Not only are the authorities engaged in a coverup of servicer abuses, they aren’t even bothering to pretend that the effort is serious. A post on Housing Wire offers some choice tidbits:
When mortgage servicers signed consent orders with the Office of the Comptroller of the Currency and the Federal Reserve, these companies were required to hire outside firms to conduct “look back” evaluations of questionable foreclosure practices.
But these reviews will not be made public, according to an OCC spokesman.
So there will be no check of whether this process is any good, either in the independence of the party chosen, the scope and nature of the investigation, and the findings. We saw this coming, as did Adam Levitin:
By far the most interesting bit in the draft C&D order is the bit requiring the banks to engage independent foreclosure review consultants to review “certain” foreclosures that took place in 2009-2010. There is no specification as to which foreclosures are to be reviewed or precisely what the standards for review are. But that’s all kind of irrelevant. Who do you think the banks are going to engage to do these reviews? Someone like me? Not a chance. They’re going to find firms that signal loud and clear that if they get the job, they won’t find anything wrong. It’s just recreating the auditor selection problem, but without even the possibility of liability for a crony audit.
Frankly, this sort of regulatory outsourcing is pretty astounding–the OCC has resident examiner teams at the major servicer banks. Shouldn’t they be the ones auditing the internal controls and performance, not a third-party compensated by the bank? (Oh wait, I forgot that the OCC is paid by the banks–it’s budget comes from chartering fees and assessments on the banks is regulates. Indeed, I was struck in some places by the linguistic similarities between the proposed C&D order and the banks’ counterproposal to the AGs. It’s impossible to know who was cribbing from whom, but the similar language is revealing.)
So here’s what’s going down. The bank regulators are going to provide cover for the banks by pretending to discipline them very hard, but not really doing anything. The public will see a stern C&D order, but there won’t be any action beyond that. It’s as if the regulators are saying so all the neighbors can hear, “Banky, you’ve been a bad boy! Come inside the house right now because I’m going to give you a spanking!” And then once the door to the house closes, the instead of a spanking, there’s a snuggle. But the neighbors are none the wiser. The result will be to make it look like the real cops (the AGs and CFPB) are engaged in an overzealous vendetta if they pursue further action.
We were already very unhappy about the fact that the review was conducted on 2800 mortgage files across 14 servicers and there seemed to be no scientific process for how the cases were selected. The GAO signaled it had reservations about the exercise. And no wonder. Not only was it a garbage-in, garbage out process (whether the borrowers were delinquent was based on the servicers’ say so, not any analysis to see if the fees, charges, and applications of payments were in compliance with the law and the various agreements), it effectively said pretty much all foreclosures were warranted when it looked at only 100 completed foreclosures:
Federal Deposit Insurance Corp. Chairman Sheila Bair said in a Senate committee hearing this week that these reviews will be a major issue. The investigation conducted by the OCC and the Fed included a review of just 100 foreclosure files.
No wonder Bair felt compelled to distance herself from this regulatory theater. It isn’t just pathetic, it’s the regulators thumbing their noses at the public.
And of course, this revelation shows how low the will bar is for those independent investigators. If they’ve walked across the servicer’s lobby, that will no doubt suffice.