This is the second part of a story on the Office of the Comptroller of the Currency's independent foreclosure review program. A close look suggests that the program is taking far longer than originally expected and resulting in much larger payments to consultants than to wronged borrowers.
Consumer groups have been quick to criticize the Office of the Comptroller of the Currency's independent foreclosure look-back reviews for giving the banks under scrutiny too much say in the process of reviewing their own loans.
A more fundamental issue—the actual mechanics of the reviews and their results—has received less attention.
The OCC granted each consultant responsibility for designing its review methods. Promontory Financial Group, which is conducting Bank of America's review, includes seven sets of yes-or-no questions, labeled A through G. For each homeowner's review file, Promontory and B of A employees must address a total of 14,768 items, according to a May 2012 presentation Promontory provided to consumer groups.
That involves Bank of America employees attaching supporting documentation to each file, ranging from customer service call notes to payment records to internal bank documents. Promontory then fills out a final questionnaire, labeled H, that is intended to determine remediation and compensation.
Many of the A through G questions are compound, according to B of A file reviewers. Among the simplest of a handful shown to consumer groups: "Did the amount of any of the fees or penalties assessed/charged to the borrower exceed the limits established in the loan documents and modifications, if applicable?"
Promontory offered to provide the full list to American Banker if the OCC gave its consent. The regulator declined to do so.
"We create a storyline of what happened to the borrower," says Elizabeth McCaul, the head of Promontory's New York office and an architect of its foreclosure review program. "There's never been so thorough and deep a review [of foreclosures] … It was very important to have very objective conditions."
Bank of America's reviewers themselves expressed varying views the process. One contract worker said he believes it's a charade. Another was ambivalent. A third, a senior reviewer, called it a good-faith effort to rectify wrongs. The three employees did agree that there is widespread belief among ground-level reviewers that Bank of America made egregious errors during foreclosures proceedings.
"The way [B of A management] explained it to us was that a lot of people had been wrongfully denied modifications, that there were a lot of situations where the right and left hands didn't know what the other was doing," one of the contract employees recalls. "It was our job per [regulators' consent order] to determine if people were wronged,"
Intentions aside, there is abundant evidence that the review process itself has taken on a life of its own. In an engagement letter with B of A that was released by the OCC in November of last year, Promontory estimated it would take 10 hours to review each file during a 54-month exercise. The process now seems destined to mushroom to several times that size. The E and F questionnaires alone, relating to fees, penalties, and escrows, can take 20 hours to complete, Promontory says.
File reviewers say modifications are particularly vexing to sort through because Bank of America had dozens of programs in place. In some cases, it also sent borrowers flurries of contradictory solicitations, rejections and new solicitations within a matter of weeks. Borrowers were offered loan mods that they did not qualify for or were rejected over a lack of paperwork already in the bank's files.
Assembling individual paper trials to document what happened has proven exceedingly difficult, even when all files remained in B of A's possession.
"In a lot of cases, there were missing documents that were key to determining whether true harm was caused," says one B of A contract employee.
Essential foreclosure-related paperwork was also often in the hands of outside counsel, which rarely responded to reviewers' requests. Under the OCC's rules, if evidence to prove or disprove harm is lacking, the reviewer is supposed to assume it occurred.
The process has been dragged out further by repeated changes. Late last spring, a full half-year after B of A started staffing up, reviewers report doing "practice" work because guidelines remained undecided. As time went on, protocols changed weekly, and Promontory's visits to the Westlake facility became more tense.
"It seemed to me that things were kind of unraveling. There was a lot of bickering going on," says a B of A contract employee, adding that the problems appeared to rest with those above B of A's review managers.
Dan Frahm, a B of A spokesman, said that Promontory was handling all significant determinations under the program. He directed questions regarding the reviews' cost, length, and design to Promontory. McCaul said it is not possible to calculate an average time or cost per file because the review is ongoing.
Back at B of A, the review process has already exceeded the 54-week estimate, and the bank is now posting foreclosure review job offers involving one-year contracts "with a possibility of extending longer."
Other consultants have likewise failed to meet their original deadlines. Not one has completed its reviews, and not one borrower has received a remediation check. The OCC hopes to have some in the mail before year's end.
Costs, meanwhile, have jumped. Last year, bank executives and attorneys griped to American Banker that loan reviews could cost a few thousand dollars each. That's less than one-sixth of what ResCap now expects to pay.
The OCC refused to discuss foreclosure review costs, declaring that banks must pay whatever it costs to get the process right.
"Servicer costs to achieve this objective are not a motivating concern," Morris Morgan, the OCC's Deputy Comptroller for Large Bank Supervision, said in a written response to American Banker. "The OCC is not estimating the cost per file, and will not speculate on the cost."
Promontory, for which B of A's bills represent billable hours, offered a similar view.
Other foreclosure consultants, including Deloitte, PricewaterhouseCoopers and Clayton Holdings, declined interview requests. PwC also declined to respond to emailed questions.
In ResCap's case, its PwC bills are part of its public bankruptcy proceedings. They show that ResCap is paying PwC $7 million a month on average for foreclosure reviews. PwC's hourly rates range from $235 for associates to $630 for partners.
PwC's costs are "reasonable and necessary and do not exceed the reasonable value of the services being rendered on behalf of the Debtors," partner Michael English said in a ResCap bankruptcy document.
The cost of PwC's services has risen dramatically, to $250 million in early September from $180 million four months earlier. That does not include the cost of compensating borrowers, which is expected to range between one-seventh and one-fourth of the PwC review's cost. Separate too are costs associated with a separate foreclosure review mandated by the National Mortgage Servicing Settlement, for which ResCap is also liable for a portion.
Neither the OCC or Promontory disputed that PwC's ResCap contract is representative of others.
For the OCC, foreclosure reviews offer an odd sort of vindication. The agency has been sharply criticized since the financial crisis for being too cozy with big banks. The fact that those same banks are paying so dearly under OCC-supervised reviews serves to counter to the notion that it is permitting banks to control the reviews behind the scenes.
If banks were in control, the argument goes, they would prefer to offer potentially wronged borrowers as much as $10,000 each and only review the files of those who declined. Financially, that would be more beneficial than paying $12,500 per-customer for reviews, plus borrower compensation.
Consumer advocates, not surprisingly, are outraged at where the review program's money is going.
"This was never a well thought out process," says the National Consumer Law Center's Diane Thompson. "The [lack of] independence is just one aspect of its crappiness."
For their part, bank executives are clearly anxious to wrap up the reviews quickly. At B of A's foreclosure review offices in Southern California, file reviewers say managers have been seeking to speed the process since late spring. Employees who'd previously been told to emphasize thoroughness are now being evaluated based on the number of files completed. Slow workers have been fired, the former contract employees say.
Promontory supports the greater focus on speed, McCaul says, as long as it does not harm the quality of reviews. Having B of A pull together files, rather than have Promontory do everything from scratch, has helped speed things up, she says, and both Promontory and B of A have learned through experience how to identify foreclosure problem areas quickly.
"The good news is that having now done significant work on the foreclosure review, we're able to see patterns and practices that inform our testing process," she says.
Promontory is also working with the OCC to find ways to more directly pinpoint borrower harm and automate components of the process.
The OCC would like to speed the reviews as well. It is looking at ways to "simplify the process and expedite remediation," wrote the OCC's Deputy Comptroller Morgan. "But we want to ensure that any effort to expedite the process does not compromise the quality of reviews or fair compensation to financially harmed borrowers."
The timeframe for borrowers to submit claims for review has already been extended three times. It is currently scheduled to shut at year's end.
The OCC has ordered banks to spend $20 million to $30 million on ads inviting consumers to submit claims before the deadline. Last week Bank of America and Promontory held a conference call with consumer groups about how to expand outreach to minorities.
"We're about to embark on a very large media campaign," McCaul says. "We're in the midst of hiring significant numbers of people."