At this point, it seems hard to add insult to injury, given the terrible track record of the OCC Independent Foreclosure Reviews. But it’s nevertheless been done.
By way of background, in April 2010 the Office of the Comptroller and the Fed issued consent orders to 11 servicers (three more were added later). The orders mandated that borrowers who had had foreclosures that were pending or had completed foreclosure sales in 2009 and 2010 could request an investigation by independent reviewers, selected and paid for by the servicers but subject to approval by the OCC. It was clear from the outset, however, that this consent order process was never intended to help homeowners in a serious way, but was intended to give air cover for predatory servicers.
Even so, the foreclosure reviews turned out to be an embarrassing and costly fiasco. The investigation was halted abruptly, as more and more leaks showed that the foreclosure reviews were anything but “independent”. 11 servicers and the regulators hastily negotiated a settlement, with the authorities failing to identify any methodology for how the portion of the settlement allotted to cash awards, $3.3 billion, would be distributed to homeowners. It was predictable that the outcome would be that insultingly small checks would be distributed broadly to bolster claims of how many people has been recompensed, as if checks of a few hundred dollars on average was even remotely adequate restitution for the loss of one’s home.
Nevertheless, there had to be some sort of process put in place to distribute the piddling cash compensation, so the OCC set up a framework with various types of damage leading to stipulated levels of awards, with $125,000 the maximum. But this was all Through the Looking Glass logic. Since the foreclosure reviews had never been completed, how could anyone have the foggiest idea who deserved what? The only exceptions for those who got through the process early and servicemembers, who were treated with kid gloves. The death-of-a-thousand-unkind-cuts treatment continued with the Byzantine process of getting correct addresses to Rust Consulting, the firm in charge of sending the money, bounced checks and late mailings.
The abusive treatment of borrowers contrasted with how well the enablers made out. Across 11 servicers, the failed review-meisters pulled out $2 billion. Promontory, which mismanaged the reviews at Bank of America, Wells Fargo, and PNC pulled out a cool $930 million.
We published a large-scale whistleblower series at the time, with extensive reports from people who’d worked on the foreclosure reviews at Bank of America and PNC. They told us of near universal fee overcharges. They also pegged levels of serious harm ranging from 10% to 80% (the estimates ranged widely because no one reviewd a file in its entirety; the tasks were divided among teams, so, for instance, some looked only at modification abuses, while other looked solely at fee overcharges). The serious harm estimates clustered between 30% and 40%.
Peculiarly, or perhaps predictably, the estimates of harm that were made public, even with Congressional pressure and a GAO investigation, were much lower…until today. From the Wall Street Journal (hat tip Tom Adams):
A consulting firm that scoured major U.S. banks’ foreclosure files for mistakes was finding far higher rates of error than regulators reported when they abruptly ended the review last year, a congressional inquiry has found.
The top Democrat on the House Oversight Committee, Rep. Elijah Cummings (D., Md.), on Thursday disclosed excerpts of documents from consulting firm Promontory Financial Group…
At Bank of America, Promontory found “systemic issues in the accuracy and timeliness of processing loan modifications,” with an error rate of 60% in one small sample of loans, according to an excerpt of a May 2013 document published by Mr. Cummings.
At PNC Financial Services Group, a sample of 4,800 loans found 21% of borrowers were financially harmed, according to another excerpt cited by Mr. Cummings in a letter to the oversight panel’s chairman, Rep. Darrell Issa (R., Calif.).
The OCC said the consultant’s review had found an overall error rate of about 4.5% after assessing about 100,000 files.
The disclosure by Mr. Cummings echoes a 2013 Wall Street Journal article that identified error-rate discrepancies. The Journal reported that more than 11% of files examined for Wells Fargo had errors that would have required compensation for homeowners, compared with 9% at Bank of America.
Why is this coming to light only now? This suppression of information is yet another proof of how deeply pretty much all of Washington DC is in bed with the banks. Only now when foreclosure abuses are considered old news does the public begin to get an inkling of how much the official story was close to a complete fabrication. Of course, the people who went through the Independent Foreclosure Review process knew full well what a charade it was. But they were never taken seriously. Those with no money (and if you’ve lost your home, you are sure to be under financial duress) have little clout to begin with. Losing your home is stigmatized, which discourages victims from telling their stories and sets those brave enough to do so up for abuse (the banks have done a great job of playing up the “deadbeat borrower” meme, whether it fits or not).
And don’t kid yourself that the banks paid anything near what they should have. This was our back-of-the-envelope calculation over a year ago:
Just focus on the cash portion, which is $3.3 billion across the ten servicers in the settlement. The other forms of relief, paralleling the state attorney general/Federal settlement, either aren’t worth much (writing off deficiency judgments) or are for things the banks were inclined to do anyhow.
495,000 complaint letters were filed. The estimates of serious harm from the whistleblowers at the Bank of America site in Tampa Bay ranged from 10% to 80%. The average was 33%, and the estimates also clustered around 30% to 40%. So we’ll use 30%.
To make the math simpler, we’ll use 500,000 x 30% x the maximum award, which was $125,000, which would seem to be warranted with “serious harm” (the people on the modification test all described cases where people who were in mods of various sorts and were paying as the bank stipulated but were foreclosed on, so they seemed to have an adequately stringent notion of what “serious harm” amounted to. Basically, to get the maximum award, the bank had to have eaten your home while you were in a mod or it had to be a Servicemembers Civil Relief Act violation).
You get $18.75 billion. Let’s say maybe the temps were too generous and their estimate is 1/3 too high. You still get $12.5 billion, nearly four times the amount for the banks to divvy up. And you’d have some less large payouts for the people not seriously harmed. If you would have qualified for a mod but the bank never processed your application, or were denied a mod incorrectly, that’s a $15,000 award. The folks who were processing mod complaints say they saw another 30% to 40% instances of less serious harm. So if you assume a $15,000 payout for another 20% (that’s conservative, the real number is probably closer to 30%), you get another $1.5 billion.
$14 billion, which is a conservative estimate of what the banks should have been required to cough up, is more than four times the only part that the OCC got that really matters, hard dollar payments to borrowers that suffered real losses. . No wonder the banks are perfectly happy to pay out $2 billion to consultants who made a mess of things. Those madcap consultants were as clever as foxes.
The only positive element of this sorry tale is that Elijah Cummings has soldiered on with trying to get to the bottom of this misconduct. I hope readers will call or write his office and thank him for his persistence.