Yet Another Failed Attempt to Help Homeowners
The fundamental problem with the federal government’s new foreclosure-review program.
Photograph by John Moore/Getty Images.
Banking regulators this week launched the government’s latest attempt to help troubled homeowners—the Independent Foreclosure Review—heralding it as a thorough and fair way to compensate homeowners victimized by big banks. But early indications are that this program, like earlier efforts, has fundamental flaws.
The most central question, how compensation will be calculated, has not been determined, regulators said, and it’s even unclear what type of compensation borrowers would get: cash or a nonmonetary remedy. Many key elements of the program have been kept secret, including the specific bank errors or abuses that would merit compensation. Democratic lawmakers have questioned whether the personnel deciding who deserves compensation are qualified to do so. And the process, which allows no appeals, can require homeowners to put forth their cases in writing, a formidable task that consumer advocates say many borrowers lack the expertise to do.
The government's previous main effort to aid troubled homeowners, the Obama administration’s widely criticized Home Affordable Modification Program, attempts to keep troubled borrowers in their homes by facilitating loan modifications. The new review has a different goal, and it was developed by federal bank regulators, who are independent from the administration.
The review is one response by regulators to the widespread revelations last fall that mortgage servicers—companies that collect home-loan payments—were regularly filing false affidavits signed by so-called robo-signers. The new program will evaluate up to 4.5 million home loans to determine whether those borrowers were victimized by bank errors or abuses and, if so, what compensation the banks must pay.
The task of evaluating so many loans—those in foreclosure at any point during 2009 or 2010—is beyond regulators’ capacity. So the two agencies heading the effort, the Office of the Comptroller of the Currency and the Federal Reserve, have overseen the selection of eight “independent consultants” that will do the work. The government has refused to identify these consulting firms, though it now says it will.
Regulators said Tuesday they have not yet determined how the consultants and regulators will calculate the financial harm a homeowner suffered, and therefore what compensation the banks would have to pay. Even the form of compensation—cash or something else—remains unclear. An example of noncash compensation, said OCC spokesman Bryan Hubbard, could be repairing a borrower’s credit report.
Regulators have declined to provide a comprehensive list of the problems the consultants will be looking for—in essence, what constitutes an abuse or error by a mortgage servicer. Regulators have issued guidance on this topic to the independent consultants, but during a conference call Tuesday with reporters, they declined to make those documents available.
Regulators have given some public indications of what they’ll be looking for, which we note on our FAQ about the foreclosure reviews. In April, regulators issued "consent orders" that laid out some of the faults committed by the biggest servicers, which collectively handle almost 70 percent of the country's mortgages. The orders also mandated this new foreclosure review to address past problems and general standards that servicers should follow going forward.
So far, regulators have withheld the identity of the eight consulting firms that will conduct the reviews — a stance that angered some members of Congress. In July, a group of about two dozen senators and representatives—all Democrats except for Sen. Bernie Sanders, the Vermont independent—objected to the lack of transparency and questioned whether the consultants had conflicts of interest such as ongoing business relationships with the banks.
The consultants will be paid by the banks, but regulators must approve each consulting firm and its scope of work. Last week, some House Democrats pushed to subpoena the documents, called engagement letters, that identify the consulting firms and spell out what they would do. On Tuesday, the OCC said it will release those documents later this month.
OCC officials say they’ve worked diligently to ensure that the consultants are truly independent of the banks. The banks sought to hire some consulting firms and law firms that had “inappropriate conflicts,” said Joe Evers, the OCC’s deputy comptroller for large banks, so regulators disqualified those companies. Evers declined to identify the firms or how many had been disqualified.
Lawmakers have also expressed concern about the experience of the personnel who will conduct the reviews. At least three temporary staffing agencies have posted positions for a “Foreclosure File Reviewer.” (One agency said it doesn’t discuss its clients, and the other two didn’t return phone calls requesting comment.)
The ads reviewed by ProPublica typically call for some foreclosure or mortgage-servicing experience but little else. Critics have questioned whether the people filling these positions will be qualified to determine whether servicers followed the law.
Paul Kiel is a reporter at ProPublica, a Pulitzer Prize-winning nonprofit investigative newsroom.