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By Michael Olenick, a regular contributor on Naked Capitalism. You can follow him on Twitter at @michael_olenick
Every time it appears that the OCC foreclosure reviews have hit bottom they sink further into the morass. Our latest example comes from a petition GMAC/ResCap filed as part of their bankruptcy. This example shows how banks are spending simply staggering, implausible amounts of money on foreclosure “reviews”, and how keen they are to enrich anyone other than wronged borrowers. Given that some of these foreclosure reviewers are also in the business of “scrubbing” loan files and creating (as in fabricating) allonges, you have to wonder whether the amount of money being spent is not on review but also “remediation” and is being bundled in with the review costs. Think of the twofer: you get to call your chicanery something else, and blame the cost on the banks’ favorite scapegoat, those big meanie regulators.
This information comes from a petition GMAC/ResCap filed as part of their bankruptcy and exposes the multiple and pricey roles being played by PriceWaterhouseCoopers (hat tip friend, colleague, and foreclosure defense super lawyer Matt Weidner).
As has already been noted in a multi-part investigative series by Jeff Horwitz and Kate Berry of American Banker these reviews are expensive; so expensive they are projected to pay $4 to reviewers for every $1 paid to homeowners. GMAC alone projects they may spend $250 million on reviews by PriceWaterhouseCoopers (PWC). In the 90 days beginning January 12, 2012, GMAC spent $51,658,206. They do not disclose the number of loan reviews this covered though, in a different petition, they clarify they used sampling to review 5,000 loans and 12,000 “borrower outreach complaint samples.” Giving them the benefit of the doubt, that every loan was reviewed during the 90-days, that comes to an obscene $10,331.64/loan. In contrast, Fannie and Freddie pay $1,250 in legal fees for an entire judicial foreclosure, beginning to end.
Several fee schedules are included, with varying roles and amounts, though it’s clear that everybody is well paid. Associates bill $235/hr., Senior Associates bill $300/hr., Managers bill $370/hr., Senior Managers bill $470/hr., Managing Directors are paid $610/hr., and Partners bill at $630/hr. To compare and contrast salary.com reports the 90th percentile pay for Family Practice Physician’s is $225,931, which comes to $868.97/day. So it’s less expensive to have a doctor spend a whole day figuring out what ails a person than it is to have a PwC partner spend 90 minutes reviewing what’s wrong with foreclosure files.
At the rates PwC charges a Senior Associate, Manager, and Partner each have to spend eight hours on a file, which comes to about 21 hours more than the top foreclosure defense lawyers tell me they spend on initial file intake. Foreclosure defense lawyers initial 2-3 hour review yields an approximate 95% serious error rate, though it probably helps to be a local, licensed lawyer when reviewing files for legal fraud. The number of hours being billed is so absurd relative to any possible actual work involved that it’s obvious PwC is not being paid for its expertise, but to give a clean/largely clean bill of health, and the banks will pay whatever it takes to get that.
This raises the question of who trained PwC and the answer is interesting: GMAC, the firm being audited for fraud. “During their engagement, PwC professionals have developed institutional knowledge regarding [GMAC's] operations and systems.” Great.
Since part of the review involves performing legal analysis, specifically “potential violations of state foreclosure laws .. [and] the Debtors’ standing to bring foreclosure actions…” Legal analysis is, of course, a regulated activity so this is sent to a law firm, Hudson Cook. I had to click through to exactly the second partner in the list to find he is a past member of the Mortgage Banker Association’s “Alt-A and Nonprime Council.” Further, their clients include Bank of America, Bank of New York, Citibank, JP Morgan Chase, National City Bank, Ocwen, PNC Bank, and several mortgage insurance companies. I’m sure they’ll diligently scour for bank perpetrated foreclosure fraud. Of course, maybe they’re forwarding the files to local lawyers in individual states since using, say, a Maryland attorney to draft a legal opinion of a Florida case is likely the Unlicensed Practice of Law. If that’s the case – and there is nothing to indicate whether it is – hopefully they’re studiously avoiding lawyers from shuttered foreclosure lawyers, since in that case the lawyers would be screening their own files for fraud. If either the OCC or the state Bar Associations apparently see nothing wrong with any of this PwC did not mention it in their quarter-billion dollar motion.
One thing they did mention, repeatedly, is that they are simultaneously working for and working closely with mortgage servicer Nationstar to raise capital to purchase GMAC assets. They’ve even given a name to the team, the “PwC Nationstar Team,” which they put in quotes, and explained that there will be “no communications or exchanges of information protected as confidential or as client secrets” because they established an “ethical wall,” which they also put in quotes. They do mention conflicts of interest, and promise to use “reasonable efforts” to file a supplemental declaration should they find any. That’s reassuring.
For those steep fees PwC is putting a lot on the line: they agreed to self-indemnify for gross negligence and intentional misconduct as opposed to, say, everything. Since GMAC is a $16 billion corporate welfare creation you’d think that PwC, with their full-freight charges, would assume full professional liability but that’s not the case. Quoting Mel Brooks, “it’s good to be King.”
Yves asked me to write this article almost a week ago and I procrastinated. Partly it was the election, where we saw Republicans melt down in real-time as delusional polling collided with reality, something I expect soon enough in the broader housing market. But there was something deeper: it’s exhausting to continually write about overt awful behavior related to foreclosure fraud review. The last piece I wrote, where a former Countrywide consultant was overseeing the AG settlement, received a low number of comments. I don’t think that piece was poorly written; I think Naked Capitalism readers are also exhausted, or not surprised.
While on one level, it’s fitting that banks are paying a lot of money to deal with the foreclosure mess, this money isn’t going to fix the problem, or help borrowers, it’s just papering over abuses so that the banks and regulators can pretend they’ve improved matters. However, if we’re ever going to rebuild a private mortgage market the public has to be regain trust in both the financial system as well as regulatory oversight. We’re arguably moving further away from that goal, not closer; we’re exhausted, tuned out, and so emotionally calloused to scandal that nothing fazes us anymore. I lay the blame on this squarely on Obama and his Administration. Hopefully he’ll deliver some of the Hope he promised in 2008 and fix this dearth of trust by focusing some of his zeal for “personal responsibility” on the people who caused and continue this mess.