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Editor at Large

OCC Bungled Foreclosure Settlement from Start to Finish

Thomas Curry keeps insisting the decision to end the independent foreclosure review will deliver fatter checks to more borrowers.

"Our new approach will get more money to more people much more quickly," the Comptroller of the Currency said Feb. 13.

But where's his proof?

The government's deal with 13 servicers to end the unwieldy review of 4.2 million mortgages affected by the 2009-10 robo-signing scandal may indeed get money to borrowers faster, but it will not ensure they receive more money.

That's because the government does not know which borrowers suffered what degree of harm.

The settlement should fit the harm, but the Office of the Comptroller of the Currency is making the harm fit the settlement.

According to an amended deal revealed last week, 13 firms will pay $3.6 billion to these borrowers. The servicers themselves will slot each borrower into one of 11 categories, depending on their circumstances. The OCC has pledged to review the servicers' decisions, but borrowers will have no say and no way to appeal.

The Comptroller's Office has not yet put a dollar figure on any of the 11 categories.

Instead, the agency plans to wait to see how many borrowers the servicers slot into each category and then the agency will assign a corresponding payment. That way the money paid out will match the total committed by the servicers.

The OCC did release a matrix last June with 13 categories of harm, and the corresponding payouts ranged from $1,000 to $125,000.

The agency has condensed the number of categories to 11 and says it is now reworking the dollar payments. It won't say when the new numbers will be made public, which undercuts the agency's promise to have checks arriving in borrowers' mailboxes within weeks.

But the OCC has said that every borrower, regardless of harm, will receive some remuneration. And it has confirmed the maximum payment to any single borrower will be $125,000, but the agency has never explained how it set that ceiling.

Among the circumstances that would have earned the maximum payout under the June 2012 matrix was a borrower who was foreclosed upon even though the loan was not in default. If that happened to me, I'd want more than $125,000.

The national newspapers have dug into this story and lawmakers are demanding better, deeper explanations from federal regulators.

I think it's becoming increasingly clear that the Comptroller's Office moved to settle too quickly. The agency should have held off settling with servicers until it had more information.

The consultants who were reviewing the mortgages claim they were on the verge of giving the agency the first set of statistical data on how much harm had been inflicted when the agency pulled the plug on the review and settled with the servicers. A pilot remediation project was in the works, too.

It's natural to be skeptical of the consultants; they've all just lost lucrative work. But they did spend the past year-plus trying to figure out which foreclosures resulted from a servicer's error so, like it or not, they are in the best position to assess borrower harm.

If the Comptroller's Office had waited for the consultants' preliminary results, then at least it would have some justification for the settlement's dollar figure.

The OCC says it arrived at the cash portion of the $9.3 billion settlement through a careful calculation.

The payout was determined "by looking at the amount of likely harm under the IFR process, the remaining IC [independent consultant] costs of completing the reviews and other costs and expenses associated with continuing the process we had in place," the OCC's point man on this fiasco, Morris Morgan, told me in an interview for the first story I did on the settlement.

Unfortunately the OCC can't measure that "harm."

Under pressure from Congress to prove it has some idea how many borrowers were harmed, the OCC has subsequently said that just 4.2% of the loans had problems that required compensation be paid to the borrower.

But The Wall Street Journal, citing anonymous sources, reported last week that the figure is much higher 11% at Wells Fargo and 9% at Bank of America.

The OCC can claim the overall total is brought down by the much lower error rate at JPMorgan Chase, which the Journal reported was a meager 0.6%.

But how does that make sense? Can JPMorgan's error rate be that much lower than, say, Wells Fargo's when its portfolio included mortgages made by the failed Washington Mutual? And if the error rates among servicers were that far apart, shouldn't regulators consider whether the reviews were fundamentally flawed?

I repeat: no one knows how many mortgages had problems severe enough to require remuneration to the borrower. So the OCC cannot know that its $9.3 billion settlement will deliver more money to harmed borrowers as Curry has repeatedly claimed.


(10) Comments



Comments (10)
Addendum to previous comment. Here's a link to an AB story from March 2010, about six months before the world "robo-signing" entered the lexicon. "Seizing the Wrong Home: Rare, But a PR Nightmare." http://bit.ly/cCTSDA
Posted by Marc Hochstein, Editor in Chief, American Banker | Friday, April 05 2013 at 4:45PM ET
@JPJC: Can it truly be said with authority that "no" borrowers who weren't seriously delinquent were foreclosed upon? None at all? Just one would be too many. (And a few years ago there was a handful of documented cases of servicers mistakenly initiating foreclosure on homes that were free and clear!) Even if there were none: Was the practice of robosigning not a violation of due process on a large scale? Yes, of course contracts should be honored. But when enforcement of contracts means evicting a person from a home, asking for proof of standing seems like more than a mere technicality. Thank you for commenting -- MH
Posted by Marc Hochstein, Editor in Chief, American Banker | Friday, April 05 2013 at 4:23PM ET
No borrowers who were not already seriously deliquent were foreclosed upon. The $30 billion extorted from the banks is more than 100 times the actual documented harm to borrowers such as under SCRA. Decisions to borrower come with known opportunities and consequences. One of the consequences is that is you stop paying you may lose your residence. It's called accountability.
Posted by JPJC | Friday, April 05 2013 at 2:14PM ET
I was laid off from my job in 2008, my husband lost hours for over a year. We were struggling to keep our head about water. We called BoA in an attempt to get a modification on our loan. We submitted all the paperwork that they requested, we called for months and they kept telling us it was being reviewed. Meanwhile, the sheriff comes knocking on the door with a letter stating that our home was in foreclosure. There were even times when my husband would call and demand to speak with a supervior at BoA, they would give us a number, and it would be busy... all day, everyday. We ended up short selling our $275,000 home for $170,000. Watched everything we dreamed for and worked hard for go out the window. We ended up filing Chapter 7. The emotional effect this entire process had on our life cannot be put to a dollar amount. While we were at our court date for a bankruptcy, we sat and listened to a couple attorneys talking about a client that was able to get a modification for $100,000 less than the principle balance of their original loan. I couldn't help but start to sob. We couldn't get one single ounce of help from BoA. If a check comes, and it is for $1,000, that will be just another slap in the face.
Posted by jpavs77 | Wednesday, April 03 2013 at 1:03PM ET
It was tough enough for struggling homeowners who really got hit from both sides of the crashing market.. I was hit hard with income because I was a residential contractor building homes and on top of that lost everything I built with my own two hands.. I was trying to work out a deal with my mortgage provider and and found out by a friend of mine that they were buying my home from another company.. My mortgage company had transferred my loan to another nservice provider and had foreclosed on my home before I even had all my personal belongings out of my own house and also after I had just sent them over 4000.00 so I really would like to know where my money went... Yeah I'm gonna be beyond upset if I receive a 1000.00 settlement check.. I filled out the papers to have this review done for a reason.. I lost over 200000.00 equity in a home I built myself.. And to find out that the OCC settled on this really concerns me...
Posted by Aprilwv | Tuesday, April 02 2013 at 3:26PM ET
Yep, I'm one of the 'lucky' 800,000+ loans that was offered a 'permanent HAMP' modification. It's been almost three years since I challenged the servicer's accounting. Now I endure the forced place insurance policy, post Sandy, and a home 150 days out, that looks like a third world shack. OCC, I've written to you before, I told you this could happen, now it has. LOL. Well, I'll deal. That said, OCC, you did a heckuva job with the consent orders =) Just like Brownie did for Katrina.
Posted by jyllyj | Sunday, March 17 2013 at 11:55PM ET
Why is everyone ignoring the fact that in Sep 2012 the OCC & Federal Reserve Bank announced that 800,000 loans should have been modified as they were qualified, but instead were foreclosed. We know from the Nov 7, 2012 release of the FHA audit and the letter HUD Secretary testimony in Congress that FHA had a $70 billion loan loss. The average loan balance for a FHA loan is a little over a $100,000!

Harm is foreclosing on 800,000 loan you don't have a financial interest in.
Posted by charleswreed | Friday, March 08 2013 at 9:33PM ET
As a former homeowner covered by the review, I am confident that the foreclosure process was performed in a legal fashion. The HAMP program offered no assistance to those of us forced to relocate -- we were left to the mercy of a free market that is largely deregulated. It is now perfectly legal for the mortgage lenders, and those who are able to purchase homes, to strip all equity from another homeowner without any consideration for the material or social cost to our culture. Unless there is an effort to redefine the ground rules for home ownership, and the practices of those who buy, sell and lend, the industry will pay far more than the settlement reached in this year's rodeo.

See http://www.desolationpress.com/essays/indreview.html for the rest of one lender's story.
Posted by teknoscribe | Thursday, March 07 2013 at 9:07PM ET
Well put, Barbara: "The settlement should fit the harm, but the Office of the Comptroller of the Currency is making the harm fit the settlement." Having heard Morris Morgan during the recent phone-in press conference trying to describe and define "harm" I was left wondering who's really calling the shots at OCC. Thanks for this piece.
Posted by Joel Sucher | Thursday, March 07 2013 at 11:44AM ET
The independent contractors were tightly controlled by the servicers according to whistleblowers who have talked to Yves Smith at NakedCapitalism.com. From the most recent report: "Wells Fargo's own actions say the reverse. It has been doctoring documents in house for over fifteen months for borrowers who are targeted for foreclosure. It was having this sort of work done outside the bank for an unknown period of time prior to that. http://www.nakedcapitalism.com/2013/03/whistleblower-wells-fargo-fabricated-mortgage-documents-on-a-mass-basis.html#o9CvVmk5oWbfI4Jq.99
Posted by Ed Walker | Thursday, March 07 2013 at 9:23AM ET
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