At this point, it seems hard to add insult to injury, given the terrible track record of the OCC Independent Foreclosure Reviews. But it’s nevertheless been done.
By way of background, in April 2010 the Office of the Comptroller and the Fed issued consent orders to 11 servicers (three more were added later). The orders mandated that borrowers who had had foreclosures that were pending or had completed foreclosure sales in 2009 and 2010 could request an investigation by independent reviewers, selected and paid for by the servicers but subject to approval by the OCC. It was clear from the outset, however, that this consent order process was never intended to help homeowners in a serious way, but was intended to give air cover for predatory servicers.
Even so, the foreclosure reviews turned out to be an embarrassing and costly fiasco. The investigation was halted abruptly, as more and more leaks showed that the foreclosure reviews were anything but “independent”. 11 servicers and the regulators hastily negotiated a settlement, with the authorities failing to identify any methodology for how the portion of the settlement allotted to cash awards, $3.3 billion, would be distributed to homeowners. It was predictable that the outcome would be that insultingly small checks would be distributed broadly to bolster claims of how many people has been recompensed, as if checks of a few hundred dollars on average was even remotely adequate restitution for the loss of one’s home.
Nevertheless, there had to be some sort of process put in place to distribute the piddling cash compensation, so the OCC set up a framework with various types of damage leading to stipulated levels of awards, with $125,000 the maximum. But this was all Through the Looking Glass logic. Since the foreclosure reviews had never been completed, how could anyone have the foggiest idea who deserved what? The only exceptions for those who got through the process early and servicemembers, who were treated with kid gloves. The death-of-a-thousand-unkind-cuts treatment continued with the Byzantine process of getting correct addresses to Rust Consulting, the firm in charge of sending the money, bounced checks and late mailings.
The abusive treatment of borrowers contrasted with how well the enablers made out. Across 11 servicers, the failed review-meisters pulled out $2 billion. Promontory, which mismanaged the reviews at Bank of America, Wells Fargo, and PNC pulled out a cool $930 million.
We published a large-scale whistleblower series at the time, with extensive reports from people who’d worked on the foreclosure reviews at Bank of America and PNC. They told us of near universal fee overcharges. They also pegged levels of serious harm ranging from 10% to 80% (the estimates ranged widely because no one reviewd a file in its entirety; the tasks were divided among teams, so, for instance, some looked only at modification abuses, while other looked solely at fee overcharges). The serious harm estimates clustered between 30% and 40%.
Peculiarly, or perhaps predictably, the estimates of harm that were made public, even with Congressional pressure and a GAO investigation, were much lower…until today. From the Wall Street Journal (hat tip Tom Adams):
A consulting firm that scoured major U.S. banks’ foreclosure files for mistakes was finding far higher rates of error than regulators reported when they abruptly ended the review last year, a congressional inquiry has found.
The top Democrat on the House Oversight Committee, Rep. Elijah Cummings (D., Md.), on Thursday disclosed excerpts of documents from consulting firm Promontory Financial Group…
At Bank of America, Promontory found “systemic issues in the accuracy and timeliness of processing loan modifications,” with an error rate of 60% in one small sample of loans, according to an excerpt of a May 2013 document published by Mr. Cummings.
At PNC Financial Services Group, a sample of 4,800 loans found 21% of borrowers were financially harmed, according to another excerpt cited by Mr. Cummings in a letter to the oversight panel’s chairman, Rep. Darrell Issa (R., Calif.).
The OCC said the consultant’s review had found an overall error rate of about 4.5% after assessing about 100,000 files.
The disclosure by Mr. Cummings echoes a 2013 Wall Street Journal article that identified error-rate discrepancies. The Journal reported that more than 11% of files examined for Wells Fargo had errors that would have required compensation for homeowners, compared with 9% at Bank of America.
Why is this coming to light only now? This suppression of information is yet another proof of how deeply pretty much all of Washington DC is in bed with the banks. Only now when foreclosure abuses are considered old news does the public begin to get an inkling of how much the official story was close to a complete fabrication. Of course, the people who went through the Independent Foreclosure Review process knew full well what a charade it was. But they were never taken seriously. Those with no money (and if you’ve lost your home, you are sure to be under financial duress) have little clout to begin with. Losing your home is stigmatized, which discourages victims from telling their stories and sets those brave enough to do so up for abuse (the banks have done a great job of playing up the “deadbeat borrower” meme, whether it fits or not).
And don’t kid yourself that the banks paid anything near what they should have. This was our back-of-the-envelope calculation over a year ago:
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.
The only positive element of this sorry tale is that Elijah Cummings has soldiered on with trying to get to the bottom of this misconduct. I hope readers will call or write his office and thank him for his persistence.
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Without this blog, I would have never known the real story behind the headlines.
Thanks Yves!
It seems to me that we have three basic issues. We have loans that were fraudulent from the get-go. I’m all in favor of nailing those who induced borrowers into fraudulent loans, but given signed paperwork from the borrower, it is very difficult to pursue a he-said/she-said case that depends on the idea that the borrowers thought that they were signing a contract that was materially different than the one that they did, indeed sign. We have the predatory fees issue. Frankly, with predatory fees having become one of the core-competencies of the banking industry in the last few years, I think that distributing the money pretty evenly might be the most equitable decision.
Thirdly we have the issue of foreclosures that were enabled by fraudulent paperwork, in the wake of the MERS disaster and the massive disregard for the legal requirements for the registration of liens and Deeds of Trust. The legal requirements are a form of insurance against somebody fraudulently taking property through foreclosure or of borrowers stiffing lenders. So the failure to go through the required legal procedure is like an auto insurance agent who simply pocked people’s money and never bought them a policy. If you never filed a claim have you suffered harm? So if you actually didn’t make the payments required on a loan AND you had intended to pledge the property as security for the loan, have you suffered if you lose the property. Don’t get me wrong, I think that all the lawyers filing fraudulent foreclosure actions should be disbarred. We can’t allow answer to “We haven’t filed the proper paperwork” to be forgery. If they get away with it today, they’ll just do even worse tomorrow. And in the cases were foreclosure actions were completed against the wrong address, or for the wrong lender etc, I think that damages and penalties should be…exemplary. But I think that one of the reasons that there have been relatively few borrowers challenging foreclosure actions in court is that they are indeed aware that they haven’t been paying the loan as agreed to and that the property was offered as security for that loan.
But the central point that the review was an ineffective attempt to put whitewash over a crumbling foundation is certainly on point.
You are really missing the plot here.
Borrowers do not want a free house. They want a modfication. And when banks owned the mortgage, they would also always do a modification provided the borrower still had some ability to pay, because that would reduce his losses. This is not morality, this is competent creditor behavior. That is why, similarly, we have Chapter 11 for corporations.
But the servicers are NOT the creditors. With securitization, the investors are the creditors. But foreclosing is more profitable to servicers than doing a modification. So both the borrowers and the homeowners lose.
Yves, I learned something interesting recently when in conversation with a Freddie Mac customer service rep. I could be very behind the times, but I was surprised to learn that the lowest a modification interest rate goes in HAMP is 2%, and that it “is adjustable” every few years, until it reaches a cap defined in the modification agreement (which the rep explained is typically near the interest rate of the current, nonperforming mortgage). Streamline (which they referred to as “no doc”) modifications are fixed to the market rate.
And I quote, “Our goal is really to work with homeowners on retaining or liquidating our homes.”
I wholly agree that a modification would be better than the alternative (foreclosure, deed-in-lieu, short-sale, depending on the circumstance). But on those terms, where the life of the loan is extended to 40 years, and the interest rate has a chance of going up like an ARM? I don’t know what’s worse.
And to Jim, there are very many homeowners who challenge wrongful foreclosures. A lot of those folks entered mods but were dual-tracked. You’re right, they did not continue to pay the loan amount as agreed, but had a massive, no-doc, forgery-fueled bubble not existed, would the mortgaged property have been valued so high in the first place?
Yves, I learned something interesting recently in conversation with a Freddie Mac customer service representative. I may be very behind the times, but I was surprised to learn that under HAMP, modifications go as low as 2%, and then have the potential of going up every five years. In a streamlined modification, the interest rate matches the market rate. I agree that a modification is better than the alternative (foreclosure, deed-in-lieu, shortsale, depending on the circumstance) but I have to wonder if an adjustable-rate modification is worth it.
From the lips of the representative: “Our goal is really to work with homeowners on retaining or liquidating our homes.”
And to Jim, many homeowners are contesting foreclosures in court. A lot of these folks signed up for modifications but were dual-tracked, or receive foreclosure notices from servicers they’ve never done business with. Yes, these folks stopped paying a loan as promised. But if this scamming, no-doc, forgery-driven bubble never existed, would the mortgaged property have ever been valued so high in the first place?
I don’t have nearly as much faith in the utility of modifications as you seem to. Many of these were not borderline unaffordable loans, where a 10% drop in principal is going to allow the borrower to pay according to the new terms. Rather these “exploding teaser rate suicide loans” were ones that the borrowers NEVER had any reasonable expectation of paying. To get these people into loans with reasonable debt-to-income ratios required significant principle write offs. As k.b. points out they supported wildly inflated prices and those prices that HAD to fall, and fall quite steeply in some markets. If the servicer forgives more principle than required to make the loan affordable that’s a loss. If the servicer forgive less principle than required to make the loan affordable, they will have to go through the whole process again but with lower prices and therefore lower possible returns from a foreclosure. So each mod requires an analysis of the market, and the borrower ability to pay. Sure mods make sense in some cases, but it would be perfectly rational for a lender to decide that it made more sense to take a higher loss right now rather than have to go through this whole labor and analysis intensive again in another year. But frankly I don’t think that there were enough people in the mortgage business to DO these sorts of analyses. The mortgage brokers and the banks that bought the loans never figured out whether the initial mortgages were affordable, there’s no reason to think that they would be able to make sure that a loan modification was affordable.
And of course pooling and trancheing of the loans added ANOTHER level of analysis. The bondholders in some tranches are better served by a foreclosure today than payoff at some time in the future. There was some discussion about the risk that doing mods ran the risk that the servicers would get sued by the bondholders from the tranches that were better served by foreclosure. But really there simply weren’t enough experienced loan officers around with the judgment to write mods. There were plenty of used money salesman who could read a rate sheet but that is a completely different skill set from a traditional “loan officer.” THOSE dinosaurs wouldn’t have written the sort of suicide loans that fueled the bubble so they were long gone by the time the bubble burst.
::: Complete Cummings 12 Page Letter and Press Release :::
Cummings Requests Hearing on Mortgage Settlement
April 24, 2014
New Documents Show High Error Rates at Banks, Foreclosure Review Terminated Before Full Harm Revealed
http://democrats.oversight.house.gov/press-releases/cummings-requests-hearing-on-mortgage-settlement/#sthash.0yQDb8r2.dpuf
Two words: Ponzi scheme.
Rep. Cummings has been one of a handful of Congress members who has fought to discredit the mortgage settlements. He recently was flooded with letters and email after his skirmish with Darrell Issa over disclosing findings related to the IRS/political targeting allegations.
Yves, I-l be eternally grateful for you sticking to this beat and exposing the rampant fraud that us people who got screwed by the banks have endured.
Five years in, I’m still fighting Wells servicing a B of A Trustee Morgan Stanley trust loan (it was A paper when I got it – my FiCO was 735.) Went through a Chapter 11, Wells stopped taking payments in April 2010 and has been trying to foreclose. Letters from lawyers, complaint to the OCC, etc. all useless. Payment checks returned, MERS loan transferred at the Country Register to B of A in 2011.
Filed a complaint with Elizabeth Warren’s shop, the CFPB, and they were really on it. Finally got a letter from Wells to agency admitted that upon investigation, Wells has “discovered” this loan was under bankruptcy protection, and now they are trying to contact to my lawyer (two lawyers ago – they are mostly swine) to begin remediation.
I give Ms. Warren huge credit. I had filed complaints with the OCC and they were met with crickets. Especially complaints re: Chase, which has its “special situations” workout people in Houston, which is where the OCC had put their useless complaint unit. Plus, the OCC had a rule that once legal action was initiated, they bowed out. I got a call from Chase saying they were sending an app for a mod. Chase promptly filed an NOD the next day, and the OCC promptly bounced. The road between the OCC and Chase down there must be very rutted with turncoats running from the OCC to Chase. They only problem with that is that now Slimin’ has axed 30K folks in mortgages, mods. etc. Oh dear. There’s a lesson there which I am sure will be lost on everybody.
On the other hand, my interface with the fresh-sounding voices at CFPB were pleasant, they sounded well trained. It was a pleasant surprise. I still say Warren for President in 2016.
Does anyone know of a comprehensive take-down book on the MERS crimes? I know there have been pieces here, one 60-minutes piece, Marcy Kaptur and few others.
So in addition to Cummmings calling for a new hearing on the servicers’ behavior and the OCC’s infamous review, there is also a lot of talk lately about MERS. If the MERS talk focuses on the fact that 80% of the securitized loans were not securitized, it could make the foreclosure review fiasco a moot point. Not to even mention the completely trashed chain of title problem and the usual legal remedy for this which is to just give the home to the current owner/occupier. This mess goes way beyond the nitpicking about servicer misbehavior during a foreclosure; the real cesspool is the whole securitization debacle and 15 million (?) clouded titles.
Thank you for not forgetting the many homeowners and pension funds thathave been ripped off by these diabolical criminals. NOTHING has changed its as though the “settlements” have served to embolden their behavior, not diminish it.
The complicity of those we’ve entrusted to protect the rule of law gains more clarity daily.
Vietnam executes bankers for corrupt activities.
Why did federal judge Cote deny the large banks motion to intervene in the FHFA’s lawsuits?
The banks a alledge that FHFA/GSEs knew all about irregularities and were guilty of willful blindness.
Two players in the GSE Business Model, pointing fingers at one another——-then a federal judge shutting down discovery that would shed light on the issues??????
What is going on?
The consent orders were issued in April 2011, not 2010. How would they issue a consent order to review foreclosures in 2010 when 2010 was only 4 months old?
So I need to know why should we be made to ponder that the government and its agents will have any regard for the suffering that was plundered on the homeowners and the people as a whole? surely history has demonstrated that the sharks have acquired a keen taste for the sardines. The banks have no intention to ever pay for the damage they have caused, the courts have wholly supported the bank`s pillage and the government looked on with crossed eyes, all executed with a plan without any action in favor of any homeowner.
I was in Iraq when my foreclosure process begain. When I return to the states they foreclosed on my property while they were telling me they were gonig to give me a modification. I want to know is there a waiting period unto they can do that or not.