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Banks Hire Friendlies for ‘Independent’ Foreclosure Reviews

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Can you count on the emperor’s handpicked ministers to tell him when he’s naked? Banking regulators seem to think so.

The April consent orders against mortgage servicers let the companies pick one or more professional-services firms to review their foreclosure actions for abuses and report the findings to the agencies.

Allowing the banks to choose their own judge, jury, and jailer presents almost untenable conflicts of interest. All of the consulting firms that were initially being considered to do the work serve the banks already. The banks, and their mortgage servicing operations, are existing or prospective clients.

PricewaterhouseCoopers, for example, is the auditor for Bank of America and JP Morgan Chase, two of the fourteen servicers under scrutiny. PwC’s retired Chairman, Sam DiPiazza, is an executive of, and on the board of, Citigroup, another bank with a servicer to be reviewed. Promontory Financial Group and Treliant Risk Advisors are professional services firms that serve the mortgage servicers directly on other consulting assignments.

Complicating matters, as a result of so many mergers and acquisitions, global banks are run by layers upon layers of automated systems – like SAP and Oracle – and legacy applications created from Cobol and other, older programming languages. All this software and hardware is held together by band aids, string, duct tape, manual processes, lots of unsecure spreadsheets, and crossed fingers.

The consulting firms hired under the consent order were also expected to address the bigger and more complicated management information systems issues. But it’s tough to find qualified firms that aren’t already working with the banks on these significant challenges and thus aren’t conflicted. 

The Office of the Comptroller of the Currency says it has been sensitive from the beginning to potential conflicts of interest between the consultants and law firms and the banks hiring them to do the reviews.

“We did reject some consultants and law firms submitted by the banks because of conflicts,” OCC spokesman Bryan Hubbard told me. “We were very aware of the impact of actual and perceived conflicts of interest.”

The banks have contracted with and will pay the vendors directly. Without bank-by-bank disclosure of the reports and the vendors that wrote them, we’ll never know if the process to right these wrongs was truly independent and objective.

Hubbard told me that there has been no final decision by the OCC regarding public disclosure of the action plans, the results of each bank’s reviews, or the vendor names. Of course, the banks could always decide to make public the reports, and the names of the law firms and consultants they employed.

Julie Williams, First Senior Deputy Comptroller and Chief Counsel of the OCC told Congress in July that, “these firms are required to operate independently and avoid interests or priorities that conflict with areas addressed in the Orders [and] to specify in their engagement letters with the servicer that their foreclosure review work will be subject to the direction of the OCC and not the direction, control, or influence of the servicer.”

I’m crossing my fingers.

Francine McKenna writes the blog re: The Auditors, about the Big Four accounting firms. She worked in consulting, professional services, accounting and financial management for more than 25 years.

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Comments (4)
Geez. How much more of this crap are we going to have to stomach?
Posted by Liz C | Thursday, October 06 2011 at 9:02PM ET
Look folks, the truth of the matter is that in this environment, which has now existed for quite some time now, most capable experienced Foreclosure Law Firms or Companies are obviously being utilized. Would it be better to have people from the Automobile Industry do the review, or Fannie or Freddie auditors? Obviously the answer is no. Let us be realistic, hopeful, understanding and have some faith that these companies have people that will be honest and do their jobs. As for me, I believe that they will!
Posted by robrose | Friday, October 07 2011 at 5:48PM ET
@Robert R

I'm all for most qualified. And yes, there are limited firms with the knowledge and experience. But there are smaller firms and individuals that have this expertise and they are usually not included in roster.

My focus is on disclosure and the accountability for independence and objectivity that promotes. If we can see the reports that's good. If we could see who will do the work by organization - even better if the contracting had been done by government versus banks - it would be much better.

The OCC spokesman said that current government procurement processes would not have been adequate to contract directly. I'm not sure why and he did not want to get into it. But I will be following up, given the large number of qualified firms and individuals already working for the agencies named in various forms for other crisis related issues.
Posted by Francine McKenna | Friday, October 07 2011 at 6:05PM ET
About a month ago, I received a form/questionnaire used to participate in an Independent Foreclosure Review by virtue of losing my home to a short sale. The only bright spot in the form was an open ended question asking me to describe any other way I may have been financially injured by the foreclosure process.

After composing my response, I sent hard copies to the Independent Reviewer, the House and Senate Finance committees, and the chief executives of PNC. I also posted it on my website:

http://www.desolationpress.com/essays/indreview.html

After a day or so of reflection, I thought it might make for a good template for others to use to share their stories. I worked it up and posted it:

http://www.desolationpress.com/essays/testimony.html

I would like to encourage anyone who has been burned by the moneylenders to use the template as a basis for capturing their story, and then sending copies to members of congress - both the House and Senate Finance committees and your state representatives. The key addresses are in the template.

There are at least three million of these stories, and all of them should be heard (or at least carried into their offices) as testimony to the scale and nature of the catastrophe. Make it concrete - "three million" is too abstract to really wrap your mind around. A few truckloads of letters might give them a better sense of the magnitude of the issue.

I would suggest email, or web forms, but they're just too easy to ignore. And delete. Sure, some trees may have to die, but at least it's for a better cause than more real estate circulars.
Posted by Desolation Press | Sunday, February 12 2012 at 8:54PM ET
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