The Federal Reserve must take steps to improve handling of complex settlements like the one reached with mortgage servicers over improper foreclosures, an internal watchdog said in a report.
Lax preparation and management led to poor execution of 2013 accords with 13 companies including Bank of America Corp. and JPMorgan Chase & Co. that were meant to compensate borrowers who were harmed, according to the report released today by the Fed's Office of Inspector General.
"The board was responsible for overseeing the corrective action at an individual-borrower level for more than 4 million borrowers on an interagency basis," according to the report. "Nevertheless, the board engaged in limited planning activities for this unprecedented enforcement strategy."
The Fed, Office of the Comptroller of the Currency and other agencies struck deals with the largest U.S. servicers to set up the Independent Foreclosure Review to repay borrowers harmed by foreclosure errors after the 2008 mortgage crisis. After the case-by-case review failed to return anything to borrowers, the agencies replaced it with direct payments.
Most of the $3.67 billion in checks to those who went through foreclosures have since been cashed, according to the regulators. Still, the direct payment system was faulted in the report, which said its short time frame, data problems and oversight shortfalls may have led to inconsistent payments.
The Fed agreed to make changes recommended by the watchdog, including setting up a planning framework for such elaborate multi-agency actions, devoting more resources to managing projects and planning for data-reliability problems.
"We are in general agreement with the recommendations and have begun taking steps to implement them," according to a Sept. 29 letter to the inspector general from Fed officials including Michael Gibson, director of banking supervision.
When they launched the payback program last year, the regulators said their aim was to get money quickly to as many harmed borrowers as possible. An independent consultant handled the issuing of checks to almost 4.2 million borrowers foreclosed on by the mortgage-servicing units of banks including Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc., U.S. Bancorp and Morgan Stanley.