OCC Compounds Botched Foreclosure Review Process with Barmy Plan for Distributing Peanuts

The OCC is bravely trying to spin the horrorshow of its botched foreclosure reviews as some sort of positive outcome. It is apparently now trying to present its dereliction of duty in figuring out how to compensate borrowers as no big deal.

But the most amazing finesse, which a New York Times article tacitly accepts, is the OCC’s pretense that it got a good deal for homeowners in the settlement.

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.

So the OCC got a turkey of a deal.

And the New York Times is taking up other OCC/bank messaging in its piece. It’s merely making the problem sound as if the issue is that the reviews were supposed to be independent, and now the banks are in charge of handing out the money to homeowners. The conflict issue is theoretically a problem, but it isn’t as big a problem given that we are talking about a fixed, if way too small, pot at each bank. The Times underplays the other major problem, that the banks don’t have enough of a grasp of who was really harmed to dole the money out fairly:

Washington is seeking help from an unlikely group in its effort to distribute billions of dollars to struggling homeowners in foreclosure: the same banks accused of abusing homeowners with shoddy foreclosure practices.

In doing so, the regulators are trying to speed the process after a flawed, independent foreclosure review delayed relief for millions of borrowers, according to people briefed on the matter. But housing advocates worry that the banks, eager to end the costly process, could take shortcuts as they comb through loan files for errors, potentially diverting aid from the neediest homeowners.

Regulators say they will check the work. And banks have already agreed to pay a fixed amount to troubled homeowners, creating another backstop.

Check the work!?! The work was not done and not close to being done.

Do you get the circularity of this reasoning? The reviews were shut down because the consultants couldn’t figure out an efficient process for doing the reviews. The whistleblowers at Bank of American said they were told it would take two years to complete the reviews using the process finally put in place (the most complex test was not put into production until the end of August). Promonotory, Bank of America’s “independent” consultant, put in an “optimization” the week before the project was shut down that was supposed to speed the process, but that was never road tested.

So how many loans were officially completed, as in the temps did all their work and Promontory reviewed them? I’m told a grand total of 4,800 as of December. That is compared to a universe of at least 121,000 letters, the total as of around December 10. If that 4,800 was as of the end of December, it would be relative to a universe of more like 140,000 to 150,000 loans. So the completed loan reviews were 3.2% to 3.9% of the total. And the OCC really believes Bank of America can make informed decisions on who really deserves the funds?

Now there might be places where the work could be completed. But temps were told to leave the premises as soon as the settlement was inked. From what I can infer, the temps look to have completed the tests on 40% of the requested reviews, but one well informed reviewer was under the impression that only 20% were considered to be done from their end, suggesting that half of that total had not gotten through the quality assurance/rebuttal process*. So even this bit of intelligence confirms that the Bank of America were in even worse shape than figure previously disclosed, that of the banks having finished roughly 1/3 of the reviews by the time the process was shut down.

The New York Times article runs some other remarkable PR:

Under the plan outlined last week, the banks will pore over loan files like Ms. Lee’s to identify the worst possible errors. Military personnel illegally foreclosed on, for example, will rank highest on the list. Borrowers who might be current on their loan payments — and therefore did not warrant a foreclosure — will be next.

Regulators will then decide how much money to pay each category of borrower. The worse the errors, the bigger the payout.

This sounds fine if you have no idea of what was going on. What does “might be current on their loan payment” mean? That was monstrously ambiguous at Bank of America for anyone who had a modification. Was someone who was on a trial mod and paying on time current? By common sense, they would be, but Bank of America had only one category that was tagged as current, that of people who did not need special servicing. Anyone who had even missed one payment was put in the “foreclosure” category. Modifications were another “not current” category, even if they had gotten a permanent mod. A temp told how someone who had a husband who had cancer, and was 15 days late on one payment on her permanent mod was foreclosed on two months later.

And even if the OCC takes the view that people who were current on trial mods should be treated as current, the BofA records often don’t reflect that properly. Contractors also report that trial mod payments were put in suspense accounts rather than credited to the mortgage. If a loan got through the G test, the bank and the OCC might pick that up, but as we indicated, it’s pretty much certain that well under half the borrowers that sent letters complaining about mods had a first pass file review on that issue.

In addition, it isn’t hard to imagine that Bank of America would (at most) only want to use the tests that had been completed by the temps, but also gone through the official pushback process known as “quality assurance.” So a much smaller portion of the work completed by the temps would be deemed as usable. This is the only thing we get in the way of an indication of serious problems, and it comes a full 15 paragraphs in, after we get a touching story of a homeowner who really needs the money pronto.

The strategy, though, presents potential conflicts of interests. The banks, in haste to meet tight deadlines, could fail to provide an accurate portrayal of what went wrong. The loan files are also in disarray, officials say, complicating the task for banks.

“The whole process has been a slap in the face to homeowners and a slap on the wrist to banks,” said Isaac Simon Hodes, an organizer with the community group Lynn United for Change. “The latest development shows how there has been no accountability.”

Too bad the Times doesn’t clue readers as to the amounts at issue. $3.3 billion divided by 500,000 people is $6,600 a person. That’s not nothing, but if you lost your home and have good reason to think the bank was responsible, it’s an insult.

Not only is the Times far too forgiving of the banks and the OCC on their framework for doling money out, but it also takes up consultant party line on what needed to be done in the reviews. Notice the contradiction in the section before and after the ellipsis:

Their efforts were stymied, in part, because regulators urged consultants to first scrutinize a random sample of the four million foreclosures before digging into specific homeowner complaints, the people involved said. The decision, the people said, may have undercut the scope of the settlement and potentially deprived homeowners of additional relief…

Some consultants say they sounded repeated alarms about the process. Last spring, a group of consulting firm executives met with comptroller officials in Washington to voice concerns that the reviews were too narrow, according to people with direct knowledge of the meetings.

Did you get that? The consultants weren’t able to do the two workstreams the OCC wanted completed, a review of a large sample of loans, plus a review of the the borrower complaints, yet they were champing to make the tests more elaborate.

As we’ve made clear, the foreclosure review process has been a complete fiasco. It’s been disappointing to see the mainstream media only give a timid and shallow account of how bad it was.

*Around December 10 that there had been 121,000 letters submitted through the IFR process, with a good guesstimate for the final number was 140,000 to 150,000.

A, O, S, B, D, and C tests had been completed for all the requests sent in as of the beginning of August, so, only small teams were being kept on those tests to process new letters coming in. Everyone who could be shifted onto E and F test (fees) were being moved to that. G test (mods) was the other bottleneck, but G test took less time than E and F tests and had nearly as big a labor pool.

An estimate how much of E and F test might have been done:

The first reviewer to go live on E and F test was on August 29. Pretty much everyone except new hires were certified by the end of September. For simplicity, assume an average start date for the total deployed E and F test workforce of mid-September. Allowing for various holidays, that means 15 work weeks to project finish.

I backed out a certain number of staffers of the available pool for E and F (Level II reviewers) at each center to stay on tests B and D. I was told 40 to 50 in Tampa Bay, which is roughly 3 teams, or 42 people. I used similar proportions in Westlake Village and Newark on our assumed staffing #s. That gets you to 477 people working on E and F.

I assumed 3 completed files a week, which was the expected production level.

That give you 21,465 completed files. A source said there were 42,000 loans to be tested for E and F before that final influx. If you add another 25% (high guesstimate for last minute submissions) you get a bit over 50,000. So that would mean more like nearly 40% done for E and F. I’d assume (maybe incorrectly) that E and F was THE bottleneck, since management seemed most fixed on it and it was the last set of tests to go live. But the flip side is even though G test could be done much faster (on average more than one a day), the pool of letters that needed to be reviewed for G test could easily have been more than twice as large as for E and F test.

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  1. Fraud Guy- Also

    Two questions that I keep wondering about:

    1) Is there any reason to think that the banks/consultants did not start destroying all the documents used in the foreclosure reviews the day the settlement was announced?

    2) What kind of release does someone have to give their former mortgage servicer, if any, in order to receive a payout? Is a private right of action still intact? Relatedly, has the actual settlement agreement been made public yet?


    1. Nathanael

      (1) Most of the documents were already destroyed, which is of course the problem!

      From what we can tell, Bank of America used the “foreclosure review” to guide its division of fraudelent document manufacturing, so that they could figure out what fraudulent documents they needed to manufacture.

      Yves hasn’t stated this explicitly, but it’s the natural conclusion from reading the interviews with the whistleblowers; the “foreclosure review” was used by BoA as a tool to design better frauds on the courts.

  2. Susan the other

    The Times’ understatement of the year “…and the loan files are also in disarray.” The review was an intentional farce, it might as well have had Obama’s signature on it. The farce master in chief. Disarray indeed, but that disarray had nothing to do with pulling the files, going thru them or deciphering them to “test” them. Tests A, E, F, and G. G was just a red herring because mods were legally impossible. Test A is the Rosetta Stone, but they hid the evidence like petty thieves. ” Nothing to see here.” And the irony is that this is absolutely true. The original note doesn’t exist because it was shredded and substituted by a few electronic digits revealing no reference to the crime. No one is ever to know that those notes were pledged multiple times. Then it logically follows that tests E and F to determine if there were any fee abuses are also pointless. Any fees collected were individual instances of fraud, not to mention the mortgage payment itself. All that money should be refunded. And the banks should be shut down.

    1. Tom

      Meta Data trails…..
      [4] 18 U.S.C. § 1512(c) (as amended by Sarbanes-Oxley Act § 1102) (offense encompasses any person who corruptly “alters, destroys, mutilates, or conceals a record, document, or other object, or attempts to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding”; or corruptly “otherwise obstructs, influences, or impedes any official proceeding, or attempts to do so.”).

      [5] 18 U.S.C.§ 1519 (created by Sarbanes-Oxley Act § 802(a)) (offense encompasses any person who “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case . . . .”).

      [6] See United States v. Trauger, No. 3 03330 (N.D. Cal. filed Sept. 25, 2003). In this complaint, the government alleges that the lead audit partner of a public company concealed the alteration of computer and hard copies of audit workpapers, as originally produced to Office of Comptroller of Currency (OCC) and then produced to the SEC, because he wanted to “beef up” the files to make it appear that he had thoroughly considered the accounting issues and available facts during the course of the audits and reviews. The partner allegedly found out how he could de-archive an audit in order to revise and then re-archive the working papers; directed a colleague to backdate the system date on his computer in order to make it appear that printed copies of the altered working papers had been created during the course of the audit; added an undated handwritten note to an original and all copies of a memorandum; and directed that the e-mail evidence of the requests to alter and delete documents itself be deleted.

      And the Act added a new offense making it a crime to knowingly destroy, alter, or falsify documents and other records in federal investigations and bankruptcy, at penalty of up to 20 years imprisonment.

    2. diptherio

      The loan files are in disarray…right, like some of the pages are out of order and few of them have coffee stains?

      The loan files are a complete fustercluck, is what they should have said. NYT=Not Yet Truth?

      1. jake chase

        Here’s how the modern market state works: you have millions of regulations which big business is free to ignore, but individual people violate at their peril. If you or I are even accused of breaking one of these rules, we can spend years and thousands of dollars “proving” our innocence. If BofA or WF breaks all the rules, its executives “earn” hundreds of millions in “compensation” and retire to private islands rather than the penitentiary.

        This is the best reason to oppose all ideas that Government “do something” about this or that problem. The only thing democratic government is ever going to do is fabricate Potemkin solutions with backdoor looting opportunities for privileged insiders.

        LeBon warned us about this in 1895. Too bad nobody but Ivy Lee and Edward Bernays paid any attention to him.

        Hayek warned us too. But of course his personal reprehensibility disqualifies his analysis.

        The fact is we have exactly the Gomint we deserve, because we are such collossal putzes as to “believe” in the processes of democracy.

        Will all those who “believed” in Obama in 2008 kindly raise their hands?

        1. sd

          If you cut an Amish man’s beard against his will, you’ll get 15 years. Steal a house…no biggie. Just saying…

        2. different clue

          Is that what government did during the Roosevelt Administrations, the Truman Administration, the Eisenhower Administration?

          1. jake chase

            It depends on who you ask. Roosevelt did everything he could to embroil the US in WWII. Why? To save England? Has anyone ever asked why he provoked Japan by denying it access to oil in Southeast Asia? Is it possible he had advanced notice of Pearl Harbor? Was it simple grandiosity or a realization that the New Deal was failing and war the only way to reenergize the animal spirits of business?

            As for Truman, does anybody remember the Communist witch hunts, the leap into Korea, the ferocious attachment to Formosa, Taft Hartley?

            Eisenhower was a disappointment to his sponsors. He knew too much about war to be enthusiastic about another one. It took a phony war hero like Kennedy to be taken in on Vietnam, and let’s not forget the Cuba fiasco.

            In those far off days the strategy of looting was different. It was done with income taxes and diversion of tax revenue to the projects of privileged insiders. Under Eisenhower, you had interstate highways, foreign aid, defense boondoggles.

            There really wasn’t any credit worth talking about, except for GI mortgages, which created suburbia. Prices were low because incomes were low, but in comparison to the Thirties, both seemed high. Real wages were much higher because unions had political power. Suburban land was cheap, because speculators were still looking backward to the Crash and the Depression. The Fifties were a great time if you weren’t sucked into Korea or murdered by a drunk driver or a juvenile delinquent and if you weren’t a smoker or an alcoholic or the child of either (or both), or if you weren’t imprisoned in a city school system or a ghetto or a rural backwater.

            What has remained constant are the techniques of three card monte bamboozlement. In the Forties and Fifties they sold us patriotism, glory, self sacrifice. Hollywood majored in public relations, and you can still watch all those war movies if you doubt it.

            For the last thirty years the catnip was easy credit. But credit is always easy until you have to pay the money back.

            This isn’t to say the banks weren’t criminal. They were. But while putting every banker in prison might be psychologically satisfying, what then? Everyone’s liability is somebody else’s asset. The only way to make all those debts serviceable is a prorata issuance of new money. But of course that punishes anyone who prudently refused to take on excessive debt. And it isn’t going to happen.

            All I am trying to say is that every age has its illusions, its delusions, its snares, its opportunities. The crowd is always being led through the nose for the benefit of a privileged few. In the White House you have a Wizard of Oz who might be an imbecile or a crook or a war hero or a playboy aristocrat or a career politician or a teleprompter reader or a grade B movie actor. The individual has to make sense of all the noise, protect himself and find a niche.

          2. Nathanael

            Actually, Jake, printing of large amounts of new money is inevitable. It will happen.

            However, it will probably happen *after the revolution*. Once the current idiot elites are removed, the new government — run by Actually Competent People — will undoubtedly distribute newly printed money to the general population in order to bolster its popular support.

  3. indio007

    I still think that the smoking gun of “where are the original notes?” is in the FED’s Borrower in Custody program. Fraudulent re-hypothecation I say.

  4. Javagold

    The fraudsters switched my original account number and now try to tell me they have no record of it !!!!!!!

  5. Jackrabbit

    Yves focuses on what how (ex-)homeowners are shafted. But the times also includes an estimate of what consultants were paid:

    $2 billion!

    1. Yves Smith Post author

      I probably should have highlighted that, but it isn’t news. They reported that earlier.

  6. Bravo

    Hopefully it will still be possible for Class Action suits, organized by state, to be filed against each of the 10 servicers that are party to the settlement? Financial harm caused by servicer conflicts and incompetence has been done to far more than the tiny fraction (1 out of 20?) of foreclosed borrowers who actually received notice of the IFR and then chose to request a review of their file! And what about the huge universe of borrowers whose loans were modified, reinstated, or even paid off, that are wholly unaware that they were taken to the cleaners with regard to impermissible fees assessed their account? Do you think the servicers are even going to touch those files in their haste to bring an end to all this asap? State by State Class Action suits would seem to be the only way to get the all-encompassing universe of affected borrowers an independent, state customized review of their file that they deserve. Payouts certainly have the potential to be dramatically larger than the peanuts that are on offer via the OCC settlement. And not just to foreclosed borrowers.

    1. jake chase

      There will be a plethora of class action suits, filed by firms named Shyster Beagle and Shyster. They will be settled for pennies on the dollar and the lawyers will take 50%. The average homeowner will collect $1750. That is how the class action game works.

      And the settlement will take 5 years, so don’t spend the money quite yet.

      1. jake chase

        And I’m only guessing, but I imagine the banks neither admitted nor denied any wrongdoing in the federal case, right? If so, these state class actions would have to prove a case.

    2. Nathanael

      Rather than class action suits, expect a very large number of individual suits — one for each clouded title.

      The banks will be nibbled to death by ducks, so to speak. It will be interesting.

  7. Westcoastliberal

    Personally, I want ALL my money back, plus the property. Plus I figure $200 an hour for the 10 hours wasted assembling the paperwork for the “review” I was told I was entitled to yet was “too much work/too expensive” for the asshole banksters. Anything less is bullshit after what I and my family were put through by Chase Home Finance and Quicken Loans.

  8. keepon

    “Big Banks Told to do Their Own Foreclosure Reviews”

    By JESSICA SILVER-GREENBERG and BEN PROTESS | New York Times – 17 hours ago

    Washington is seeking help from an unlikely group in its effort to distribute billions of dollars to struggling homeowners in foreclosure: the same banks accused of abusing homeowners with shoddy foreclosure practices.

    In doing so, the regulators are trying to speed the process after a flawed, independent foreclosure review delayed relief for millions of borrowers, according to people briefed on the matter. But housing advocates worry that the banks, eager to end the costly process, could take shortcuts as they comb through loan files for errors, potentially diverting aid from the neediest homeowners.

    Regulators say they will check the work. And banks have already agreed to pay a fixed amount to troubled homeowners, creating another backstop.

    1. reprobate

      That is the srticle Yves linked to and discussed….do you guys not bother checking stuff like that out?

  9. Sleeper

    The payout was never designed to payback homeowners cheated by fraud

    The bucks went to the states who were is line to prosecute the banks.

    The obama genius is to take a little of the banks’ money give it to the states and claim victory.

    Homeowners ? Wire and mail fraud ? Clear title ? Rule of law ? Square dealing ? Fair Dealing ? Forget it.

  10. Wake Up America!

    I “lost” my home of almost two decades to one of the Big 5. The servicer used a bogus vacancy claim (my house was continuously occupied by me) to start foreclosure proceedings. From that moment I was caught, as Yves so aptly puts it, in the servicer hall of mirrors. There was no way out. I had never missed a payment yet the servicer had no intention of fixing their “error(s).” There was too much money to be made on forced placed insurance, late fees, attorney fees, etc. That’s what was “feesible” to them. I continued to make my payments during the process (sent certified, return receipt) but each and every one was returned.

    Lost equity, my attorney’s fees, storage, etc. – 125K doesn’t even come close to making me whole. Let’s not even start on the emotional damage or hit to my once good name (FICO or otherwise).

    Do I believe I’ll see justice? Yeah, the check’s in the mail.

    1. Nathanael

      How corrupt are your local courts? If you could find an honest judge, you should be able to nail BoA to the wall with the evidence you have.

      Other people have done exactly that.

      This tells me that your local courts are pretty corrupt. That’s the key thing which needs to be fixed….

  11. Carpe D,

    … and as far as our local court, well they seem honest enough. The judge ruled in my favor in a FED( I retain possession/foreclosure voided ) When the court administrator took it upon herself to ask the judge about the return of the supersidious undertaking ( my “skin in the game” during appeal to the state, if needed ) she referred to it as rent. The judge added, his hand written decision to give the monies to Fannie, and his signature to the order. Corruption or carelessness? Even the attorneys for Fannie agree the money goes to me. So who do we hold accountable now?

  12. CANDY D

    I called the Independent Foreclosure review (Russ Consulting) and was told I had to files in their computer system!!!! I’m wondering which one is being reviewed or maybe revised!!!!

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