Lessons Learned Could Enhance Continuing Reviews and Activities under Amended Consent Orders
The Government Accountability Office released their second report on the Independent Foreclosure Reviews. At the time that the OCC and the Fed scrapped the reviews and amended their consent orders, this review, expected to be critical of the process, was seen as a proximate cause.
Rep. Brad Miller, a North Carolina Democrat, told The Huffington Post that the report, which has not been released, was “critical” and that the Office of the Comptroller of the Currency, which administers the review, was aware of its findings. Miller said that that one problem the GAO was likely to highlight was an “unacceptably high” error rate of 11 percent in a sampling of bank loan files.
GAO only looked at the regulators’ design and ovesight of the foreclosure reviews, rather than what the independent reviewers did, and in fact they used the bank consultant reviewers as primary sources – tends to give a very circumscribed picture of the reviews.
But the regulators were definitely part of the story here, and once you get through the government audit, you can begin to see the picture of how they conspired to ensure the reviews would offer little to no value, and indeed attempt to exonerate the banks. The ensuing calamity only shows how the scheme worked too well, burying any evidence of borrower harm among an avalanche of deliberately cracked design.
What GAO Found
Complexity of the reviews, overly broad guidance, and limited monitoring for
consistency impeded the ability of the Office of the Comptroller of the Currency
(OCC) and the Board of Governors of the Federal Reserve System (Federal
Reserve) to achieve the goals of the foreclosure review—to identify as many
harmed borrowers as possible and ensure similar results for similarly situated
borrowers. Regulators said that coordinating among foreclosure review
participants was challenging, and consultants said that the reviews were
complex. In spite of regulators’ steps to foster consistency, broad guidance and
limited monitoring reduced the potential usefulness of data from consultants and
increased risks of inconsistency. For example, GAO found that guidance was
revised throughout the process, resulting in delays. Other guidance did not
specify key sampling parameters for the file reviews and regulators lacked
objective monitoring measures, resulting in difficulty assessing the extent of
The broad and expanding scope of the reviews and delays in defining key concepts could have been mitigated by more advanced planning from regulators, resulting in more efficient and effective reviews. Regulators may have missed opportunities to potentially narrow and refine the project scope—for example, through earlier definition of a harmed borrower or agreement on errors not resulting in remediation that may not have warranted additional review… conducting a planning process that involves all stakeholders provides an opportunity to examine preliminary information and pilot-test processes and procedures to help further define the scope of potential activities and hedge against the risk of future changes.
What GAO Recommends OCC and the Federal Reserve should
improve oversight of sampling and consistency in the continuing reviews,
apply lessons in planning and monitoring from the foreclosure review, as appropriate, to the activities of the continuing reviews and amended
consent orders, and implement a communication strategy to keep
stakeholders informed. In their comment letters, the regulators agreed
to take steps to implement the recommendations.
If the GAO’s analysis of how the payouts of the amended consent orders will work is at all accurate, we’re on the cusp of yet another train wreck.
• They haven’t decided aspects of the reviews for SCRA violations and foreclosures on borrowers who weren’t in default
• They haven’t determined payment amounts for the different broad categories of borrowers
• They haven’t figured out what to do with leftover funds not claimed by borrowers
• They haven’t figured out the loss mitigation procedures for servicers, or criteria for what borrowers will be eligible
What GAO leaves unsaid is that the consultants had every incentive to draw out the process and lengthen the reviews. $2 billion worth of reasons, in fact.