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Megabanks Extend and Pretend They Won't Pay for Foreclosure Fouls

It was pitched as good news for foreclosed-upon borrowers: Last month regulators announced an extension for those seeking reviews of servicers' actions under the April 2011 federal consent orders. Consumers now had until yearend to submit claims.

I think the big mortgage servicers, and their consultants, are in no hurry to start the reviews. They’d love it if these megabanks never have to pay borrowers a dime.

"Reviews are still underway. We hope the compensation will begin soon with a limited number of borrowers receiving compensation in the fourth quarter of 2012" says Bryan Hubbard, a spokesman for the Office of the Comptroller of the Currency. Regulators have been promising lump-sum payments "from $500 to, in the most egregious cases, $125,000 plus equity," for a while. But, as yet, there have been no payments to borrowers. The independent consultants, engaged by the large banks and paid directly by them, haven’t yet made any payment recommendations, according to Hubbard.

Who’s getting paid in the meantime? The independent consultants.

Financial services consultant Promontory and global audit firm PricewaterhouseCoopers are the biggest winners, with seven of the 14 foreclosure review engagements between them. Deloitte is responsible for the behemoth engagement at JPMorgan Chase that includes reviewing mortgages from its former audit clients Bear Stearns and Washington Mutual. Ernst & Young is leading engagements at MetLife and HSBC and assisting Promontory with a big job at Bank of America, where the foreclosures include many mortgages messily underwritten and sloppily serviced by Countrywide.

PwC has reportedly billed more than $50 million for Ally Financial’s Residential Capital since May 2011. The total estimate for that engagement is now at least $250 million. Sources estimate PwC’s total revenue for its four foreclosure review engagements will eventually exceed $1 billion– its largest consulting win ever.

It’s in consultants' best interests to extend the foreclosure review engagements as long as possible without coming up with an estimate for each servicer of its total liability to borrowers. The big banks don’t want to see that number – they would have to disclose it and few have done any preliminary disclosure of this exposure or even the costs of the reviews. The consulting firms want the megabanks as clients, now and in the future. There’s even more money available for policy, procedure and technology remediation of the problems that caused the "errors" in the first place, and those contracts are not constrained by an OCC or Federal Reserve review of conflicts.

That’s where the borrower deadline extension – and the upcoming presidential election –come in.

The "independent consultants" talk amongst themselves on weekly conference calls that do not include the regulators. The consulting firms are still talking about the "framework" for reviewing foreclosure files and estimating borrower liability. These conference calls, in my opinion, undermine the OCC and Fed goals of ensuring the consultants'independence by directly controlling their activities.

The conference calls cover the status and strategy for the foreclosure reviews at each mortgage servicer.  After all the effort by regulators to ensure contracts were given only to consultants with limited conflicts of interest at each bank, these discussions could provide a competitive or strategic advantage to "independent consultants" that want to sell work to another bank later. The calls also raise conflicts, and a potential reporting burden, for audit firms like Deloitte, PwC and Ernst & Young if issues at their audit clients are discussed, especially discussions that suggest the occurrence of fraud or illegal acts.

When I asked Hubbard at the OCC to guess why I had a beef with these calls, he mentioned another worrisome possibility: Consulting firms could collude to minimize the financial impact of the reviews on banks that are clients, and potential clients, for all of them.

But Hubbard says regulators also hold weekly meetings with the consultants. "The objectives of the conversations between the consultants are to share best practices, promote consistency and respond to specific direction from the regulators. While regulators have endorsed and supported these types of conversations, regulators have also stressed the importance of not improperly disclosing confidential supervisory information, including private customer information." 

Unfortunately, a firm with the most to lose from a conflict of interest or a breach of client confidentiality – an audit firm – is accused of breaching that trust in another bank regulatory case. Deloitte, now reviewing its own work at JPMorgan, is accused of abdicating its duties as a regulatory monitor at Standard Chartered Bank. The New York Department of Financial Services accused Deloitte of helping the bank doctor regulatory reports that glossed over ongoing money laundering violations and of giving the bank copies of other client reports for guidance.

I believe the large banks, with the help of the consultants, are trying to run out the clock on the foreclosure reviews. It’s no secret that the megabanks, and many of the independent consulting firms involved in the foreclosure reviews, are supporting and sending more campaign contributions to the Republicans and Romney in 2012 than to President Obama. They’re counting on a Romney win, I think, and a pass on paying borrowers who were foreclosed on in error or were cheated. Under a Romney administration, who would complain if banks never complied with these orders fully?

It’s time for the big banks, and their independent consultants, to stop stalling and prepare to finally pay borrowers for foreclosure abuses.

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.


(13) Comments



Comments (13)
We're in TRUST of the best appointed decision makers within the OCC on the FORECLOSURE WRONG DOING, give them the reins for success, it's been to long....DELUSION AND DOESN'T SEEM TO BE OVER...
Posted by robtat | Sunday, January 06 2013 at 1:28PM ET
@Joel Sucher

Hi Joel,

Thanks for your comments. I've enjoyed your columns on BankThink. I hope to see more of you.
Posted by Francine McKenna | Thursday, September 27 2012 at 9:16AM ET

What you may end up getting are several checks, for each of the different errors or issues you identified, dribbling in over time. There's a strong faction that wants to develop a number for each borrower based on the limited response so far, send out a check, as them to sign a release and call it a day. There's a strong desire to stop doing any individual file reviews. Not that many have been done yet in some of the engagements by the actual "independent consultants" versus subcontractors.
Posted by Francine McKenna | Thursday, September 27 2012 at 9:02AM ET

Thanks for your comment. The open ended questions are the only place the borrower can tell their story. Unfortunately reviewing and classifying information in an open-ended response is the most difficult of all for the reviewers. I think that this can work against the borrowers since the reviews and reviewers are not set up to deal with ambiguity and the need for judgments.
Posted by Francine McKenna | Wednesday, September 26 2012 at 7:21AM ET
Now that I think about were calling Romney a cheat when in fact we don't know how he would act as he is a lawyer and maybe like under Bush I they dealt with the S&L scandal as Professor Black has reminded everyone. Yes Romney said GM should go bankrupt which they did go into bankruptcy but with the government greasing the way. However this was not real capitalism because of the government involvement, so we can only at this point speculate as to if GM would have come out OK without government funds which we are not going to get that all back as right now they owe the taxpayer $25 billion.

Now does Romney do what Obama should have done and put a stop and have the Fed rescind these loan that have given the banks capital to be able to not perform the modification and do illegal foreclosures knowing that borrowers don't have the funds or the legal team experienced enough to understand the crimes that have been committed.

I believe that if Obama out the way and his connection with the banks are not there and black Congressional member are free to expose the corruption, which they cannot under Obama because black are under the impression that Obama is the second coming, and any thought other wise is the sign of a Uncle Tom.

Secretary Donovan is aware of the situation he is in and that is to allow this thing to be pushed backed as now the end line is Dec 31, 2012 at a point Obama is either reelected of not and Donovan is on his way out without any consequences just as Secretary Paulson, Geither, Blair or Bernanke suffered after the debacle of 2008.

Fact is that as many as 660,000 of the 4.4 million foreclosures where FHA & VA loan that could not be foreclosed at all under a administrative foreclosure because there is no "holder in due course" because in order for the lender to participate in the Ginnie Mae program the lender must separate the Notes, debts and security instrument (mortgage, deed of trust, security deed). Bottom-line is that there is not an lien on any property that is in a Ginnie Mae Mortgage Backed Securities, because Ginnie Mae by law cannot purchase a home mortgage loan!
Posted by charleswreed | Tuesday, September 25 2012 at 11:03PM ET
As the months go by, those of us who responded to the survey have to accept that it is not likely that the banks or the reviewers will act in any meaningful way. What we can do is post our stories in a public manner and let the banks deal with the impact it may have on their brand value.

Look at the last question of the review form: it contains the only open-ended question (itself a sign). To see an example of a response to this question, see

There's a link on that page to a template that anyone can use to compose their response. Let your voice join the chorus ...
Posted by Desolation Press | Tuesday, September 25 2012 at 8:06PM ET

I'm sure consumer groups and Congress would like to see more borrowers take advantage of the process but as another commenter mentioned, the outreach efforts have been dismal. The GAO said so and yet there's been no improvement. Intentions are good. Execution by the regulators has been very bad.
Posted by Francine McKenna | Tuesday, September 25 2012 at 5:12PM ET
Wasn't it consumer groups and members of Congress that asked for the deadline extension?
Posted by Debra Cope | Tuesday, September 25 2012 at 3:28PM ET
Francine... Your post was right on the mark, and as a former blogger for BankThink on "alternative perspectives" I can appreciate your jumping into the murky waters surrounding these so called "Independent Foreclosure Reviews." It's a smoke-and-mirrors attempt by the MegaBanks and their regulatory enablers to shove this legacy of fraud and deception into the proverbial dustbin of history (much of it with Donovan and Geithner's approval). If Romney ascends to the Presidential Throne no doubt his aim will be to make this whole foreclosure scandal simply a footnote in some future academic treatise. However (again citing my experience as an AB blogger) it's amazing how little attention is being paid by the one-per centers to the pent-up rage among millions of homeowners either in the foreclosure process, already evicted or simply struggling to stay afloat in their underwater homes. Many may be suffering in silence, but suffering -- like depression -- has a flip side: Anger.
Posted by Joel Sucher | Tuesday, September 25 2012 at 9:45AM ET
It is unfortunate at the very least to see, through and following a financial crisis of historic proportion and very incorrect following steps by two Presidents to right the ship of State, home owners continue to suffer. Unfortunately, there will remain a process of retaining your money. It is the government that retains much of that money in fines and not to you. It is the legal profession that gets much of your money upon those lucrative government settlements. Slowly and painfully your money trickles. Have you ever wondered why the vast majority of Government representatives are lawyers?
Posted by hedger | Tuesday, September 25 2012 at 9:25AM ET
What is it with bankers? Why is it that they just can't play an ethical game? What kind of culture is their's? They only know how to screw all involved, always, never miss a chance to show their lack of morals. I think the whole point is the result of making institutions instead of people, accountable; allowing execs to remain as innocent spectators of their wrongdoing. The institutions get fined for all sins, customers pick up the tab and C-level remains the same and doing the same things, over and over. Isn't lobbying the art of bribery? So, who owns the ball here? The big thieve ends up being the government that takes the bribes through lobbyists, proving incapable of protecting us, The People.
Posted by mauriciott | Monday, September 24 2012 at 7:55PM ET
Thank you Ms. McKenna. Aside from your fundamental and correct conclusion, "It's time for the big banks, and their independent consultants, to stop stalling and prepare to finally pay borrowers for foreclosure abuses", the other key issues here, in my opinion are twofold. 1) How independent are the "independent consulting firms"? And, 2. Given the pale 5% return rate on borrowers requesting reviews, did the banks design an outreach process using the path of least resistance, i.e. operationally and financially? The points you've raised re the "independence" of the independent consultants are valid and bear no repeating here. I would augment only by stating that although the OCC hired an independent contractor to oversee this process, the banks were allowed to choose and design the methods / manner of outreach - which leads me to my second issue re: the effectiveness of the outreach program does, in my view, require additional scrutiny. Although I know that any audit allows for sample expansion based upon discovered patterns of irregularities and defects found, both of which I've been advised are significant and disturbing here, the fact that the outreach campaign was found to be quite lacking per the GAO report to Congressional Requestors - June 2012, seems to NOT be on the improvement track. In reading the report, the mailer and PSA approach are the strategies being deployed. While these are good first level attempts, my conversations reveal that there seems to be NO FULSOME STRATEGY to ensure that as many of the 4 million households as possible understand their options and have an opportunity to make an informed decision on exercising their option to request a review. Pg 6 of this report clearly states that "...the purpose of the outreach is to provide a robust process so that eligible borrowers who believed they've suffered financial injury within the scope of the consent orders have a fair opportunity to request an independent review of their circumstance and, potentially to obtain remediation." As the current strategies have not produced the desired response rates, one would think that the impacted banks would be DIRECTED to enhance their strategies to include second level approaches such as in-person support. These options are more expensive but could be combined with existing delinquent loan inspection requirements for those loans that are still on the books and still in delinquent status, thus adding marginal $ increase to current delinquent loan servicing costs. The companies providing these types of services have fulsome, effective & most importantly TURNKEY strategies / executions that would not only increase penetration and response rates for the 4 million target population, but would also provide excellent feedback on the households who still choose NOT to request a review. I believe in and have successfully used In-person contact strategies and believe that they should be a requirement in the US delinquent mortgage servicing process AND that they should have been and CAN STILL BE incorporated in Foreclosure File review process. It won't help the households who used products bearing NINA & SISA features to bite off more than they could handle....they won't reply let alone request a review. As I believe we are at the precipice of establishing the foundations for US housing policy for the next decades, it's important that we do this right. Extending the deadline but not changing the approach results in virtually unchanged outcomes, little consequence to those charged with mishandling these situations, AND affected households NOT receiving compensation determined to be due. I know we can and MUST do better. The question is " DO WE WANT TO?".
Posted by Ingrid Beckles | Monday, September 24 2012 at 4:14PM ET
This is very true. There are those of us who submitted our claims very early in the process. We have heard nothing and believe when we finally do, it will be a finding of no wrongdoing by our servicers. This process will drag on... except they shouldn't bank on Romney winning the election. However, even after Obama wins, it still won't matter. Nobody protects the powerless.
Posted by sterlingamara | Monday, September 24 2012 at 3:51PM ET
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