After a year and a half of bungled work and plenty of criticism, the Obama administration decided to close down its review of mortgage fraud this week and order banks to pay a sum that consumer advocates say falls short of what’s fair.

The Independent Foreclosure Review was established 18 months ago to vet how banks handled home foreclosures and to compensate Americans for any wrongdoing.

In the end, federal regulators decided on an $8.5 billion settlement that banks must pay. But of this total, only $3.3 billion is actual cash, while another $5.2 billion represents “credits” that financial institutions will receive for avoiding future foreclosures.

The $3.3 billion in funds will be distributed to about 3.8 million borrowers who were eligible to have their foreclosures reviewed. That amounts to approximately $870 per homeowner.

The Office of the Comptroller of the Currency, one of the federal regulators that managed the review and negotiated the new settlement, would not reveal to the media how it decided on the $3.3 billion figure.

As for the review itself, the process was wrought with problems, starting with the fact that banks were allowed to hire “independent” consultants to review mortgage files—consultants who often turned out to have business relationships with the banks they were reviewing, thus creating potential conflicts of interest.

-Noel Brinkerhoff

To Learn More:

Feds Replace Flawed Foreclosure Review With Vague $8.5 Billion Settlement (by Paul Kiel, ProPublica)

$8.5 Billion Foreclosure Fraud Settlement: Yet Another Loss for Homeowners Touted as a Victory (by Yves Smith, Naked Capitalism)

Foreclosure Deal Credits Banks for Routine Efforts (by Shaila Dewan and Jessica Silver-Greenberg, New York Times)

Bank of America Gets Away with Paying $10.3 Billion to Settle Foreclosure Fraud Case with Fannie Mae (by Noel Brinkerhoff, AllGov)

Bank of America Provided Pre-Answered Questions by Independent Foreclosure Reviewers (by Noel Brinkerhoff, AllGov)