This week, banking regulators launched the government’s Independent Foreclosure Review, claiming it to be a thorough and fair way to compensate homeowners affected by big banks. However, early signs suggest that this program, much like its predecessors, has fundamental flaws. It is unclear how compensation will be calculated, what form it will take, and which bank errors or abuses will be taken into account. Furthermore, Democratic lawmakers have questioned the qualifications of those deciding who deserves compensation, and the process allows for no appeals. This is especially concerning as the process requires homeowners to put forward their cases in writing, a challenge that many borrowers may not have the expertise to complete.
The Home Affordable Modification Program, the Obama administration’s previous main effort to aid troubled homeowners, attempted to keep borrowers in their homes by facilitating loan modifications. The new review, however, has a different goal and was developed by independent federal bank regulators. It will evaluate up to 4.5 million home loans to determine whether borrowers were victims of bank errors or abuses, and if so, what compensation the banks must pay. As the task of evaluating so many loans is beyond regulators’ capacity, they have selected eight independent consultants to do the work. The government has refused to identify these consulting firms, but has since stated that it will.
Many details unclear
On Tuesday, regulators revealed that they have yet to determine how consultants and regulators will calculate the financial harm a homeowner has suffered, and the form of compensation – cash or otherwise – that banks will be required to pay. While guidance has been issued to independent consultants on this topic, regulators have declined to make these documents available to the public. In April, regulators issued “consent orders” that outlined some of the faults committed by the biggest servicers, and mandated a new foreclosure review to address past problems and set standards for servicers going forward.
The identity of the eight consulting firms that will conduct the reviews has been withheld, which has drawn criticism from members of Congress. 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. The OCC has said it will release these documents later this month.
The qualifications of personnel conducting the reviews have also been questioned. At least three temporary staffing agencies have posted positions for a “Foreclosure File Reviewer”, with typically little more than some foreclosure or mortgage-servicing experience required. Rep. Maxine Waters, D-Calif., has expressed concern that servicers intend to hire individuals with no more expertise than the “robo-signers” that created many of these problems in the first place.
The Office of the Comptroller of the Currency (OCC) has launched a review process to address servicing abuses, with Comptroller Thomas J. Curry’s Senior Deputy Comptroller and Chief National Bank Examiner, John C. Hubbard, assuring that the consultants involved have been trained extensively and will be supported by subject matter experts. The duration of the review is uncertain, with OCC’s Deputy Comptroller for Compliance Operations, Richard C. Evers, indicating that it will not take years. Despite this, many consumer advocates and homeowners have expressed skepticism, as regulators had previously overlooked servicing abuses and the process was developed without input from housing counseling and consumer groups. However, Hubbard has stated that regulators did meet with consumer groups last week to discuss the process, and that Hope Now, a servicer-dominated alliance with counseling organizations and community groups, had been involved earlier. Consumer groups have yet to receive any substantial information from the meeting.
Burden on borrowers
The Office of the Comptroller of the Currency (OCC) has announced that it will review loans from servicers to identify those with the potential for financial injury. To ensure that all eligible loans are reviewed, homeowners can submit a Request for Review Form. The form, which has not been publicly released, is a five-page document that requires homeowners to answer yes-or-no questions and provide a description of how they may have been financially injured. However, due to the complexity of the form and the legal and technical expertise required to understand how a foreclosure may have been wrong or abusive, many homeowners may lack the necessary knowledge to complete the form. John Walsh, head of the OCC, has stated that the review will use a statistical sampling method to select loans with the highest potential for financial injury. The Financial Services Roundtable, a trade group representing the biggest banks, has expressed concerns about fraudulent requests, but has not released a sample of the form.
The review process
Borrowers affected by the foreclosure crisis are now able to request a review of their case by consultants appointed by the Office of the Comptroller of the Currency (OCC). The consultants will review the loan files and write a report for regulators and the loan servicer, but not the borrower. Upon approval of the report, the servicer will send the borrower the findings and any compensation that is due. It is unclear whether borrowers will have to waive their right to sue the servicer in exchange for the compensation. The OCC will also oversee an advertising campaign to inform borrowers of their rights.
Unfortunately, one homeowner, Dan Sanders of Marysville, Calif., received incorrect information from the OCC’s Customer Assistance Group. According to the OCC’s ombudsman, this was the result of a single employee’s mistake and was not indicative of a larger problem. Sanders can still submit a request for review, and his case will be evaluated.
