 Certifications that Servicers were Following HAMP Rules

American Home Mortgage Servicing, Inc. – cover letter

American Home Mortgage Servicing, Inc. - certification

Aurora Loan Services – cover letter

Aurora Loan Services - certification

Bank of America, N.A. – cover letter

Bank of America, N.A. - certification

Bank of America – BAC/Countrywide subsidiary – cover letter

Bank of America – BAC/Countrywide subsidiary - certification

Bank of America – Home Loan Services subsidiary – cover letter

Bank of America – Home Loan Services subsidiary - certification

CitiMortgage – cover letter

CitiMortgage - certification

GMAC Mortgage – cover letter

GMAC Mortgage - certification

Green Tree – cover letter

Green Tree - certification

HomEq – cover letter

HomEq - certification

JPMorgan Chase – cover letter

JPMorgan Chase - certification

JPMorgan Chase – EMC subsidiary – cover letter

JPMorgan Chase – EMC subsidiary - certification

Litton – cover letter

Litton - certification

Nationstar – cover letter

Nationstar - certification

Ocwen – cover letter

Ocwen - certification

OneWest/IndyMac – cover letter

OneWest/IndyMac – certification

PNC – cover letter

PNC - certification

Saxon – cover letter

Saxon - certification

Select Portfolio Servicing – cover letter

Select Portfolio Servicing – certification

US Bank – cover letter

US Bank – certification

Wells Fargo – cover letter

Wells Fargo - certification

Responses by Servicers to HAMP Audits

American Home Mortgage Servicing, Inc.

Bank of America

CitiMortgage

GMAC Mortgage

JPMorgan Chase

Litton

Ocwen

Saxon

Wells Fargo

Nov. 12: This post was updated to include details of documents ProPublica obtained after the story's publication.

The Obama administration launched its main program to prevent foreclosures in the spring of 2009 with $50 billion and abundant promises. What the Home Affordable Modification Program, or HAMP, lacked — and wouldn’t have for years — was effective oversight of the big banks that were crucial to the program’s success.

Documents obtained by ProPublica shed new light on this failing in 2009 and 2010, when the foreclosure crisis was at its peak and six million American homeowners were in danger of losing their homes. HAMP required mortgage servicers to offer loan modifications to eligible homeowners so that their monthly payments would be lower. The servicers — the largest of which were owned by the banks that had fueled the crisis in the first place — were in charge of reviewing homeowner applications, but the government set the rules and was supposed to supervise their work.

But the documents show that the government did not complete a major audit of the two largest banks in the program, Bank of America and Wells Fargo, until over a year after the program launched.

Such audits were rare at the other large mortgage servicers throughout 2009 and 2010, according to the documents. During these years, when the government provided little oversight and administered no sanctions, servicers reviewed 2.7 million modification applications and denied two-thirds of them. Meanwhile, homeowners regularly complained they had been mistreated by servicers in the program.

The documents also show how the Treasury Department coddled servicers that weren’t complying with the program’s rules. Once a year, servicers are required to certify that they are complying with the program’s rules. But servicers define for themselves what it means to comply. A company that admits violating the rules is allowed to merely submit a cover letter with their certification stating the exceptions and how it would fix the problems.

For instance, on September 28, 2010, PNC Mortgage submitted its certification. Along with that certification, it disclosed five “instances of noncompliance” or “gaps,” as it called them, along with its plans to address the issues (“steps”).

Like all of the documents ProPublica received, PNC’s letters are heavily redacted, so the nature of their “gaps” and “steps” remains secret.

The Treasury defended the oversight of HAMP. “The robust nature of our compliance program, together with the steps we have taken to strengthen protections for homeowners under the program, are critical reasons why homeowners who enter HAMP today show a strong likelihood of long-term success to avoid foreclosure,” said a Treasury spokeswoman.

Prying loose the documents

The documents were hard to obtain. They came as a result of two Freedom of Information Act requests by ProPublica. Initially, the Treasury Department, which administers HAMP, refused to release any documents at all. It was only after ProPublica appealed the denial that Treasury agreed to release some documents, although with large portions blacked out.

One of our requests has dragged on for more than two years, and even after all that time, the department continues to withhold certain documents, though it says it intends to turn over more. (See here for a full index of the documents we’ve obtained so far. If we receive more, we will add them to our collection when we receive them.)

Update: On Nov. 9, ProPublica received another batch of documents. Treasury said it was the final response to our requests. We've updated our index to reflect the new documents.

In some cases, the Treasury even withheld the documents of servicers who never objected to their release. When ProPublica informed the Treasury that certain servicers had said they had no objection to releasing the documents, the Treasury finally turned them over.

“It seems like they’re trying to prevent the information from getting out,” said Rick Blum, coordinator of the Sunshine in Government Initiative, a coalition of media groups. FOIA protects business trade secrets from being divulged, but Blum doubts whether that exception is being fairly applied in this case. The documents mainly concern how servicers were breaking HAMP’s rules, he noted, and “a screw-up is not a trade secret.”

A Treasury Department spokeswoman said HAMP has brought “an unprecedented level of transparency” to the mortgage servicing industry and servicers are “subject to an unprecedented level of compliance oversight.”

That’s damning by faint praise, say consumer advocates. “The reason that the level of transparency and accountability is ‘unprecedented’ is because no one has ever held servicers to account. Just because you have something where before there was nothing, that doesn’t mean that something works or is effective,” said Diane Thompson of the National Consumer Law Center.

Audits slow and rare

By now, HAMP’s disappointing performance is well known. The program was launched with President Obama’s promise to help three to four million homeowners avoid foreclosure. Three and a half years later, the program is only approaching 1.1 million modifications. It’s spent just $4 billion of its original $50 billion budget.

A recent study found a big reason for the program’s failure was that, despite all its rules, it didn’t change the behavior of the biggest banks. The banks did a poor job of modifying loans before HAMP was launched and weren't much better after.

To oversee the program, the Treasury awarded Freddie Mac a $209 million contract to be the program’s watchdog. Freddie Mac formed a group, called Making Home Affordable – Compliance, or MHA-C for short, but it got off to an inauspicious start. In August 2009, Treasury rejected its first reviews of servicers as inadequate because they were “inconsistent and incomplete” and its staff was “unqualified.”

The Treasury has refused to turn over MHA-C’s audit reports — with one exception. The servicer GMAC Mortgage expressly consented to the release of the documents. Those audits, we reported last year, revealed that the servicer had seriously mishandled many loan modifications. MHA-C’s audits themselves contained numerous errors, calling into question the competence of the reviews.

The Treasury didn’t dispute the fact that no major audits of the biggest banks were completed until well after HAMP’s launch. But the spokeswoman said “it is important to note that Treasury began unprecedented reviews of servicer compliance with program directives within the first months of program implementation.” Those earlier “compliance activities” included “on-site reviews” and “sampling of homeowner loan file reviews,” she said.

But the GMAC audits show how cursory those earlier reviews could be. In December 2009, MHA-C reviewed a sample of files, but when it reported its findings to GMAC, it told the servicer that the report was “being provided for informative purposes only, and no response is required from you at this time.” GMAC itself was not the subject of a major audit until July 2010. It was never penalized.

In the new batch of documents, the government has kept secret the audits themselves. But ProPublica has obtained the servicers’ written responses to the audits (see here for an index of the documents). The Treasury scrubbed or withheld almost all of the responses’ substantive content. Even so, they reveal some basic facts.

The watchdog was very slow to conduct major audits of the biggest servicers. MHA-C’s first major audit of Bank of America, the largest servicer in the program, wasn’t completed until July of 2010, more than a year after HAMP launched. The first major audit of Wells Fargo was completed in August of 2010.

By July of 2010, Wells and Bank of America had already denied about 430,000 homeowners a HAMP modification.

Even for big banks that received an audit sooner, oversight was infrequent, the documents show. JPMorgan Chase, the other mortgage servicing titan, received a major audit within HAMP’s first year, but through all of 2009 and 2010, it only responded to two major audits. CitiMortgage, the fourth largest servicer, only received three major audits in that time period.

When Treasury did conduct a major audit of one of the big banks, it often reviewed files that were many months old. A Wells Fargo audit delivered in March of 2011, for example, covered a “review period” of “May/June 2010.”

Once the audits were finished and delivered to the servicers, there was another delay: servicers had a month to respond with “action plans with implementation dates” to address the problems.

A Bank of America audit in late November of 2010 was based on information that was six months old. One month later, Bank of America replied: “In the Report, you requested that Bank of America management respond to the observations, and if we agree, provide a detailed remediation plan, and if we disagree, provide a detailed explanation and evidence to support our position." A page of redacted text follows, so the substance of the bank’s response remains secret.

Bank of America spokesman Rick Simon declined to discuss the communications: “As part of the MHA compliance reporting, servicers may provide information and statements that are of a proprietary and confidential nature, with the full expectation that the Department of Treasury and its agents will treat it appropriately.”

Banks evaluate themselves

In September 2010, the robo-signing scandal hit. A number of the nation’s biggest banks announced they were halting foreclosures to investigate whether they had submitted false filings to courts. The revelations drew immediate attention to mortgage servicers’ failings and eventually led to action by bank regulators and state and federal law enforcement.

Yet the same month that the scandal erupted, mortgage servicers submitted their first annual certification to the Treasury Department that they were complying with HAMP’s rules.

The certifications were toothless. In fact, following a fox-guarding-the-henhouse model, servicers could certify that they were complying even when they were not.

It was up to the servicer to decide whether it was in “material compliance,” according to the certification form. What rose to the level of being a material problem? A Treasury directive gave guidance that is so vague it borders on no guidance at all: “This evaluation of materiality may or may not be quantifiable in monetary terms and should include, but is not limited to, consideration of the nature and frequency of noncompliance as well as qualitative considerations, including the impact on Program goals and objectives.”

If the servicer found that it was, by its own definition, noncompliant, it was required to list the problems and its “action plan” in a separate “cover letter” to be sent with the certification filing. But that was it. There was no penalty.

The Treasury continues to withhold many of the cover letters from ProPublica. Among the documents the Treasury is still keeping secret are the letters for the four largest servicers in the program (Bank of America, Wells Fargo, JPMorgan Chase, and Citibank), although the Treasury has produced their certifications.

Update: On Nov. 9, ProPublica received the cover letters for Bank of America, Wells, Chase, and Citi, among other servicers. All four letters disclosed the banks were not in compliance with HAMP's rules, but Treasury redacted the details.

Still, the documents that ProPublica has received show that several servicers claimed they had no problems to report.

“None to the best of our knowledge,” wrote a GMAC Mortgage executive.

There are reasons to question that statement. Two months earlier, a MHA-C audit had found a number of problems at the servicer, including that it had miscalculated homeowner income in more than 80 percent of audited cases. And that same month, September 2010, GMAC had kicked off the robo-signing scandal by halting its foreclosures across the country.

GMAC spokeswoman Susan Fitzpatrick said the company has “rigorous internal and external controls in place that maintain consistent compliance with HAMP guidelines” and that the servicer was materially compliant with HAMP’s rules when it filed the certification. “The foreclosure issues identified in September 2010 are not related to servicer compliance with HAMP guidelines.”

The Treasury said the certifications were “only one part of a more comprehensive process” that included its audits. “While Treasury uses these certifications as part of the compliance process, certainly we do not rely solely on servicers to self-identify and report their weaknesses,” said the department’s spokeswoman. Servicers were allowed to define materiality for themselves in the certifications because, she said, a “‘one size fits all’ approach would not have been practical.”

“All instances of non-compliance are tracked and pursued to ensure that servicers have and are executing against remediation plans, and that any potentially-affected homeowners are identified and re-evaluated if applicable,” she said.

Penalties were late and fleeting

It was only in the wake of the robo-signing scandal that Treasury decided to take punitive action against servicers breaking HAMP’s rules. In June 2011, it withheld the program’s subsidies to the three largest servicers in the program. HAMP provides incentive payments to servicers, as well as borrowers and investors, to encourage modifications. The servicer subsidies would stop until the banks showed “substantial improvement,” Treasury said.

Wells Fargo soon received a passing grade, but the Treasury continued to withhold subsidies from Bank of America and JPMorgan Chase until the payments were restored as part of the February 2012, $25 billion national mortgage settlement between federal agencies, 49 states, and the five largest servicers. Together, the servicing subsidiaries of Chase and Bank of America have received about $509 million in subsidies through the program.

When asked for comment about HAMP’s limited oversight, the three largest servicers in the program all pointed to Treasury’s recent assessments of how servicers comply with the program’s rules. Those assessments show the banks requiring only “moderate improvement.”

Florida has the highest percentage of home loans in foreclosure in the country. So why is more than $300 million that could help homeowners sitting unused?

Florida was awarded those millions in February as part of the $25 billion national settlement between five of country’s biggest banks and forty-nine states and the District of Columbia. The settlement resolved allegations of wrongful foreclosures and other mortgage servicing abuses, and required banks to offer some homeowners the opportunity to modify their loans or refinance, or, in some cases pay homeowners directly for wrongful foreclosure.

The banks also had to pay $2.5 billion directly to state governments. Florida’s sum was the largest, after California, in part a measure of how deeply the mortgage crisis affected the sunshine state.

Yet Florida is one of just a few states where the Attorney General has not announced plans for a significant portion of the money. We’ve contacted every state to find out what they were doing with that money. Of the $2.5 billion going to states, just over a billion dollars has been pledged for housing-related programs, while a roughly equal amount has been diverted to plug budget holes or fund programs unrelated to the foreclosure crisis. $378 million is still to be determined, and almost all of that is Florida’s.

Florida’s funds are caught between the Attorney General, Republican Pam Bondi, and the Republican state legislature. Bondi has pledged to make the money available to homeowners; earlier this year, she called for suggestions from the public. Some state lawmakers, however, insist that it needs to go through the regular appropriations process — where it could potentially be siphoned off into other programs. And that wouldn’t happen until March, when the legislative session begins.

“We were very happy about the Attorney General’s commitment early on that the money be used within the spirit of the settlement,” said Jaimie Ross, president of the Florida Housing Coalition, an advocacy organization. “But is it just going to sit there until the legislature starts so that we can wait to see how they want to use it? The silence is deafening.”

A spokesman for the Attorney General said, “it’s a matter of having a dialogue between the two sides.” He could not give a timeline for when a decision might be reached. The 2013 budget request Bondi submitted to the legislature last week made no mention of the settlement.

The mortgage settlement states that Florida’s money can be spent “as directed” by the Florida Attorney General for “purposes consistent with” the settlement, such as programs aimed at homeowner protection or consumer fraud. But the legislature should still “play a role,” according to Katie Betta, a spokeswoman for incoming State Senate President Don Gaetz, a Republican.

The Democratic minority leader of the state senate, Nan Rich, said, “It’s unconscionable to be sitting on this money.” 11 percent of Florida’s mortgaged homes are currently in foreclosure, and the state saw 92,000 completed foreclosures in the year ending August 2012, second only to California.

Both Rich and Jaimie Ross of Florida Housing Coalition expressed concern that the legislature could divert the money away from housing. One Democratic representative has already suggested it be used to fund a pay raise for state employees.

It wouldn’t be the first state to see that happen. In May, we showed how almost one billion dollars that states received for the settlement had gone to plug budget holes or fund programs unrelated to the housing crisis. California, for example, received $410 million, but it all went to the general fund. Ultimately, the Attorney General’s office ended up with just $18.4 million earmarked for housing counseling and overseeing the settlement. 

Arizona’s state assembly diverted $50 million – more than half the state’s total – to the general fund. Housing advocates challenged the transfer in court, but a judge ruled this month that it was legitimate. North Carolina legislators also ended up rerouting $7.8 million that had been intended for housing counseling to free up money in the state budget.

New Jersey put the $75 million it received towards various social programs, including affordable housing. But the money funded preexisting programs, rather than supplementing them or starting new initiatives, as part of an effort to balance the budget.

A spokesman for the state treasury told us earlier this year that the settlement did not require them to spend extra money. “If we put [the money] into the budget and don’t have to cut something else, that’s a net gain,” he said. (The treasury didn’t respond to our more recent requests for comment.)  

Advocates and some lawmakers protested the decision not to boost spending for housing. They say it may follow the letter of the settlement, but not the spirit. According to CoreLogic, New Jersey had the second-highest percentage of mortgages in foreclosure, after Florida.

What other states are doing with the money

When we first mapped out where the settlement millions were going, many states hadn’t yet outlined plans. We’ve updated our comprehensive map to show developments since then. Here’s a sampling of what’s happened:

Attorneys general and lawmakers are still working out how the money will be used in a few other states besides Florida:

Some of the states that turned over their settlement money to their legislature haven’t yet seen it spent. The biggest case is Texas, where the legislature won’t meet until January to determine how to budget the $134 million it received.  There’s no requirement that any of that money be spent on housing.

Additional reporting by Paul Kiel.

The idea behind the Independent Foreclosure Review seems simple. During the peak of the foreclosure crisis, the banks broke laws and made errors that hurt homeowners. In response, the government mandated they compensate the victims.

But there is growing evidence some banks are playing a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by conflicts of interest.

Last week we reported that Bank of America, according to bank employees and internal memos and emails, is performing much of the work itself. Now, a ProPublica examination of contracts that outline what work the banks would do on the review shows that America's four largest banks all planned to participate heavily in evaluating whether homeowners were harmed. Three of the four banks would even help set how much compensation victimized homeowners would receive.

The four banks — Wells Fargo, Citibank, JPMorgan Chase, and Bank of America — together account for about three quarters of the 4.4 million homeowners eligible for the program.

The review was designed to work like this: Each bank or mortgage servicer would hire an "independent consultant" to evaluate that bank's foreclosure cases, identify who was harmed and determine how much compensation each victim deserved. The maximum cash compensation a homeowner can receive through the review is $125,000. No money has been awarded yet.

However, the secrecy of the program makes it impossible to know for sure how it's actually being conducted. After being pushed by Congress and borrower advocates, bank regulators publicly posted the contracts between each bank and the consultant each hired last year to provide the "independent" review of foreclosure cases. It's these contracts that show that the banks planned to perform much of the work themselves.

Yet the main regulator for the biggest banks, the Office of the Comptroller of the Currency (OCC), said the contracts don't accurately describe how the reviews work now. "Much has changed," OCC spokesman Bryan Hubbard told ProPublica.

The OCC did confirm that some banks' mortgage servicing divisions are coming up with "self-identified findings of harm/no harm" and presenting them to the independent consultants. But the OCC would not specify which banks are doing this.

Moreover, said Hubbard, any such finding by the banks "does not influence the consultant."

Advocates disagree. "It's hard to imagine that it doesn't influence the outcome," said Alys Cohen of the National Consumer Law Center. "The consultant is supposed to act like an arbiter between the mortgage servicer and the homeowner — except the consultant is not only paid by the servicer, the servicer can put their finger on the scale. Meanwhile, the homeowner is totally in the dark once they send in their application."

What the Contracts Say

Like Bank of America, the other three big banks hired their "independent consultants" last year. Their contracts all describe a similar process for handling homeowner claims: After a homeowner submits a form detailing the bank's ostensible errors or abuses, the bank itself would perform a review of the case to determine if the homeowner was victimized by the bank's own practices. The bank would then pass on its findings to the consultant, which would make the final decision of how much compensation, if any, the homeowner would receive. The program launched in November of 2011, a couple of months after the contracts were signed.

Two companies — Promontory Financial Group and PricewaterhouseCoopers (PwC) — won half of the contracts awarded so far: Promontory is handling the reviews for three banks, PwC for four.

Wells Fargo's contract with Promontory states that the bank would "process the complaint, prepare a recommended disposition, and provide the complaint, the recommendation, and supporting documentation to Promontory for independent review and decisioning [sic]."

Promontory, which is also serving as the consultant for Bank of America's foreclosure review, referred ProPublica back to the same comment it made in response to our previous story and declined to comment further. In response to Bank of America internal documents that indicated Promontory would be relying on Bank of America's analysis for its determinations, a Promontory spokeswoman called the bank's work merely "clerical" and said Promontory employees analyze the material assembled by Bank of America "independently with no involvement from the servicer."

Wells Fargo did not directly respond to ProPublica's questions about whether its employees were analyzing homeowners' files. Instead, spokeswoman Vickee Adams said the bank's role "is focused on providing relevant documents and information to the independent consultants, clarifying or confirming facts or findings and providing all details surrounding the events that occurred related to the foreclosure process."

Citibank's contract language with its consultant, PwC, is very similar to Wells Fargo's. "It is the responsibility of Citibank to prepare the case file and conduct the initial review of the complaint," it states. "Citibank will then forward the in-scope complaints, a report of Citibank's findings and its proposed resolution to PwC for independent review."

A PwC spokesperson declined to comment. Citi spokesman Mark Rodgers said only, "We are compliant with the process we agreed to with the regulators."

Chase's contract with Deloitte & Touche (D&T) is a little different. It says that the consultant would do its own review of homeowner complaints, while Chase "will also conduct its own review. D&T may consider the results of [Chase's] review in preparing its findings."

Neither Chase nor Deloitte responded directly to ProPublica's questions about the bank's role in the reviews. "We continue to work closely with the Independent Consultant, the regulators and the consortium [of banks involved in the program] on the final steps in the Independent Foreclosure Review process," was the entire response from Chase spokeswoman Amy Bonitatibus.

"We are conducting an independent review of the files and it is that review alone that will drive our recommendations," said Deloitte spokesman Jonathan Gandal. "Beyond that, we are not at liberty to discuss matters pertaining to our services."

Smaller Banks

The contracts of many smaller banks are different. The contracts of four banks — Ally Financial/GMAC, MetLife Bank, U.S. Bank, and Sovereign Bank — have clauses that say the banks would gather documents for the consultant's review, but there is no mention of their employees actually analyzing the files and forwarding recommendations to the independent consultants. One bank, OneWest, had no language at all in its contract about bank employees gathering documents or reviewing files. OneWest declined to comment.

The contract between GMAC Mortgage, the fifth largest servicer, and PwC states that GMAC is "responsible for assembling the documents necessary for the review" and should see which files require "immediate action." (The parent company for GMAC Mortgage, which declared bankruptcy earlier this year, is Ally Financial.)

GMAC spokeswoman Susan Fitzpatrick said the servicer only reviewed complaints when the homeowner had not yet been foreclosed on. The purpose of those reviews, she said, was to postpone the foreclosure sale before it occurred if it appeared that any errors had taken place. Regulators have said homeowners who submit complaints while still in foreclosure will "receive expedited attention."

GMAC is not reviewing the files of homeowners who have already lost their homes, said Fitzpatrick, and the servicer "will not propose borrower resolutions," she said. PwC alone makes the final assessment, she said.

PwC declined to comment.

Regulators Differ

The OCC is the primary regulator for most of the 14 banks conducting the foreclosure reviews, but the Federal Reserve oversees four of them. The Fed says that none of its banks are performing regular analyses of the borrower complaints.

But some of the banks overseen by the Fed do have language in their contracts saying the banks themselves would be reviewing the homeowners' complaints. SunTrust, for instance, has language in its contract very similar to what's in Bank of America's. The Fed is also overseeing the review for a subsidiary of Chase, EMC Mortgage Corporation, which has the same language in its contract that Chase does for its main servicing divisions.

Federal Reserve spokeswoman Barbara Hagenbaugh said that regardless of the contracts, none of the servicers it is overseeing are forwarding analyses of the homeowner files to the consultant. "For a brief period of time early in the process, we understand one servicer forwarded a preliminary analysis of files to its consultant," she said. "The consultant has assured us these files were not relied on for its assessments and those analyses are no longer forwarded.

"Federal Reserve examiners are monitoring the consultants and servicers closely to ensure the process remains independent."

By contrast, the OCC described a general procedure followed by the banks it oversees that includes the bank analyzing the homeowners' files and forwarding that analysis to the consultant.

"[The] servicer generally performs its own review of how it administered the file, and will communicate its rationale and self-identified findings of harm/no harm to the independent consultant," the OCC's Hubbard wrote in an email to ProPublica. "The independent consultant may review the servicer's rationale/findings, but will conduct its own review and draw its own conclusions."

Late last year, the country's bank regulators launched a massive program to evaluate millions of foreclosure cases and compensate homeowners who fell victim to the banks' flawed or illegal practices. Regulators dubbed it the "Independent Foreclosure Review" to emphasize that the banks would not be making key decisions about loans they had made or serviced.

But a raft of evidence — internal Bank of America memos and emails obtained by ProPublica, interviews with two bank staff members who have worked on the review, and little-noticed documents released late last year by a federal banking regulator — throw the independence of the review into serious doubt. Together, they indicate that Bank of America — the financial giant with the largest number of homeowners eligible for the program — is performing much of the work itself.

The ultimate decision as to whether and how much a homeowner will be compensated is not made by Bank of America, the evidence shows, but is based largely on work that the bank itself performs. One current employee called that crucial judgment "only a matter of double checking" the bank's work.

Moreover, the bank gets a chance to challenge that key decision before it becomes final — an opportunity not given to homeowners.

Bank of America strongly objects to ProPublica's analysis. It insists that the independence of the review has never been compromised. It maintains that its role "has been and remains gathering documents." While it may discover "an error" in the course of that work, the bank says that an independent review conducted by an outside firm "is the sole and final basis" for determining whether homeowners have been harmed and how much compensation they merit.

A bank spokesman questioned ProPublica's fairness, writing that "there are no facts to support your claim. Yet it seems you have made a decision to move forward with a story based on speculation and a preconceived notion of this issue."

Bank of America's regulator, the Office of the Comptroller of the Currency (OCC), also maintained that the review was independent. After seeing the internal bank documents obtained by ProPublica, the OCC investigated, officials said. The OCC concluded that the documents, which include a memo sent by Bank of America executives to the hundreds of bank employees working on the Independent Foreclosure Review, are "incomplete and inaccurate," said Deputy Comptroller for Large Bank Supervision Morris Morgan.

But the documents and interviews tell a sharply different story, and the stakes are high. The maximum cash compensation a homeowner can win through the foreclosure review is $125,000. Regulators set different amounts for the various errors and abuses homeowners endured, and those distinctions can result in widely differing payments — for instance $15,000 instead of $125,000 for homeowners who suffered very similar abuses.

ProPublica provided the internal Bank of America documents to Sen. Robert Menendez, who chaired a congressional hearing overseeing the foreclosure reviews. He said, "Congress was led to believe that the consultants would be analyzing homeowner foreclosures completely independently of the Wall Street banks, but these memos raise serious questions as to whether that's true. If banks are trying to skew the results in their favor, regulators should stop that immediately."

The senator also said that regulators "should ensure that homeowners have the same opportunities banks do to influence and contest the findings of the foreclosure reviews."

The Document Trail

Federal regulators designed the program to work like this: Each of the big banks would hire an "independent consultant" to conduct reviews of the bank's foreclosure cases. To ensure that these consultants really were independent, the regulators had to approve them. In September 2011, Bank of America hired Promontory Financial Group to be its independent consultant.

Two months later, the OCC released the contract between Bank of America and Promontory. The 118-page document received little notice, but it clearly spells out that Promontory will make its decision only after reviewing the bank's own analysis of each homeowner's claim.

When a homeowner sends in a complaint about the way Bank of America handled his or her foreclosure, the contract states, the bank "will process the complaint and provide the complaint, supporting resolution documentation, report of its findings, and proposed resolution to Promontory for independent review and decision concerning the complaint at issue." Promontory, the contract continues, will then review the "complaints and claims, together with [Bank of America's] recommended resolution and supporting documentation, and provide a decision on the complaint."

Job ads posted in the fall of 2011 for "Foreclosure File Reviewer" positions at Bank of America reflect this scope of work. Among the job duties listed in one ad were "Complete Claim Review and perform Harm Evaluation according to Promontory/OCC definitions"; "If there was financial injury, determine the amount"; and "Perform final determination of Harm." The ads were posted by staffing companies, but the bank confirmed to ProPublica it was the ultimate employer.

An internal bank document created to train employees on their role in the reviews also describes a "claim review" process at the bank. Employees would be running tests on the files to see if there was "harm done to the customer as a result of faulty servicing."

Seven months after the review program had been underway, regulators released their plan for how homeowners would be compensated for abuses and errors. The bank's role then changed, the internal documents say.

A June 2012 internal memo from Bank of America executives to its employees working on the review says the bank will perform all analyses except the final determination of how much, if any, compensation the homeowner deserved.

The OCC has specified eight tests to evaluate whether a homeowner was harmed by a bank, ranging from wrongly rejecting attempts to win loan modifications to charging bogus fees. Bank of America would perform seven of these tests, the memo states, but the final test — the decision of what compensation the homeowner would receive — would be performed by Promontory.

The bank executives wrote that moving the final test over to Promontory would make the entire process more efficient. Bank of America would be able to devote more resources to its seven tests and especially "the highly complex and time consuming" test of whether the homeowner was correctly reviewed for a loan modification. The division of labor — with Bank of America analyzing the files for problems and Promontory deciding on the appropriate compensation based on those problems — meant that homeowners who qualified for compensation would get their checks sooner, they wrote.

The executives hailed the move as bolstering the integrity of the reviews. The change "ensures that harm and financial injury determinations are made solely by the Independent Consultant, further underscoring our commitment to the independence of the [Independent Foreclosure Review]."

Employees who have worked on Bank of America's foreclosure review told ProPublica the memo reflects what they've been hired to do: analyze homeowners' claims, not merely fetch documents for Promontory to analyze. Following a procedure set out by Promontory, they perform tests to see if the bank properly handled the loan. Their work, Bank of America training materials and managers told them, is crucial to the final decision of how much if any compensation homeowners will receive.

As for Promontory's role in making the final determination, a Bank of America employee said the widespread understanding among bank staff working on the review was that "it's only a matter of double-checking."

Bank of America appears to have far more employees working on the review than does Promontory. The bank's employees number about 1,750 according to a spokesman, while Promontory's contract for the review estimates it will need 469. Promontory declined to say how many staff are currently working on the review. Its contract estimated that roughly 290,000 files would need to be reviewed over about a year.

OCC deputy comptroller Morris said banks might have more staff for the reviews than the consultants because gathering all necessary documents can be time consuming.

The Bank of America memo also announced another change: the creation of a de facto appeals procedure for the bank. Designed in part "as a response" to Promontory deciding homeowner compensation, the bank would be adding an "Additional Information" unit, the executives wrote. The unit's job, an employee said, is to respond when Promontory finds that a homeowner deserves compensation by producing any evidence that the bank didn't commit the abuse or error.

In contrast, homeowners who file a complaint will have no opportunity to appeal the determination of whether they deserve compensation or not.

ProPublica asked Bank of America and Promontory to provide any additional internal documents that would shed more light on the roles played by the bank and Promontory. They declined to make any available.

The Bank Responds

Bank of America, Promontory, and the OCC all hotly disputed the idea that the bank's analysis plays any role in the final, all-important compensation decision. But their accounts changed over time, and sometimes contradicted each other as to why and whether Bank of America was analyzing the files rather than merely gathering documents and handing them over to Promontory.

Promontory spokeswoman Debra Cope said Bank of America's employees "are responsible only for the clerical work of assembling the documents and files." Promontory employees analyze the material assembled by Bank of America "independently with no involvement from [Bank of America]," she said. "We perform all the tests."

Initially, the OCC claimed Bank of America's reviews were mainly only for its own use. Morgan, the OCC official, said Bank of America "is free to do its own internal analysis of foreclosure files, but that has nothing to do with the Independent Foreclosure Review."

He went on to explain that the two main reasons a bank might run the tests on its own were to help it gather all necessary documents for the consultant's review and "to learn from and address errors it may have made."

Later, the OCC acknowledged that the results of the bank's own reviews are in fact communicated to the independent consultant. "The independent consultant may review the servicer's...findings, but will conduct its own review and draw its own conclusions," said OCC spokesman Bryan Hubbard.

Frahm, the Bank of America spokesman, said, the internal memo gave the wrong impression because it was intended only for bank employees. "Clearly, if this was something to be released externally, there would have been more context setting and even different word choice to ensure greater clarity."

He strenuously objected to the idea that Bank of America employees conduct any analysis of the files at all. "Bank of America employees conduct no file reviews, they only gather documents necessary to stage files for Promontory," he said.

He later acknowledged that as "part of this file staging process, the bank does inform Promontory if it appears an error was made," but that Promontory "performs their own analysis on each file and Promontory's analysis is the sole and final basis for outcomes."

With regard to the bank having a chance to contest the consultant's final determination of compensation, the Bank of America spokesman said the "Additional Information" unit's job is "to ensure all facts and documents were considered in the finding of financial injury and provided to Promontory for consideration."

The OCC said it was wrong to characterize the unit's work as an appeals opportunity for the bank. "[A]ll servicers have some form of additional information teams responsible for locating and providing all necessary information and documents to independent consultants so they can effectively conduct their reviews," said Hubbard. As for homeowners having no chance to contest the review's conclusions, he said homeowners who don't agree with the outcome of the reviews can still sue the bank, since they don't waive any legal rights by accepting whatever compensation is offered.

Government's Biggest Effort

Regulators created the Independent Foreclosure Review in the wake of the fall 2010 robo-signing scandal, in which it was revealed that banks had filed false affidavits in thousands of foreclosure cases. The foreclosure review would cover a range of bank errors and abuses, including botched handling of loan modifications and charging bogus fees. The program currently covers homeowners whose loans were serviced by fourteen U.S. banks and who were in foreclosure at any point during 2009 or 2010. At the end of 2011, about 4.4 million letters were mailed to potentially eligible homeowners inviting them to request a review.

The review is the government's largest effort to compensate victims of the crisis. The separate $25 billion legal settlement reached earlier this year between the federal government, state attorneys general, and five big banks included about $1.5 billion in payments to homeowners who lost their homes to foreclosure, but those payments, likely in the range of $1,500 to $2,000, will be the same for all homeowners who make a claim regardless of the circumstances.

In response to criticism that the payments were too small, federal officials pointed to the Independent Foreclosure Review as the best place for the victims of the worst abuses to be compensated. For example, HUD Secretary Shaun Donovan said at a February press conference announcing the settlement that the small payments were "always designed to sit in parallel" to the foreclosure review, where "a homeowner can come in, have their claims reviewed at the cost of the banks, and full compensation is made for the wrong at the cost of the banks."

But relatively few homeowners have chosen to participate in the Independent Foreclosure Review. As of late September, about 240,000 claims had been sent in, a response rate of about 5.5 percent, according to the OCC. Consumer advocates and the Government Accountability Office have faulted the "Request for Review" letters that regulators sent to homeowners as being confusing and difficult to understand.

From the launch of the Independent Foreclosure Review, critics, other bank regulators among them, have questioned its independence. In a new book, former chairman of the Federal Deposit Insurance Corporation Sheila Bair writes that she doubted the consultants could truly be independent, because they relied on the banks for a large amount of business: "Why would they conduct a thorough review that could end up costing the banks a lot of money to compensate past victims?"

Promontory has worked previously for Bank of America, but the number and nature of engagements are secret. In the company's contract with Bank of America for the foreclosure review, for instance, there's a page and a half of redacted text under the heading, "Promontory's Past Work with [Bank of America Corporation]." Promontory's spokeswoman said she couldn't comment on confidential client work. An article in The New York Times last year detailed one engagement: Promontory consulted on Bank of America's turnaround plan to cut jobs and costs called "Project New BAC."

Shown the internal Bank of America documents, Bair said they make it seem like her fears have been realized. "This raises new issues of whether the independent consultants are really doing the work or whether they're relying on the banks to do it. It's disheartening."

Over the past several years, we've reported extensively on the big banks' foreclosure failings. As a result of banks' disorganization and understaffing — particularly at the peak of the crisis in 2009 and 2010 — homeowners were often forced to run a gauntlet of confusion, delays, and errors when seeking a mortgage modification.

But while evidence of these problems was pervasive, it was always hard to quantify the damage. Just how many more people could have qualified under the administration's mortgage modification program if the banks had done a better job? In other words, how many people have been pushed toward foreclosure unnecessarily?

A thorough study released last week provides one number, and it's a big one: about 800,000 homeowners.

The study's authors — from the Federal Reserve Bank of Chicago, the government's Office of the Comptroller of the Currency (OCC), Ohio State University, Columbia Business School, and the University of Chicago — arrived at this conclusion by analyzing a vast data set available to the OCC. They wanted to measure the impact of HAMP, the government's main foreclosure prevention program.

What they found was that certain banks were far better at modifying loans than others. The reasons for the difference, they established, were pretty predictable: The banks that were better at helping homeowners avoid foreclosure had staff who were both more numerous and better trained.

Unfortunately for homeowners, most mortgages are handled by banks that haven't been properly staffed and thus have modified far fewer loans. If these worse-performing banks had simply modified loans at the same pace as their better performing peers, then HAMP would have produced about 800,000 more modifications. Instead of about 1.2 million modifications by the end of this year, HAMP would have resulted in about 2 million.

That's still well short of the 3-4 million modifications President Obama promised when he announced the program back in early 2009. But it's a big difference, and a reasonable, basic benchmark against which to compare the program's failings.

The report does not identify these poor performing banks, but it's not hard to ID them. A “few large servicers [have offered] modifications at half the rate of others,” the authors say. The largest mortgage servicers are Bank of America, JPMorgan Chase, Wells Fargo and Citi.

Bank of America in particular (the largest of all the servicers when HAMP launched) has been far slower to modify loans than even the other large servicers, as other analyses we've cited have shown.

Rick Simon, a spokesman for Bank of America, said the banks' “home retention results are significant and in line with our industry peers to date.”

The Home Affordable Modification Program (HAMP) paid subsidies to mortgage servicers on the theory that doing so would convince them to embrace modifications. The authors say that voluntary approach apparently didn't have much effect with the biggest servicers. They weren't very good at modifying loans before HAMP was launched and weren't much better after it launched.

The authors wrote that while they can't be sure why these banks underperformed, they “may not have responded to the program since doing so would involve changing their business focus from processing and channeling payments to actively renegotiating loans. In addition, this may have involved significantly altering their organizational capabilities, such as building appropriate infrastructure and hiring and training servicing staff.”

That echoes on our reporting on how ill-suited the big banks were when it came to modifying loans. The result inside the banks has sometimes been chaos. As one Bank of America employee complained, "The whole documentation collection thing has got to be purposely not funded. Like, I can't get a fax. I work for a huge bank that has tons of money, and you're telling me that I can't get a fax?"

Since HAMP's oversight has been lax — the Treasury Department, which runs the program, has responded indulgently to mortgage servicers breaking HAMP's rules — banks haven't had to worry much about their low modification rates. (You can see this explained with a song. It's also a big part of our book on the foreclosure crisis.)

A Treasury spokeswoman, responding to the new report, said HAMP had resulted in “one of the most comprehensive compliance reviews of mortgage servicing operations in the country. Servicers in the Making Home Affordable Program are subject to an unprecedented level of compliance oversight.”

The report did have some positive findings concerning HAMP. As we've reported, modifications in the program have been more generous to homeowners than modifications done outside HAMP. The authors also found that the program did boost the number of modifications — i.e. it caused modifications that likely would not have happened if not for the program.

The authors also say that HAMP might have induced more modifications if the program had not required such extensive screening of homeowners seeking a modification. From the program's launch, the administration emphasized that the program wouldn't help the wrong sort of “irresponsible” homeowner. That emphasis led to requirements that homeowners send in lots of paperwork to prove their income, which in turn further taxed the big servicers' inadequate systems.

Despite the recent stabilization in home prices and a drop in the rate of homeowners falling behind on their payments, HAMP's limited impact remains a very relevant issue. Even in the sixth year of the foreclosure crisis, the country remains saddled with an extraordinarily high number of loans in foreclosure — about 2 million. That backlog hasn't improved much in the last couple years, meaning it's still hard to forecast when the foreclosure rate will return to a normal level.

Can you put a price on the damage caused by a wrongful foreclosure? Banking regulators have. And it’s $125,000. Or $60,000. Or $15,000. Or… it’s unclear.

Last November, banking regulators launched a process to force the big banks to compensate homeowners victimized by their foreclosure abuses. Many crucial details remained unclear, including how much victims might receive.

More than seven months later, regulators finally released a “framework” that shows some of the possible outcomes. It’s a list of thirteen mortgage servicing “errors,” each with its own associated form of compensation. In addition to fixing the bank’s errors, remedies include cash payments ranging from $500 all the way up to $125,000.

It turns out that, for homeowners seeking compensation for those errors and abuses, it’s crucially important just how the servicer messed up. The logic for the differences in payment isn’t always apparent and in some instances seems to defy common sense.

Two homeowners who each had their bid for a modification mishandled, for instance, could emerge with either $125,000 or $15,000 depending on just where in the process the error occurred. Regulators also left unsettled how homeowners will be compensated for so-called robo-signing, the scandal that provoked the foreclosure review to begin with.

With consumer response to the review so far underwhelming, regulators also extended the deadline for homeowners to submit a claim to September 30. It was originally April 30.

Attorneys with the Office of the Comptroller of the Currency (OCC), the primary regulator for the largest banks, told us the compensation is appropriately tailored for differing circumstances.

Readers wanting to know whether they might qualify for the foreclosure review should see our detailed list of Frequently Asked Questions. The FAQ also covers the separate National Mortgage Settlement arrived at earlier this year.

The worst errors, the ones reaping the $125,000 payouts, fit into three categories. The first covers active duty members of the military who were foreclosed on while protected by the Servicemembers Civil Relief Act. The OCC attorneys said they arrived at $125,000 for these worst errors in part because it’s close to what the Justice Department used in recent legal settlements with banks for violating that law. (In all cases, the cash compensation drops to $15,000 if the servicer returns the home to the borrower.) The $125,000 payment is the same regardless the size of the borrower’s mortgage, but since homeowners aren’t being required to waive any legal claims to accept the money, they could go to court to recoup more.

The other two categories for max compensation encompass a far broader range of homeowners: those who ended up in foreclosure as a direct result of bank error (by mishandling payments, for example) and those who were in trial modifications when the bank foreclosed.

Over the years, we’ve reported extensively on the number of ways that mortgage servicers botched the applications of homeowners trying to avoid foreclosure through a loan modification. Servicers regularly lost homeowners’ income documentation, miscalculated incomes, and generally made homeowners run a gauntlet of errors, confusion and frustration to emerge with a modification. Trial modifications, which were supposed to last only three months and easily transition to a permanent modification, often lasted many months longer only to end badly. Many homeowners were foreclosed on prematurely.

A number of the 13 categories regulators have laid out focus on these modification errors. For instance, if the bank simply never evaluated a homeowner for a modification before foreclosing and the homeowner would have qualified, then the review will result in compensation of $15,000. If the bank denied a modification in error, that’s also $15,000.

But trial modification errors result in much larger compensation, resulting in a discrepancy that seems to make little sense. If the homeowner was accepted for a trial modification, made the payments as agreed, and then the servicer foreclosed without giving a final answer, that would be $125,000. But if the servicer did give an answer to that homeowner, even if it was entirely baseless wrong denial, and then foreclosed, it would be only $15,000.

The attorneys for the OCC said there were a number of reasons that homeowners foreclosed on while in trial modifications deserve much higher compensation than those who suffered other modification abuses. The first and main reason is that there’s a clear legal distinction between the servicer plainly violating a written agreement with the homeowner and other situations. That was one of the main guiding ideas in how they allocated the compensation, they said. The highest amounts are reserved for scenarios where the servicer either violated the mortgage by improperly handling the account or didn’t abide by the trial modification agreement.

If a homeowner fell behind on her payments, applied for a modification, but was foreclosed on before the bank even gave an answer, that’s an entirely different scenario, they said. The servicer’s failure to process the loan modification application “is not the reason why the borrower was foreclosed upon,” said one attorney. “They were foreclosed upon because they were delinquent on their mortgage terms.”

Furthermore, they said, that homeowner wouldn’t have much of a shot in court if she sued, even if it’s clear that the bank broke the rules of the government’s loan modification program (as they regularly did). That’s because the largely toothless program didn’t provide homeowners with any legal recourse for rule-breaking servicers. If, however, the homeowner could point to a clear violation of a written agreement, they might be able to win damages in court.

Such reasoning “turns the idea of remediation on its head,” said Diane Thompson of the National Consumer Law Center. “Borrowers who lose their homes wrongfully for any reason suffer the same amount of financial injury and harm, whether or not they could or would bring a separate lawsuit to challenge that wrongful foreclosure.”

It also sends the wrong message to mortgage servicers, Thompson said, to have such a mild penalty for failing to consider a homeowner for a modification at all when there’s such a significant payment associated with trial modification errors. “This essentially rewards servicers for having failed to process loan mods.”

The OCC said it arrived at its framework after seeking a variety of viewpoints, including those of consumer advocates.

One major aspect of the framework that remains unclear is what might be offered as compensation for robo-signing. The foreclosure review was prompted by revelations that the major banks had filed thousands of false affidavits in courts across the country when seeking to foreclose on homeowners. Banks have also often filed forged or flawed documents when attempting to demonstrate the right to foreclose. But the framework only says that compensation in cases where the servicer didn’t properly document the right to foreclose will be “determined on a case-by-case basis as state law dictates.” The OCC attorneys could give no further information about this.

We have updated our FAQ on the Independent Foreclosure Review to include a brief discussion of the framework, but homeowners wanting more information should see the framework itself and the lengthy FAQ that regulators produced about it.

To help us continue reporting on this issue, homeowners going through the process can also fill out our foreclosure questionnaire or contact us to let us know what's happening.

June 7: This post has been corrected.

If you're a victim of banking abuses during the foreclosure crisis, the government says it'll make sure you receive compensation from your bank. It's a simple idea. But for victims, determining who's eligible, how to apply, and when you might get a check in the mail isn't simple at all.

So we built a list of Frequently Asked Questions. It guides homeowners and other readers through the two separate government efforts: the National Mortgage Settlement and the Independent Foreclosure Review.

While both share the goal of providing some compensation to homeowners who were harmed by their banks' abuses or errors, the two have very different approaches.

The National Mortgage Settlement is a deal struck by attorneys general from 49 states and the federal government with five of the biggest banks, and it takes a pragmatic approach. Instead of trying to calibrate compensation to how badly each homeowner was harmed, officials opted instead for a one-size-fits-all solution. Everyone who qualifies for compensation will get the same amount of money. And the paperwork will be minimal: Homeowners will only have to check a box saying they were harmed.

Even with this simplified process, it will take months before people can expect to see the check in the mail. The best guess now is in the first three months of 2013.

And the check, critics contend, will be small. Exactly how much each homeowner will get depends on how many people claim they were harmed. Officials in charge of the settlement have estimated that 750,000 people will respond, and since $1.5 billion has been set aside, that means each victim would receive about $2,000. If only 500,000 people responded, the payments would jump to $3,000. If a million responded, the payments would drop to $1,500.

The Independent Foreclosure Review is much more complicated. Conceived and overseen by federal banking regulators, the review aims to calculate each homeowner's exact "financial injury."

The effort got underway last November when 4.4 million letters went out to homeowners. As of May 24, fewer than 200,000 homeowners had replied, a response rate of just 4.5 percent, according to regulators. Homeowners have until July 31, but there's no doubt the response is underwhelming.

Housing counselors say a major reason is that homeowners are confused or intimidated by the forms. The mailing was a four-page questionnaire called a "Request for Review Form" that contains 13 questions, some of them specific and technical, such as: "Do you believe you were protected by an insurance policy issued by the servicer or an affiliate that would have made your payments in the event of unemployment, disability, or illness, but did not do so?" Many homeowners thought the letter was a scam, didn't know how to fill it out, or didn't understand what they stood to gain from filling it out, according to a recent survey of counselors by the California Reinvestment Coalition.

Initially, regulators did not make the form available online, but an updated version of the Independent Foreclosure Review's website allows homeowners to fill it out and submit it through the site. Homeowners can also call 1-888-952-9105 (Monday through Friday, 8 a.m. to 10 p.m. or Saturday, 8 a.m. to 5 p.m. Eastern time) to get the form.

The form is crucial; if a homeowner doesn't send it in, there is no guarantee his case will be reviewed. (Some cases will be flagged for automatic review — but so far just 142,390 out of 4.4 million.)

Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency, the main regulator for the biggest banks, said the response was likely to grow because regulators were continuing an ad campaign (such as this one) and would be mailing a reminder to those who hadn't responded.

As we reported back when it launched last year, many aspects of the Independent Foreclosure Review aren't transparent. While some details have been released — such as which companies have been hired to conduct the reviews (see the FAQ for a list) — other key details remain secret. In particular, regulators still haven't released how they will calculate "financial injury." Even the form of compensation &mdash cash or something else — remains unclear. An example of non-cash compensation, said OCC's Hubbard, could be repairing a borrower's credit report. Hubbard said regulators are developing answers to these questions, but it's not clear when they will release them, let alone when homeowners can expect to receive any kind of compensation.

The OCC has made one major determination: Homeowners will not be asked to waive any legal rights in return for compensation, said Hubbard.

Given how much remains unclear, we will continue to update our FAQ as the process develops. To help us continue reporting on this issue, homeowners going through the process can fill out our foreclosure questionnaire or contact us to let us know what's happening.

Correction: This post has been updated to reflect the fact that homeowners can submit their application for the Independent Foreclosure Review online. It's also been updated to clarify that homeowners eligible for the review will only be receiving a reminder through the mail this summer, not another copy of the request for review form.

May 24, 2012: This post has been updated to clarify Virginia’s use of its settlement funds.

States have diverted $974 million from this year’s landmark mortgage settlement to pay down budget deficits or fund programs unrelated to the foreclosure crisis, according to a ProPublica analysis. That’s nearly forty percent of the $2.5 billion in penalties paid to the states under the agreement.

The settlement, between five of the country’s biggest banks and an alliance of almost all states and the federal government, resolved allegations that the banks deceived homeowners and broke laws when pursuing foreclosure. One part of the settlement is the cash coming to states; the deal urged states to use that money on programs related to the crisis, but it didn’t require them to.

ProPublica contacted every state that participated in the agreement (and the District of Columbia) to obtain the most comprehensive breakdown yet of how they’ll be spending the funds. You can see the detailed state-by-state results here, along with an interactive map. Many states told us they’ll be finalizing their plans in the coming weeks. We’ll be updating our breakdown as the results come in.

What stands out is that even states slammed by the foreclosure crisis are diverting much or all of their money to the general fund. In California, among the hardest hit states, the governor has proposed using all the money to plug his state’s huge budget gap. And Arizona, also among the worst hit, has diverted about half of its funds to general use. Four other states where a high rate of homeowners faced foreclosure during the crisis are spending little if any of their settlement funds on homeowner services: Georgia, South Carolina, Wisconsin, and Maine.

Overall, only about $527 million has been earmarked for new homeowner-focused programs, but that number will go up. A number of large states — in particular New York, Nevada, Illinois, and Florida — have indicated they’ll be dedicating substantial amounts of the funds to consumer programs, but haven’t yet produced a final breakdown.

Iowa Attorney General Tom Miller, who led the coalition of attorneys general who negotiated the deal, argued that only a very small portion of the settlement was being diverted and it will “overwhelmingly” benefit homeowners. The centerpiece of the settlement is a requirement that the banks earn $20 billion in “credits” by helping homeowners in various ways — from reducing principal on underwater homes to bulldozing empty ones. Because the system awards only partial credit for certain actions, Miller said the settlement would bring more than $20 billion in benefits to consumers — he estimated $35 billion. Critics contend those sorts of numbers far overstate the benefits to consumers, because the banks can claim credit for some activities that were already routine.

The banks will only pay $5 billion in actual cash penalties under the agreement. The largest chunk, $2.5 billion, goes to the states’ attorneys general, while about $1 billion goes to the federal government. $1.5 billion will be sent to borrowers who lost their homes to foreclosure during the crisis in the form of $2,000 payments.

Compared with the billions going to consumers, Miller contended, $1 billion going to states’ general funds was minimal. It was always expected that the states would divert some of the money to their general expenditures, he said.

But when announcing the deal, state and federal officials said the states’ $2.5 billion would mainly fund housing counselors and legal aid organizations. Studies have shown homeowners stand a better chance of avoiding foreclosure if they get the help of a counselor, and homeowners lack legal representation in the overwhelming majority of foreclosure cases. The money was divvied up among the states according to a formula that took into account how large the states were and how hard they were hit by the crisis.

As you can see from our breakdown, 15 states have so far allocated over half their amounts to consumer-focused efforts. But the uses range widely. In Ohio, $75 million has been set aside to destroy some 100,000 abandoned homes. In Minnesota, the state is setting up a fund to compensate victims of the banks’ foreclosure abuses.

In two of the states most affected by the foreclosure crisis, California and Arizona, the attorneys general had intended to use most of their funds on homeowner-related efforts before the governors intervened.

After California Attorney General Kamala Harris prepared a proposal to spend the money on counselors, lawyers, and other consumer-related efforts, Gov. Jerry Brown released a proposed revised budget last week that used the state’s $411 million for existing housing programs. In other words, the money would just be used to help fill the state’s $16 billion budget deficit. Harris opposes the move, which still must make its way through the state legislature for it to become law.

In Arizona, the attorney general had similar plans. Then state lawmakers and the governor took $50 million of the $98 million coming the state’s way. Although the budget legislation stated that the money should be used to fund departments related to housing and law enforcement, there will be no new spending. Housing advocates are readying a lawsuit to stop the transfer and expect to file in the coming month, said Valerie Iverson, Executive Director of Arizona Housing Alliance.

Several other large states have diverted most or all of the money:

• Georgia directed all of its $99 million to programs designed to attract new businesses. A spokesman for the governor said, “He believes that the best way to prevent foreclosures amongst honest homeowners who have experienced hard times is to create jobs here in our state.”

• In Missouri, the state legislature used almost all of its $39 million to fund higher education, which had been slated for cuts. The attorney general’s office kept $1 million for hotlines and outreach related to the settlement.

• Virginia put the entirety of its $66.5 million into the state’s general fund without restrictions. In March, Democrats proposed a budget amendment that would funnel all of the money to foreclosure prevention and homeownership programs, but it was voted down. $7 million was ultimately allocated to a state fund for housing programs. While the appropriation was not explicitly tied to the settlement in the final budget, lawmakers involved in the negotiation said that the funding was as a result of the settlement.

• Wisconsin Governor Scott Walker announced soon after the settlement was finalized that the bulk of it—roughly $26 million—would go into the state general fund. Two million went to an economic development fund, including funds for demolition in blighted neighborhoods. Many state Democrats and housing advocates opposed the plan, but failed to block it.

• Texas directed its $135 million to the state’s general fund, of which $10 million has been allocated for basic services to low-income Texans. The legislature won’t formally decide what to do with the rest until next January because it meets only once every two years. John Henneberger, co-director of Texas Housers, an affordable housing group, said that in speaking to legislators, advocates had “received no assurances that this money will be used according to the purposes of the settlement.”

ProPublica will continue to track how the funds are being used in the coming months. Check out our breakdown and interactive map for updates.