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OCC Misses Another Conflict of Interest: Foreclosure Review Outreach/Payment Processor Rust Consulting Owned By Residential Real Estate Player Apollo, Being Sold to VC Arm of Citigroup

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It appears that the Office of the Comptroller of the Currency and the Fed dropped the ball yet again on vetting firms involved in the Orwellianly-named Independent Foreclosure Review (IFR) for conflicts of interest. Michael Olenick’s expose on Allonhill, one of the “independent consultants” hired by Wells Fargo, led to Allonhill’s role being curtailed considerably.

But there’s no way to curtail the role of Rust Consulting, a firm that has been central in the Independent Foreclosure Reviews virtually from their onset. Rust was the firm that servicers engaged to handle the initial mailings to borrowers eligible for a review. The assumption of the authorities appears to have been that Rust was merely doing such low level stuff that it didn’t need to be checked; when I called the OCC to ask if the firm had been screened for conflicts of interest, the PR staffer who returned my call reacted as if the question was off-base (he said he’d get back to me with an answer the following day and never did).

But as both unhappy Congressmen and even more unhappy homeowners have found, Rust is playing a substantive review in the IFR, and one that has not stood up well to close scrutiny. Now it is bad enough that its independence is already subject to question, in that, like the “independent” consultants, it was hired by and paid for by the servicers. But it is even more troubling that its owners have deep ties and involvement in the residential real estate business, and Rust’s parent is being sold to the venture capital arm of Citigroup, which is also subject to the IFR.

As readers may recall, when the IFR got rolling, the servicers were supposed to make borrowers aware of their right to a review. Some Congressmen felt the efforts were inadequate and asked the GAO to take a look. The GAO did not like what it found. As we wrote:

The GAO, which was asked to look into this matter, came down on the servicers for their failure to develop jargon-free, readable materials. Their excuse was that they felt pressured by deadlines and couldn’t take the time to test the letters in focus groups. The GAO was not impressed with that, and referred to Federal “plain language” guidelines that stress the importance of avoiding jargon and writing to the level of the audience, which in the US means at the eight grade level or lower. By contrast, the mailings were scored at the second year college reading level (roughly that of this blog).

Now it’s easy enough to pin this lapse on the servicers; the GAO report says a “consortium” got together and designed the letters and outreach, relying on their internal marketing departments and using class action letters as a model.

Indeed, it is not clear whether Rust played a role in the development of the outreach letters, but it seems likely. The GAO report mentions that class action letters were one of the models used for the letters. Rust owns Kinsella Media. From Rust’s website0:

We have been a part of some of the largest notice programs in history and, along with our partner Kinsella Media, we have placed media for more class action settlements than any other firm.

Rust offers all types of notice to meet unique project needs and budgets. We manage direct mail, email and media-based notice programs and work with our clients on methods that produce the best cost efficiency.

We have internal notice printing and mailing capabilities and long-standing relationships with trusted vendors to provide unlimited capacity. Our in-house design specialists, proofreaders, plain language experts and paid media program designers ensure that your notice is clear and understandable.

Put it another way: it would seem illogical not to consult Kinsella, since Rust touts integrated notification and mailing services, and this sort of effort is outside the norm of corporate communications. So Rust may have had a direct hand in the not-too-comprehensible outreach materials. The GAO push and Congressional scrutiny led to more aggressive publicity efforts, including through mortgage counselors, as well as the deadline for submitting letters being extended several times.

And that’s before we get to another issue, which was not in the GAO’s crosshairs: how the servicers conducted the mailings. They were using the last address they had for borrowers and taking the position that the borrower they had foreclosed upon should have provided current addresses. After the official disapproval, Rust and the servicers did up their game, including doing advertising in certain markets.

Rust is also the firm handling the mailing of payments to borrowers. There have been a lot of complaints about that too, with Rust sending out bad checks, to Rust effectively refusing to update addresses by changing procedures multiple times and seemingly never putting changes through. Some complaints from the comments section of recent posts:

From Julia:

I haven’t seen anyone else post about this so hear I go. I sent my paperwork in for the IFR before the first deadline. I corresponded with them all the way up until December 27, 2012, when they called and asked for some additional documentation. At the end of February I called in to verify they had received my documenation – and my address had been changed. Apparently, Rust consulting, updated addresses from the National Address Change Register or something along those lines. I informed Rust that it was the incorrect address and that they had the right one on file – I had not moved since we started this.

All of the websites, the OCC, The Federal Reserve Board, all of the news releases – state to call Rust Consulting to update your contact information. THIS CANNOT BE DONE! They will not update your information over the phone, I was asked to submit a letter with my reference number the “old” address and state my new address. I submitted a letter, 4 times. Rust can confirm that they have received the letters, they can even tell me what the correct address is, but they WILL NOT change it. I am now being told that I need a form that they will mail me to change my address. I have been waiting since March 11th for the form. Oh but it really doesn’t matter if I get it or not, because whatever address they had on file as of March 1st – is the address they will mail payment to. In my case the wrong address – even they for 2 years they had the correct one and they know it is wrong. I was advised to go to the post office and ask for an address change or contact them at the end of May to start the re-issue request. They are really working hard reading from their scripts, refusing to help anyone who calls and not doing what their website states by updating contact info…

From ann:

same here. I’ve been trying to update my address with them for a couple of months. 1st time i was told it was updated, 2d time was told to send in written request, 3rd time told to send written request with explanation, 4th time told they would send me a form. over 2 weeks and still waiting. last week they told me they couldn’t tell me if the form had been mailed or not. what a bunch of incompetent idiots!

From Desiree Finley:

I need someone to speak to regarding the way Rust Consulting have been treating. I have missed many work hours and actually burned up phone batteries talking to them my longest call being over 70 minutes, I think there needs to be a help line or some way to make these people compensate us for the trouble they put us through. It has actually been worse then the foreclosure the OCC has not been any better. Hell I even called Wells Fargo. They are REFUSING to give my my check I have given them my proper address and followed procedusers since the beginging of March now that are denying phones I have made

Now, of course, this could be mere garden-variety incompetence, particularly when the Rust representative, David Holland, said in Congressional testimony the week before last that they hadn’t figured out what they’d do if the address they had for a borrower was incorrect. That’s a tacit admission that they don’t have a workable address change procedure in place, consistent with the experience of various readers (note the OCC rep claimed Rust has “scripts” in place, but the underlying issue appears to be operative).

But Rust may have even more reason than its fees to be incompetent in ways that favor the servicers. Recall that the settlement provided for $3.6 billion to be distributed to harmed borrowers. What if Rust can’t locate them? What happens to any leftover money? I’ve been told, and the OCC media contact confirmed, that the OCC and FRB haven’t yet made a determination about what to do with unclaimed funds. He also mentioned that they were looking into the escheatment laws of various states. Hhm, that’s all well and good, but I’m surprised at the hesitation. Why is this even an open question? The funds should be treated as abandoned property, to be held by the appropriate state until the owner can be found.

And if there’s a way that these awards could be argued not to be abandoned property in certain states, one can imagine the OCC and Fed would return it to the banks.

Now why might Rust be motivated not to be as diligent as it could be? Rust “joined” SOURCECORP, now SourceHOV, in 1999. SourceHOV is majority owned is Apollo Global Management, one of the fund managed by private equity giant Apollo. Apollo struck a deal to sell SourceHOV (and therefore Rust) to CVCI, a venture capital fund operated by Citigroup, in mid-March (I believe the sale has not yet closed).

Now let’s look briefly at some of Apollo’s involvement in residential real estate, a conflict that appears to have escaped the OCC’s attention. Apollo owns Realogy, which is the biggest residential brokerage service in the US, through its brands Coldwell Banker, Century 21, and Sotheby’s Real Estate. Residential brokerage firms have reason to play nicely with servicers; investors have claimed they’ll do broker price opinions for nothing but submit a bogus charge to the servicer (required periodically when a borrower in a securitized mortgage is delinquent) if they get the more lucrative sale of the property out of bank real estate owned. Apollo also manages Apollo Residential Mortgage, a REIT that invests in and manages RMBS, residential mortgage loans, and other US residential mortgages assets. Who are sources for loans? The big banks as originators and the servicers for seasoned loans. And in general, of all the big PE funds, Apollo has the deepest and most extensive dealings in commercial and residential real estate, giving it deep ties to the real estate units of all the major banks and servicers.

So it looks to be a stunning lapse for the OCC and Fed not to have caught this not-inconsiderable conflict of interest. Rust is also an approved Federal contractor, as reader LN, who provided us with this lead, also pointed out. Did Rust fail to make adequate disclosure of its ownership in its applications to become a government contractor?

Rust Consulting Inc GSA 520 Contract

The only upside out of this lapse is that it reflects sufficiently badly on the OCC and Fed that it might force them to be more zealous about getting Rust to do its job than they might otherwise. Assuming, of course, that NC readers turn the heat up by alerting their Congressmen of this latest IFR-related fiasco.

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28 comments

  1. Chad

    I had a recent unexpected encounter with Rust Consulting, coincidentally. Turned out they were responsible for delivering back wages from a former employer of mine in response to a class-action lawsuit. The check I received for these back wages read “Void after 4/24/2013.” I received the check in the mail on 4/25/2013. Splendid work as always, Rust.

  2. Tom Stone

    Yves, A “Broker’s Price Opinion” usually runs $50 and takes a couple of hours to do well. Not a lot of profit there.I use 2-3 comparables and discuss why they are better or worse and then give my opinion of what a place will sell for. This is not an appraisal. An appraisal is a “Reasonably supported opinion of value made in accordance with USPAP”. Agents and Appraisers who are familiar with a particular market always have opinions, opinions are like…

    1. Yves Smith Post author

      Please reread the post. The claim made is that a lot of brokers do BPOs for free (but submit bogus invoices to the servicers) in return for getting brokerage business on the servicer REO.

      And on top of that, BPOs (whether they are really paid for or not) are inflated more often than you think. I’ve seen an $850 BPO, and quite a few at over $200. And this is pretty easy for the broker, it only takes a drive-by and note to the servicer, and they were also done with excessive frequency by some servicers (Countrywide would do them monthly when the PSA typically said every 60 days).

  3. Debbie

    I am so angry that when you call Rust to ask them specific questions, all they respond to you with is a scripted reply. Why don’t they have a website that we can go into and see when our checks are scheduled to be mailed and how much the checks are. This Rust Consulting is running such a sloppy job, and their customer service is horrible. Its crazy to be expecting a check but they can NOT or WILL NOT tell us WHEN the check will be mailed and how much the check is for. For their recording and their staff to keep saying they will not tell us how much our checks are over the phone is STUPID! Why won’t they communicate with us, if its our money why can’t they tell us how much the check is for. What’s the BIG secret????

  4. Betty

    Its a secret because when you finally get your check you will be pissed. We got ours an it was $500. what a joke

    1. Jamaylaboss

      Well I got my check today, and yes I was pissed!!!! $500 for what I have been through should be more like $500,000.
      I have been fighting with Countrywide, Bank of America, New Century Mortgage, and SPS Servicing now. Are you ready for this, I have been fighting since Aug. 2006!!!!!! Yes, 2006.
      I have had Forensic Audits, Court Arbitration, Bankruptcy, Judgements, Produce The Note, Attorney Generals, Lawyers,
      and now Rust Consulting. Same old Same old. Rob the nation, and cry about paying more taxes. We all know what is going on here. The working stiff gets stiffed again.

  5. Laura

    Go Yves! I hope you are on them like stink on a monkey. Apollo and Realogy need to be broken up under anti-trust laws. Ha! That ain’t going to happen. They have tremendous power in the market. I kept a marketing blitz Coldwell Banker put out around 2006 or so, (paraphrase) “we’re on a campaign to get prices down.” Yeah, and they did – moved all those REO’s they had a monopoly on. I know whistle-blowers – and yep, you are correct – OCC & FHFA – they don’t care – they don’t want to know. Realology had almost exclusive rights to market REO’s for years in states like Florida – and value them (!)- (just a little conflict of interest there?) States like North Carolina have prohibited BPO’s for anything other than deriving a listing price – but its too little, too late. Appraisers are out of the picture – relics! Half of them let their licenses go – put out of business by hacks with a vested interest, doing BPO’s for $50, or for free. You talk about a dirty filthy business. I’m so glad someone is looking at Realogy & Apollo. Keep looking. Look at the companies that process REO’s. Ask who handled their listings for the past five years, who sold them, who valued them. Who bought them? Good luck with that. Ask a few Realtors – not associated with Realogy – hmmm maybe you can even find an appraiser or two who might point you toward irregularities in the market, like say values suddenly drop $50,000 in a neighborhood overnight and who might have listed that house?

  6. Lorraine

    I received mt check fron Rusty today – $2,000. Admittedly, it was $1,700 more than I was expecting based on the comments I’ve read from others. According to the remediation framework, the 2K is to compensate me for B of A’s failure to respond to my modifcation requests. I wonder which one I’m being compensated for, since I requested and sent in docs numerous times and never received a response from the banksters. I wish all the people who received insultingly small payouts could throw the money in a class action pot. I wonder how a private citizen can obtain the actual results of their own ‘review’, if any, and use them to sue the bank
    …..

    1. Laura

      I received my check today a whole $500.00, and Wells Fargo foreclosed on me and my husband by accident and even sold our house. We found out by someone coming to the door telling us we had 2 months to move. Our attorney got our house back in 4 days. The thing is I got $500.00 but paid $2500.00 to get my house back. I had also done a request for modification and even was under BK-7. Everything was so messed up for so long and we paid and paid over & over. Now with only getting $500.00 I think it maybe attorney time again, just because this has me very up set. We do have our house and we having been paying on time for 2 1/2 years now. I don’t understand the category list at all. We fell under several areas. I would love to see my review.

      1. Sharon By Accident

        Hi, Laure,
        I received my check today for 2K I’am thankful for the money, but I was file foreclosure on by seriver error. My payments was deliverated route else where other then my monthly payments. The mortgage servicer blame it on a computer error. I had to go to the court house and stop the foreclosure on my home. I later find out that my mortgage payments has been re’route to escrow. Almost a 12k escrow account. I’m trying to find a lawyer that handle these types of foreclosure errors. According to my check category I was place in fail to modify loan. It should’ve been default of servicer.

        1. Ron Ricci

          I HAD A MODIFICATION IN PLACE WHEN I HAD A HEART ATTACH ON MAY 27,2010. I RECEIVED A CALL FROM AURORA THAT I NEEDED TO UPDATE MY MODIFICATION. I TOLD THE GIRL ON THE PHONE THAT I WAS IN INTENSIVE CARE AND ASKED IF SHE COULD CALL BACK IN A WEEK OR SO AND SHE MADE SOME VERY RUDE COMMENT AND SAID IF THAT’S THE WAY I WANT TO HANDLE IT THEY ARE GOING TO FORECLOSE ON ME. I WAS PRETTY SEDATED AND DID NOT REMEMBER MOST OF HER CONVERSATION. WHEN I WAS RELEASED I CONTINUED TO MAKE MY AGREED PAYMENTS ON TIME AND WAITED FOR THEIR CALL BUT INSTEAD THEY FORECLOSED EVEN THOUGH I WAS CURRENT ON MY AGREED PAYMENTS I WILL FORWARD THEM TO YOU. AS YOU CAN SEE NOT ONLY DID I SEND CASHIER’S CHECKS I FED-EX THEM SO I HAVE A SIGNATURE SHOWING THAT MY PAYMENTS WERE ALWAYS EARLY.
          I LIVED IN THIS HOUSE FOR 20 PLUS YEARS AND RAISED THREE CHILDREN IN IT. THE HOUSE WAS IN NEED OF A UPDATE. I SPENT OVER $80,000 ON NEW TILE,REMODELED 3 BATHROOMS RE-CARPETED THE WHOLE HOUSE PAINTED THE INSIDE AS WELL AS THE OUTSIDE PUT IN ALL NEW APPLIANCES PUT IN ALL NEW BATHROOM AS WELL AS KITCHEN FIXTURES. I REDID THE SWIMMING POOL AND ALL THE COOL-DECKING. I REDID ALL OF THE LANDSCAPING AND MADE THE HOUSE ALL BRAND NEW. I DID NOT BELIEVE THAT IT WAS GOING BE BE FORECLOSE OR I WOULDN’T HAVE SPENT $80,000

          I am very frustrated with the Independent Foreclosure Review. After about a year and a half of waiting I received my check for $500. I was insulted and very mad. I was expecting to be on the high end of the table. My home was sold when I was in fact 1 payment ahead. I didn’t find out I was ahead a payment until it was sold at auction. When I called Aurora to find out what had happened they told me that I was a payment ahead and nothing would have happened.However that was not true it sold. If you have any suggestions on how to proceed please call me. No one ever contacted me from the review. I waited over two years for $500

    2. Ray Westphal

      Some of you really need to look up Phillips and Garcia Attorneys at law. They helped me out with one of the biggest banks on the list. You will see my name on their site under Testimonies. The initials RW and my attorney here in Nebraska. They can work in any state. PLEASE GO Goodle them and you will learn a lot. If you have a case it will cost you nothing until you get a settlement. Trust me these guys are the best ! and know what they are doing.

  7. JIMBO

    well, got my check yesterday for $6000.00, wrong classification, I paid those bastards at CHASE over $6K for reinstatement/ modification, settlement should of been $50k because they never did the modification, however the OCC list shows $6k for modification denied, it was never denied just CHASE did nothing and then foreclosed.

  8. LORI

    can we get a lawyer to sue rust consulting in aq class action lawsuit! this is ridiculous I have done everything they ask to update my address and now they just deleted my mailing address all together!!! they laugh at me hang up on me and leave me on hold..they promise to ESCALATE my problem but that’s BS! someone has to be able to help us, someone has to be over them!

  9. banksters made me ill

    They have literally made me ill. I have been sick and sleepless since opening my $300.00 envelope. It seems the two year battle of endless calls and documents and lies has finally caught up to me…..and I fought courageously. As I was amongst the first two hundred to apply to the IFR….i was promised to compensated for those horrendous mistakes. I was in the $35,000 category. I volunteered so many hours for this administration hoping that the people would be heard and counted again…..i have had that hope stolen from me.

  10. Joy

    My suggestion is to sue the Government for giving people hope that they were going to help and for ever allowing this situation to go on.

  11. Stephen Harness

    Well I got my big check for $400.00 Today. Wells Fargo Stole my house, sold it to someone else for 80 k more than I owed and then they send me $400. WHAT A BUNCH OF CROOKS. I AM GOING TO BITE THE BULLIT, HIRE A LAWER AND SUE THEM!!!

  12. Family Ascua

    We also paid more than 10 years of our home, $900 dollars per month, with an interest of 7.85% percent. Wells Fargo took our home and sold it to someone else for 80K. Now, we received a check for $2,000. What do we have to do? We should all band together and sue them all!! The government, rust consulting and the banks, but we all have to unite, all of us who were duped and go out and protest, for our rights!! It’s a misery how little they pay for how tremendous they scam us out of. We lost our homes, what else do we have to lose. What they have done is an insult to all of us. It’s time they paid their dues!

  13. belinda crawford

    i agree with everyone on ths site someone should get a website together and post it here, then we can ban together and get a petition together, meet somewhere so that we can get news and media attention on the banks, rust consulting, occ, and the federal trade commission, not to mention the cfpb(consumer federal protection bureau.then go to the courts together in one big group and get something done so we can get justice for losing our homes to these banks.

  14. Sucker

    I got my check today!!! I paid $200,000 in payments between 2007 when I purchased and 2009 when I joined Hamp. I gave HAMP $18,000 in 6 payments + $6,000 “good faith” to qualify (this was arranged by my government HUD counselor) while they were secretly foreclosing.

    I even made a $3,000 payment after the foreclosure date.

    Check: $2,000
    not even interest on the money they stole.
    They could have given one of the HAMP payments back.

    I wish they would have given me enough to hire representation.

    Another 15 months go by in yet another scam:
    IndependentFROMDOINGforeclosurereviews
    Independent of morality & accountability

  15. wendy stephens

    I have yet to get a check. I have called numorous times to Rust Consulting. They don”t have any information for me. My question is. Why hold the money until July. Makes no sense at all. Banks still get off scott free. Ugh

  16. Chase

    I got a postcard from Rust in March that said I would receive a check in 4-8 weeks or something requesting additional information. I’ve received neither, yet they tell me I will definitely be receiving a check, but probably not until mid-July. Why have so many people still not gotten their checks and why do they have to wait? They wouldn’t be receiving such a backlash from at least some people if they would have sent out the correct timeframe on the initial postcard. It looks like something’s up.

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