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:
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…
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?
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.