Tess Vigeland: The mortgage mess has been with us for several years now. Horror story after horror story of home ownership gone terribly wrong. Borrowers certainly played their part in this drama, but so did the nation's banks. And this week, they got some measure of comeuppance. In a deal with federal regulators, mortgage servicers agreed to change the foreclosure process and compensate those wrongly evicted. But for many consumers, it's not enough.
Marketplace's David Gura reports.
David Gura: Jacqueline Freeman and her husband live on a small farm in Washington state, with cows and goats and chickens.
Jacqueline Freeman: Hey girls. Here chick, chick, chick!
And a few years ago, money got tight. So, she called her bank, to ask for a loan modification. And they told her she couldn't get better terms unless she was delinquent. They said skipping two payments would do the trick.
Freeman: Oh my gosh, I didn't sleep that first night, because I had never been late in a mortgage payment.
After two cycles, she started making payments again, but Freeman never got the loan modification.
Freeman: About a year later, we got a foreclosure notice, and I said, "Well, that can't be right. We've done exactly everything that the bank has requested of us."
She ended up on what's called the "dual track," where mortgage modification is in a race against foreclosure.
Katie Porter is a law professor at the University of Iowa.
Katie Porter: So, you can have a consumer complying, sending in paperwork, doing everything they're supposed to be doing to try to get this loan modification, but if the foreclosure proceeds more rapidly, the home owner winds up without a loan modification.
More than half of the mortgage servicing industry, 14 companies, have signed "consent orders" with federal regulators -- promising to change their ways, to hire more staff and consultants. But Porter is skeptical.
Porter: It's very difficult to evaluate whether or not this consent order goes far enough, is powerful enough and will actually correct the abuses.
Attorneys general from all 50 states have been pursuing a settlement for years. They want mandatory loan modifications and as much as $20 billion for borrowers. Porter says the companies were shrewd to settle with the federal bank regulators.
Porter: By settling with some of them, they weaken the leverage of the remaining regulators, like the states attorney generals.
Now, she says financial institutions have less incentive to settle with the attorneys general.
Porter: Their alternative is going to be to file lawsuits. They'd have to do that in every single state, if they wanted to affect relief in every single state, and they'd have to allow the judicial process to move forward.
The consent orders call for the companies to pay borrowers who suffered financial injury as a result of wrongful foreclosure. But the sum is yet to be determined. And regulators told the firms to come up with their own plans for how to do that.
Jacqueline Freeman has a message for folks in the other Washington.
Freeman: You know, I think the congressmen, their ears get turned a lot by what the banking industry says they can and they can't do. And they don't really think of themselves as much as being able to police the industry as I'd like to see done.
Freeman finally got her senator involved and got her loan modified. She's just grateful she and her husband made it through.
In Washington, I'm David Gura for Marketplace Money.