Editor at Large
Editor at Large Barbara A. Rehm
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OCC Bungled Foreclosure Settlement from Start to Finish

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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.

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Comments (10)
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 masaccio | Thursday, March 07 2013 at 9:23AM 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
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
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
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
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