Amid growing scrutiny by Congress, watchdogs, and housing advocates, Comptroller of the Currency Thomas Curry today defended recent mortgage settlements and the move by regulators to end an independent foreclosure review process.
Last month, 10 mortgage servicing companies, many of them big banks and all subject to 2011 consent orders issued by the OCC and Federal Reserve over improper practices, agreed to pay $3.6 billion in direct payments to eligible borrowers (with homes in foreclosure in 2009 and 2010) and $5.7 billion for loan modifications, forgiveness of deficiency judgments, and additional foreclosure prevention assistance. Fulfilling the agreement means they will no longer have to take part in the Independent Foreclosure Review (IFR) established under their consent orders. Those reviews have proven to be controversial because of the high fees charged by independent consultants and auditors, as well as the slow pace of actionable results.
Curry discussed that decision during a speech before the Women in Housing and Finance group in Washington D.C. He said it is “understandable” that recent attention has focused on the IFR process, but doing so obscures progress that has been made. The orders required 97 separate corrective actions and detailed action plans related to oversight and management of third-party service providers; custodial responsibilities for mortgage records; risk assessment and management; and compliance oversight.
Curry said about 93 percent of the corrective actions have been implemented. While that “represents real progress,” the IFR process long ago proved problematic. While servicers spent nearly $2 billion on the consultants' reviews, there was zero progress on compensation.
“Under the old process, reviews would have almost certainly continued into 2014, almost three years after the consent orders were signed,” he said. Checks are now expected to go out by the end of March.
Among the concerns with the decision to go to an alternative plan is how the size and distribution of payments will be determined in the absence of a full review.
Curry explained that regulators crafted categories of potential harm, and that the types of errors that could have occurred fall into 11 basic groups, ranging from “relatively minor” to “very egregious.” Eligible borrowers will be slotted into each group based on objective loan attributes and borrower characteristics and then compensated based on that category. The OCC and Federal Reserve will determine the amount of payment for each category, ranging from hundreds of dollars to $125,000.
Some have expressed concern that the total amount is too low. Others criticize the agreement because some of the borrowers who receive compensation may not have been affected by errors at all. Curry defended the plan for both camps of critics. The $5.7 billion fund will result in “meaningful relief to borrowers still struggling to keep their homes,” and the consent orders have "numerous and significant requirements" addressing loss mitigation and foreclosure prevention activities. Servicers are also expressly prohibited from asking borrowers to execute a waiver of any legal claims they may have against their servicer as a condition for receiving payment.
Worries that some compensation will go to borrowers who did not suffer harm as a result of servicer errors overlooks that “each of these borrowers was part of a process that was far more deficient that any of us should be willing to accept,” Curry added.
“If we had enough time and unlimited resources to spend on a full review of those case files, then I think all of us would prefer to maintain a process that is aimed at identifying borrowers who were harmed, quantifying that harm, and providing appropriate restitution,” he said. "But the cost of concluding these reviews would far exceed the harm that would be found.”