Regulatory Looting, Promontory-Style: Botched Foreclosure Reviews Alone Generate More than Double Goldman’s Revenues per Employee

It’s really hard to convey a sense of how utterly grotesque the looting that Promontory Financial Group conducted on the misnamed Independent Foreclosure Reviews. Readers may recall that these reviews were set up as part of a 2011 settlement by the Office of the Comptroller and the Currency and the Fed with 14 major servicers. The reviews were shut down abruptly at the very beginning of this year due to revelations about lack of independence of the reviews (in Bank of America’s case, a large chunk of the review work was under the direct control of the bank, with the “review” by Promontory characterized by numerous whistleblowers as process of denying that any harm to borrowers took place) and burgeoning consultant bills. And as Congressional hearings revealed, the money spent on the reviews was a complete waste (well, except for the banks, for whom it was a cheap “get out of damages” card). The banks and the OCC decided which homeowners would get how much though a process that clearly had to be arbitrary (it was later revealed that the people who got the higher payouts were the ones who were further along in the review process, meaning it had nothing to do with any assessment of harm). A USA Today article yesterday revisits the topic of how paltry and arbitrary the payments were:

Almost all the checks have gone out from a settlement that government regulators initially touted in 2011 as their most aggressive effort to root out banks’ errors, hold them accountable and right the wrongs done to many homeowners. The outcome falls short of the vindication many borrowers expected…

The payouts, far from closing the books on an economic catastrophe that rocked millions of households in the worst years of the Great Recession, have instead reignited old feelings of anger and frustration. As Bailey and others like him see it, the banks and the government have at last put a price on foreclosure injustices — and it’s too low.

It also contains numerous examples as well as useful statistics, consistent with numerous reader complaints at NC. For instance:

Max Caycoya, 42, an engineer in Houston, got a $500 payout that left him angry and confused. He says he had a loan modification request denied in 2010, so he expected $6,000 for being in the “modification request denied” category. The $500 meant that he landed in either the “all other loans” or “modification request approved” category.

“This makes no sense to me,” Caycoya says.

John Failla, 47, a casino supervisor in Tucson, was denied a loan modification from Bank of America, he says. He expected $6,000 and got $500.

BofA says Failla was never denied a loan modification because he was never considered for one. The bank says Failla, after requesting a modification, called to say he’d decided to pursue a short sale.

Failla disputes that. He says he filled out a loan modification application and pursued a short sale only after the modification was denied. He’s complained to BofA about his payout. “I’d like my other $5,500,” he says.

Let’s contrast the doubly-shafted borrowers with the Promontory Financial Group, which handled the reviews for three servicers: Bank of America, Wells Fargo, and PNC. We had whistleblower at Bank of America and PNC report on how little supervision Promontory did and how utterly confused and chaotic the process was. We covered this terrain extensively in a series of posts that became an e-book, so we’ll provide one extract as a reminder:

As we documented in detail in our earlier posts, the result was that the work of going through six of the seven substantive tests was performed on Bank of America premises with personnel under the control of Bank of America. Promontory did provide the software with the endlessly-revised questions that the personnel at Bank of America tried to answer, along with various information guides. It visited the staff in biggest center, Tampa Bay, only four times in thirteen months, and its interaction with the people doing the review work was extremely limited. In other words, this was not a Promontory foreclosure review, it was a Promontory-decorated Bank of America foreclosure review.

By contrast, the project at PNC was modest in scale, yet it proved be well beyond the managerial capabilities of Promontory. At a bank with a comparatively small servicing portfolio, Promontory put in place a team composed almost entirely of contractors (140 to 150 when staffed up) only one Promontory employee in a managerial role, the managing director on the project, Michael Joseph.** PNC hired even more contractors to do clerical work to support this team’s efforts.

Anyone who has worked in a real organization can appreciate how insane this arrangement was. One person cannot effectively lead 150 people, particularly on a customized project operating in several locations. The only professional firm activity that routinely has such extreme ratios of partners to working oars is foreclosure mills…

Consultant D: – essentially what I witnessed in the 10 to 12 months was the fact that Promontory did not manage the project. Their effort to manage the project with any real due diligence, to me, they just, they fell short from A to Z. For example, from the time I joined the project to the time it ended, I saw the leader of the PNC part of the project two times, and the total time was less than 10 minutes….After concluding that there were too many individual specialized pieces of a loan review to achieve consistency across the large number of reviewers, PNC pushed an attempt to break the reviews up into individual subsets that could address particular borrower harm issues, with the intent of bringing them all together at the end. That was the plan, but then they couldn’t figure out how they were going to bring all the subsets together at the end and gave up on that approach. Then, complaints as to “lack of independence” grew louder, and the OCC and Promontory were faced with junking what limited deliverables they had after 10 months of work, and starting all over with review procedures designed and blessed by Promontory alone. While that could have been done, the design stage was going to require a considerable amount of time, energy, and beta testing to get right.

Step back and understand what that section says. After 10 months, there was virtually nothing to show for this effort. Promontory had to junk what little it had done at PNC because the work to date was insufficiently “independent”.

What are the rewards for bank-favoring incompetence? Lucrative indeed. Promontory disclosed that its fees across its three clients was $927 million. This was for a project where the engagement letters were signed in early September 2011 and the project was aborted the first week of January 2013. That’s 16 months, but since the project had an initial detailed work planning and ramp-up phase, plus the clients had to organize how to get information to the consultants, it’s a conservative assumption that the fees covered 12 to 14 months at full staffing levels. We’ll use 14 months to be conservative. That translates to $795 million on an annual basis, so call it $800 million applicable to calendar 2012. Now remember, not all of Promontory was turned over to this activity; in fact, one of the major problems was it hired lots of contract workers (on which it charged large markups).

But let’s run some crude comparisons:

Promontory, according to American Banker, has 400 employees. So the project revenue per head was $2 million dollars. Goldman Sachs in 2012, by contrast, has $28.8 billion in revenues for 33,000 employees, or a mere $873,000 in revenues per head. And Goldman uses capital and has lots of infrastructure (back office, IT systems) and takes market risk

Promontory said it reviewed 250,000 loan files. So it spent $3,700 per file and didn’t produce any usable conclusions. And that number gives a misleading impression, since at Bank of America, over 100,000 files were reviewed mainly by temps hired directly by the bank, with only minimal involvement by Promontory. So the cost on files where Promontory did most of the work was considerably higher. Contrast these fees to borrower payouts averaging around $850.

The revelation of Promontory’s fees was in response to a request from the Senate Banking Committee. The firm attempted to defend the pay for non-performance:

Konrad Alt, a Promontory managing dierctor who was a top OCC official in the 1990s, wrote that the company ”performed several million hours of labor” and “an amount of information comparable in magnitute to all the written materials held by the Library of Congress.”

This opens up the question of how accurate these statements to Congress are. Promontory most assuredly did not generate meaningful amounts of information; it’s attempting to take credit for information in bank systems. Moreover (and one needs to see the entire letter, not the extract) but the firm most assuredly did not perform several million hours of work; Promontory hired large numbers of poorly supervised contract workers.

While Promontory’s billings were the most egregious, it did have some competition. Deloitte got a stunning $465 million for JP Morgan. Given that the bank bought two companies with famously lousy loans that it wound up servicing, Bear Stearns and WaMu, the results seem to reflect a Promontory-level job (even though Promontory handled Wells which also was a large servicer, whistleblower reports from Wells suggest that the bank kept Promontory on a tighter leash by setting up borrower-requested review in such a way as to reject virtually all letters) than BofA did, which if true, would have led to much lower costs.

Unfortunately, it’s clear that the banks, the reviewers, and the OCC have done an effective job of putting a shroud over this travesty. The OCC appallingly can stymie requests for details that might the banks or the consultants as confidential supervisory information and prevent disclosure. The only real remedy is to inflict meaningful costs on the OCC for protecting the perps, and that is by getting the agency shut down.

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  1. jake chase

    Could someone explain how a loan modification of $6000 would have made any significant difference to the people who got $500 instead? I see that Promontory put across another bit of consultant racketeering, but what did the regulators who imposed the settlement hope to accomplish in the first place?

    1. Mr. Jack M. Hoff

      Well Jake, when you’re scraping by, $5500 seems like a lot of money. And most of those foreclosed on ended up scraping by. Whether in fact that $5500 buys much at all is another story. But following your logic, why should the banks have even paid the $500 then? After all they could have just made the check to prometory a bit larger, right?

      1. jake chase

        Love your handle, Jack, but it doesn’t seem right for someone to steal your house and settle by giving you chump change.

    2. diptherio

      Well, an additional $5,500 would obviously be better for the wronged borrowers, although I agree that $6,000 as recompense for being wrongfully removed from your home (which was, more than likely, fraudulently sold to you in the first place) seems rather miserly.

      I would prefer liquidation or nationalization of the offending banks and consulting firms (with proceeds divvied up between all the harmed parties, from borrowers to investors).

    3. lambert strether

      Jake, please tell me you’re not saying that you think that there are people in the United States who can’t tell the difference between $500 and $6000 dollars.

      1. jake chase

        See my reply to Jack m Hoff. I understand there are small crumbs and large crumbs, but I don’t see the punishment fitting the crime.

  2. allcoppedout

    A friend of mine administers the personal budgets of mentally disabled people. She would be locked up if 80% of this ended up in his wallet. This is just theft, like giving road building contracts to the Mafia, or discovering your train from Dar Es Salaam isn’t moving because the Fat Controller has spent the fuel money on a drunken week with his mistress. The model we are in is one of massive white collar fraud.

  3. Sandbag Sam

    Let’s rehash: Williams leaves alleged public service where she and her lawyers assisted in the design of the housing crisis – thereby the takedown of the economy. Joins her bud Eugense. Then they gets paid to look over the damage they helped cause to begin with, assuring nothing is done other then raking in more bucks. Astounding, yet par for the course in DC. There’s the corruption, right there, illegitimate offspring makin’ money. Send in the clean out crews!

  4. Sandbag Sam

    There’s a strong link, indisputable in the HSBC revelations, that white collar crime is linked to terrorism. We seem to have established a negative myth of the rule of law. Rather than routinely disobeying the law, however, just re-write it. Voila! Eventually folks will decide to choose informal substitutes for so-called law, even if they are drugged, over weight and inudated with distraction as we are here in our Dystopian fog.

    1. MaroonBulldog

      Just so. I once worked at place where the attitude was: “If what we propose to do is against the law, then we’ll have to change the law.”

    2. MaroonBulldog

      “… a negative myth of the rule of law …”

      Here’s my take on how the rule of law works in America.

      1. I am free to do anything I want, unless there is a rule of law that says I may not.
      2. I am not obligated to any particular thing, unless there is a rule of law that says I must.
      3. My actions or inactions are presumed to be lawful, until a challenger shows a court the law that proves a wrong; I never have to prove my right.

    3. MaroonBulldog

      “informal substitutes for so-called law”–just what do you have in mind?

      Arbitration is a less formal substitute for court litigation, but whether you’re in court or in arbitration, the party challenging an action or inaction must still prove the rule that the actor is claimed to have broken. So I guess maybe this is not the sort of informal substitute you may have in mind.

      Maybe you mean informal subsitutes for the rules themselves–we’ll just let judges and juries decide in their unpredictable discretion what fairness and good conscience dicate should have happended? Good luck planning a business or a life under a system like that! There have been historical precedents, though. In England, there was once a tribunal called the Court of the Star Chamber, a court of criminal equity. Kafka’s “The Trial” presents a literary fable about life in such a system.

    4. Lambert Strether

      “Do what thou wilt shall be the whole of the law.” — Alistair Crowley.

      True for the lucky, of course. What a shame everybody can’t be lucky. But it’s more fun this way.

      1. MaroonBulldog

        “Do what thou wilt” cannot be the last word in a world where other parties who may also do what they will. The Governor General of British India legislated death by hanging as punishment for the practice of suttee (burning a widow to death on the funeral pyre of her husband). The Indians objected that the British could not make such a change in the law, as it was contrary to their custom. The Governor General rejoined. “In your country, it is the custom to burn widows. In my country, it is the custom to hang those who burn widows. Let each live according to his custom.”

        Rule of law can only exist in the context of a community of laws, where some authority other than the parties to a dispute decides their rights and obligations in the matter. Even as rough-and-ready a place as Eleventh Century Viking Iceland recognized this.

        1. LucyLulu

          You’re mistaken if you think the U.S. is on par with 11th Century Viking Iceland. If not the affected parties, who do YOU think has been making our laws the last 40 years or so? Certainly not the American people.

          -Who wanted laws for non-judicial foreclosures that require no proof of standing?
          -Who wanted laws authorizing surveillance without the requirement of a warrant?
          -Who is taking part in the Trans-Pacific Partnership negotiations?
          -Who wanted a law requiring everybody purchase private health insurance? And forbidding government mass purchasing for Medicare Part D? (But seniors in the donut hole, having spent more than ~$2800 on medications, are eligible for a 50% discount on brand name drugs marked up an average of 900%.)

          1. MaroonBulldog

            I don’t think we actually disagree. I said “rule of law” can only exist in a community of laws where disputes are resolved by authorities who represent the community. Your comment makes the point that our legislation is not made by authorities who represent the community. The logical conclusion would be that we no longer have the rule of law at this time in our history. The medieval Icelanders alsofell short of what we would accept as a standard, but at least they tried.

  5. clarence swinney

    Who Dug the Deep Hole? Who Fumbled the ball?
    Numbers rounded

    Clinton left Bush an 1800B Budget
    Bush Left Obama a 3500 Budget

    Clinton left Bush a 240B Surplus as far as the eye can see
    Bush left Obama a 1400B Deficit as far as the eye can see

    Clinton left Bush 5,700B of Debt
    Bush left Obama 11,800B of Debt

    Clinton left Bush a 237,000 net new jobs created per month
    Bush left Obama a 31,000 lowest number since Hoover.

    Clinton left Bush 17 Million Manufacturing Jobs
    Bush left Obama 11 Million Manufacturing Jobs

    Clinton left Bush a 10,800 Dow
    Bush left Obama an 8028 Dow

    Clinton left Bush Peace on Earth Good Will From Most Men
    Bush left Obama Hell on Earth Two disastrous wars. Enmity of 1500 Million Muslims

    Clinton left Bush a President most highly rated of any peacetime President in Asia, Africa, Europe.
    Bush left Obama the most hated President in history
    Bush left Obama an Housing Tsunami and Financial Volcano
    Bush left Obama, in 2008, an 8500B Bail out commitment Yes! 8500 not just 700
    Bush left Obama his Takeover of Fannie/Freddie, AIG, and first bailout of Chrysler
    Bush increased maximum loan by Fannie/Freddie from $153,000 in 2000 to $300,000 then to $729,000
    That is how F&F got stuck with so many toxic mortgages. Bush gift to Big Bank pals.
    Bush increased FDIC maximum deposit coverage from $100,000 to $250,000. Help the rich.

    1. NotTimothyGeithner

      You seem confused. The only person who has forgotten Bush is the partisan hacks and Obama. The disdain of Obama is because his actions are so much like Bush.

      The FDIC insurance raise was long overdue. The old level was like 40 years ago.

      1. Yves Smith Post author


        This is the second Obamabot spam comment unrelated to a post that you’ve left in two days.

        One more and I am not only banning you, I am expunging ALL your past comments. That is my practice with ALL spam, it gets deleted when I see it and the spammer is banned.

    2. AbyNormal

      “Bush left Obama an Housing Tsunami and Financial Volcano”

      Cliton could’ve torched Greenspan at anytime but nooooooo, instead Cliton thumbs his nose on his way out, by destroying what was left of the Glass Steagall act!
      But what else were we expecting after…The Clinton-era document “The National Homeownership Strategy: Partners in the American Dream” (hiding in plain sight)…

      The National Homeownership Strategy began in 1994 when Clinton directed HUD Secretary Henry Cisneros to come up with a plan, and Cisneros convened what HUD called a “historic meeting” of private and public housing-industry organizations in August 1994. The group eventually produced a plan, of which Mason sent me a PDF of Chapter 4, the one that argues for **creative measures** to promote homeownership.

      it states:
      “For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient available income to to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.”

      sweennee, they’re gonna kick you outa the looney bin and then what?!?

    3. Paul Tioxon

      Clinton left Obama with DOMA. Good bye DOMA. I feel your pain.

      Clinton left Obama without Glass Steagall, Obama signed CFPB.

      Clinton put Rahn Emmanuel in charge of the White House Staff, Obama fired Gen Stanley “I can’t seem to find Osama with every NSA listening device shoved up the Planet’s rectum” McChrystal.

      Clinton didn’t get any more health coverage for millions, uh, do you know the rest. I hope his wife is 360 degrees of difference.

      Clinton, the Bush II warm up act.

      Here’s me not holding my breath.

  6. steelhead23

    What? Promontory was inept? Obfuscatory? Dazed and confused? Look no further than your nearest revolving door. The group is operated by ex-U.S. Comptroller of the Currency Eugene Ludwig. If events since late 2007 had been written as fiction in 1980, it would have seemed far-fetched, proving that reality is stranger than fiction.

  7. P Nachman

    Konrad Alt of Promontory and Gerald Alt of LOGS (Shapiro)Network of foreclosure law firms – any familial connections??

  8. P Nachman

    Konrad Alt of Promontory and Gerald Alt of LOGS (Shapiro)Network of foreclosure law firms – any familial connections??

  9. Walter Map

    All things considered, I think it was a really bad idea to legalize fraud and theft. But that’s just me.

    I don’t know about yours, but my dictionary is missing the proper definition for ‘bank robbery’. Anybody who has any money or property – any at all – is just begging to be robbed by a bank. One could properly say that nobody who is not a bank actually owns anything, because banks own everything. You’re just getting some use out of it until they come to collect.

    1. MaroonBulldog

      It looks like you’ve never studied criminal law. There are fine distinctions between robbery, embezzlement, and larceny by trick. But its really tort law that should concern you–fraud lawsuits get you your civil remedy, criminal fines and convictions get you squat.

      1. Walter Map

        Oh, puh-leeze. I’ve explained this to Greenwald in detail: the law is a whore, and banksters, MIC types, the oil industry, the security industry, and other corporatists pimp the law routinely.

        Laws are for little people. The really big fish can get away with anything, literally anything. Spectacular examples abound.

        1. MaroonBulldog

          Fallacious thinking to say the law is a whore. The law is an imaginary actor; whores are real actors. The real problem is that unaccountable legislators, regulators, and judges will govern in their own interests, their own venal interests. The legislators make themselves unaccountable by delegating rulemaking authority to regulators instead of passing real laws. The judges make the regulators unaccountable by according an unreasonable degree of deference to their actions. And the Constitution makes the judges unaccountable by giving them life tenure. So it’s not the law that’s the whore; its the human beings who hold and abuse these offices that form a whole gallery of whores.

          1. jake chase

            Law is an elegant intellectual edifice which doesn’t work because those charge of its administration are entirely self interested. Many are corrupt; most are lazy and indifferent to those deemed less important than themselves. Over the past twenty odd years, elite sociopaths have become more and more brazen and institutionalized fraud and looting, knowing that money plays the tune and legal functionaries just dance. Eighteenth Century France had the only answer to this problem, and it didn’t produce much more than temporary satisfaction to those who escaped the axe.

  10. Susan the other

    I would seriously like to see a materially post modern OCC. I’d like to see it chopped up into tiny pieces, tiny measurable pieces of flesh and cement, put into an industrial blender until it is just a slurry of ordinary bullshit, then poured somewhere on the grounds of Congress with a monument marking it as the once but not-future office of the comptroller of the curretcy which looks like a combination of a cross and a stiletto. And engraved across the handle: the medium is the message. Slop to slop.

  11. clarence swinney

    President Obama capped federal student loans at ten per cent interest.
    The CBO calculates we will make $51 Billion off student loans this school year.
    Yet! Too Big To Fail Banks are getting almost interest free loans and cleaning
    our clocks.
    Petitions to keep them from doubling had over one million signatures.
    What are our priorities?

    1. AbyNormal

      you act like 10% is a favor…where are YOUR priorities?
      after he has those rotten loans extinguished…we’ll talk.
      actually don’t speak to me till the brainless parties prioritize our future with Free Education!

    2. MaroonBulldog

      “Petitions to keep them from doubling had more than one million signatures” yet nothing happended?

      If those signatures were matched by Congrerssional campain contributions of more than one million dollars, then you might have seen some action.

Comments are closed.