I couldn’t bring myself to dial into a conference call with the OCC yesterday the details on the payout of the mortgage settlement, figuring the propaganda to information ratio would be unacceptably high. That decision appears to have been correct, based on a new American Banker article, since I read between the lines that they at most summarized documents released last week.
It’s clear the OCC is winging details it should have nailed down before settling. The excuse it offered in shutting down the consultant reviews was that they’d be able to get money to wronged homeowners faster. But since we have no payout date for this improvised procedure, it ins’t clear how much of a benefit the banks will get on this front. And homeowners were much more interested in getting a hearing of their case and an appropriate payout. Of course, the whole procedure was so stacked against them that only the most egregious cases had any hope of meaningful restitution.
The real excuse was that the reviews were becoming embarrassing, and secondarily, costly. Our sources indicated that ProPublica had gotten Bank of American, Promontory and the OCC in a tizzy by reporting the truth, that the reviews were not independent, and they were scrambling to change procedures. At PNC, the team was told that all its work prior to October would be thrown out due to lack of independence. On top of that, both at PNC and Bank of America, the reviewers were told relatively late to start validating third party charges (most important, find invoices supporting attorneys’ fees). Many did not exist, and this is after the temps were also often finding implausibly and impermissibly high attorneys’ fees). So exposing systematic servicer fee-gouging was something to be avoided.
The OCC’s fundamental problem was it has mistakenly raised expectations that the reviews would be real. Making a bad situation worse, neither the OCC nor any of the consultants had the foggiest idea at the outset what it would take to do the reviews adequately. But the excuse that the reviews were costing too much was spurious. If they really were coming up with low error rates, as the banks asserted, they should be delighted and eager to see them through to completion. In addition, the amount they owed the borrowers was the amount they owed the borrowers; the cost of the exercise should be beside the point.
The latest revelation is that the OCC still has no idea when or how much it will pay people. It has reaffirmed the old top payout category of $125,000, and has reduced the payout categories from 13 to 11. It further says everyone will get some money and that it will review payment amounts. Borrowers will be slotted into various categories and the payments will be based on how many fall in each category. So does that mean if you suffered a type of harm that was widespread, like HAMP trial mod abuses, you get less because a lot of people are similarly situated? That is sure what is sounds like. But with the banks making the call, with conflicted servicers who never finished the work providing input, and the no-nothing, bank friendly OCC looking over bank shoulders, who are we kidding? Remember, borrowers have no input and no right to appeal.
Barbara Rehm, in “OCC Bungled Foreclosure Settlement from Start to Finish,” is scathing. Some extracts:
The government’s deal with 13 servicers to end the unwieldy review of 4.2 million mortgages affected by the 2009-10 robo-signing scandal may indeed get money to borrowers faster, but it will not ensure they receive more money.
That’s because the government does not know which borrowers suffered what degree of harm.
The settlement should fit the harm, but the Office of the Comptroller of the Currency is making the harm fit the settlement…
Last week’s changes revealed that servicers will get credit toward the $5.7 billion total if they provide assistance to any borrower — not just the robo-signing victims of 2009-10. This assistance must be delivered by Jan. 7, 2015.
That’s yet another reason why Curry is wrong when he says borrowers will receive higher payouts under this settlement.
Either the Comptroller’s Office did a lousy job negotiating that part of the settlement or it just hasn’t explained it very well. The New York Times and the Journal have sunk their teeth into this story and report that the credit the servicers will get for foreclosure prevention will greatly exceed their actual costs.
Unless the Comptroller’s Office comes up with more answers fast, this snafu may consume the agency. And that would be bad for bankers.
What the industry and the regulators need most right now is trust. They need the public to believe that they are making sound decisions and doing the right thing.
This foreclosure settlement demonstrates a failure on both fronts.
One problem is American Banker accepts the consultants’ assertion that they were close to delivering some preliminary results. That’s just not true on Bank of America. Only 4800 of at least 140,000 review letters had been completed, and since certain tests were prioritized over other, that meant the files that were done were not a random sample. PNC was in such disarray that their claim that they were further along is just not credible.
And the other part that would be nice to believe but really does not hold up to scrutiny is that the bad smell of this deal hurt the banks. Really? They are already hated and distrusted. This is just another is a long list of offenses. The question is whether the OCC’s willingness to prostrate itself on their behalf will finally lead to a real shakeup at the agency. Unless Congress and the media exerts a lot more pressure, the OCC will continue to act as the banks’ most zealous protector, perhaps less clumsily in the future.