When federal regulators announced the abrupt ending of the Independent Foreclosure Review in place of a new agreement, the conclusion to the review process led to more questions than answers.
To identify challenges in the foreclosure review process, the Government Accountability Office (GAO) undertook its own investigation. In a report, the GAO identified three hurdles that prevented the Office of the Comptroller of the Currency (OCC) and Federal Reserve from achieving their goals through the foreclosure review: complexity of the reviews, overly broad guidance, and limited monitoring.
The foreclosure review process was first required through consent orders issued by federal regulators in April 2011. As part of the orders, 14 servicers were required to hire independent consultants to review foreclosure actions from 2009 to 2010 to identify borrowers who were harmed by “deficient” foreclosure and servicing practices.
However, in January 2013, federal regulators announced a new settlement with 11 of the 14 servicers. The new agreement replaced the foreclosure review process for those servicers with a broad payment process so “eligible” borrowers could receive compensation more quickly.
According to the GAO report, the foreclosure review process was complex and time-consuming for consultants and law firms since they had to deal with large files and a wide range of laws.
Consultants who spoke to the GAO revealed a typical loan file contained as many as 50 documents and potentially more than 2,000 pages.
“Consultants also stated that the reviews were challenging because they covered such a wide variety of complex issues, including different state foreclosure laws, federal laws and regulations, and guidelines for federal and servicers’ proprietary loan modification programs,” theGAO said in the report.
Furthermore, third party consultants said their reviewers spent as many as 50 hours just to complete a full file review.
In addition, guidance was found to be too broad and monitoring too limited, which “reduced the potential usefulness of data from consultants and increased risks of inconsistency.”
According to the report, guidance was revised throughout the process, leading to delays, and at times, guidance was not specific enough.
When it came to monitoring, GAO found “regulators lacked objective monitoring measures, resulting in difficulty assessing the extent of borrower harm.”
While the foreclosure review process ended for 11 of the 14 servicers, three remaining servicers (Ally Financial, EverBank, and OneWest) are continuing the foreclosure review process. Two other institutions (Goldman Sachs and Morgan Stanley) who were not part of the 2011 consent orders also entered into foreclosure agreements with the Fed in January to settle consent orders issued in 2012.
By Esther Cho