The top Democrat on the House Committee on Oversight and Government Reform is questioning whether federal regulators cheated struggling homeowners out of compensation by scrapping an independent review of foreclosure files at big banks.
Rep. Elijah Cummings (D-Md.) sent a letter Thursday to committee chairman Darrell Issa (R-Calif.) requesting a hearing on “widespread foreclosure abuses” documented in records his staff recently received from the Office of the Comptroller of the Currency (OCC).
The debate centers on a 2011 agreement the comptroller’s office and Federal Reserve reached with 16 mortgage servicers accused of using forged and shoddy paperwork to rapidly foreclose on homeowners, a practice known as “robo-signing.”
The servicers, including Bank of America and Wells Fargo, agreed to have independent consultants review their foreclosure files for errors. In the 12 months that the review was up and running, not a single homeowner received any compensation. But the eight consultants managing the process were paid a total of $1.9 billion.
The slow-going process and whopping amounts spent on operations led federal regulators to shut down the system and forge a new agreement. But when the comptroller’s office and the Fed announced the settlement to replace the review in January 2013, lawmakers and consumer advocates worried the new deal would be worse than the original.
Cummings said the records the committee reviewed brings those concerns into focus. OCC records showed that the consultants hired to review foreclosure files identified high rates of banks charging excessive fees, failing to process requests for lower mortgage payments and illegally kicking homeowners in bankruptcy out on the street, according to Cummings, who would not provide the confidential documents for review.
In one example, Promontory Financial found errors in 60 percent of the loan modifications conducted by Bank of America. The consulting firm also uncovered similar problems in 21 percent of the cases it initially reviewed for PNC Bank, according to Cummings.
“It is unclear why the regulators believed it was in the best interests of borrowers to end the IFR when high error rates were identified during preliminary reviews, and more detailed reviews had been prepared to identify the full extent of harm,” Cummings wrote in his letter to Issa.
He said the consultants had conducted “significant preparatory work assembling files” and were poised for more comprehensive reviews, which could have produced a bigger windfall for homeowners and completed last year.
Officials at the OCC, which regulates the nation’s largest banks, acknowledged providing the committee staff access to the records, but declined further comment.
Not everyone agrees that continuing with the review would have been better for consumers. Amid the onslaught of review requests, the consultants kept shifting the target completion date, according to a person familiar with the process who was not authorized to speak publicly.
By some estimates, the review could have continued well into this year. And while the initial sample of cases revealed a high rate of errors, the person said there was no guarantee that further review would have produced similar results.
The deal that arose from the ashes of the review provided 4.2 million homeowners whose homes were in foreclosure in 2009 and 2010 with $3.9 billion in cash payments. Another $6.1 billion was used for reducing loan payments or interest rates on mortgages. All but one of the mortgage servicers eventually signed onto the agreement. OneWest Bank refused to abandon the review.
In the past year, Issa and Cummings have written letters to the OCC and Fed requesting information on the rationale behind the settlement. But it is unknown whether Issa will hold a hearing on the matter. His office said the committee chairman is reviewing Cummings’ request.
Federal regulators have endured immense criticism for their handling of the foreclosure review and the subsequent settlement. Even after the botched review was scuttled, regulators ran into a series of mishaps in dispensing the compensation. Many of the first checks bounced, while a later batch had the wrong amounts.
Despite the hiccups, about 3.7 million checks totaling nearly $3.3 billion have been cashed or deposited to date.