A $2 billion search for U.S. foreclosure errors was hampered by poor planning from the regulators who demanded it, according to a review by the Government Accountability Office.

U.S. banking regulators provided insufficient guidance for the independent review of more than 4 million foreclosures by 14 mortgage servicers in 2009 and 2010, a draft of the report said.

The review process, which was halted in January without providing compensation to any wronged borrowers, was ordered in 2011 by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve to compensate borrowers, some of whom had lost their homes through foreclosures that relied on poor documentation. For all but three servicers, the process has been replaced by a $9.3 billion settlement with banks including JPMorgan Chase, Bank of America and Citigroup.

“The complexity of the foreclosure reviews and limitations in regulators’ guidance and monitoring of the foreclosure review challenged their ability to achieve the stated goals,” the report concluded.

The GAO said that third-party consultants hired by the servicers complained that the loan files and scope of the file review made the process “complicated and time-consuming.” The consultants — among them Promontory Financial Group, Ernst & Young and PricewaterhouseCoopers — said some files contained as many as 50 documents, comprising more than 2,000 pages. They also reported that consultants spent as many as 50 hours to complete a single file review.

The GAO noted changing guidance from the regulators that “expanded the scope of the reviews and contributed to delays.” The Federal Reserve issued three clarifications of loan modification guidance while the OCC provided seven instances of informal guidance during the process. The lack of clarity in the regulators’ guidance limited the “usefulness of the information obtained from the foreclosure review process,” the GAO said.

The report said the federal agencies “may have been able to better define the scope of the activities and issue more complete guidance prior to commencing the foreclosure review process, thereby potentially reducing the number of revisions to the scope or guidance.”

Bryan Hubbard, an OCC spokesman, and Eric Kollig, a Federal Reserve spokesman, declined to comment on the draft report.

The GAO examination was requested in a Jan. 13 letter from federal lawmakers calling for a study of the “independence, transparency, accountability and consistency of this foreclosure review process.”

In a response to the findings included in the report, Comptroller of the Currency Thomas J. Curry said the OCC will continue to monitor the foreclosure review for consistency and apply the lessons learned to consent orders. Curry also said he recognizes the need to provide additional information to the public on the process, status and the result of the foreclosure review, and will issue two additional reports.



According to the GAO, third-party consultants hired by the servicers complained that the loan files and scope of the file review made the process “complicated and time-consuming.