There were no bank regulators at Wednesday’s second Senate hearing on “ensuring accountability and transparency in foreclosure reviews” – but there were other overseers seeking the true depth of mistakes by mortgage servicers, including a director from the Government Accountability Office (GAO).
The hearing came to an end with a somewhat surprising revelation from Lawrance L. Evans, director for Financial Markets and Community Investment at the GAO, which issued a scathing report April 4 on how badly bank regulators handled the Independent Foreclosure Review of more than a dozen servicers.
The IFR was scuttled in January in favor of a $9.3 billion settlement that is suppose to compensate 4 million wronged borrowers.
“Any information based on the IFR at this point should be deemed incomplete, and the data does not allow us to render any conclusions about error rates at a particular servicer or make comparisons across servicers, despite what’s been reported in the press,” Evans told Sen. Robert Menendez, D-New Jersey, who presided over the hearing for the Senate Committee on Banking, Housing & Urban Affairs.
The senator was trying to determine how regulators arrived at the various categories of wrongdoing and compensation amounts stemming from the mishandled foreclosures from 2009 and 2010. The IFR was launched in 2011 by the Office of the Comptroller of the Currency and the Federal Reserve.
“Since the OCC and the Federal Reserve abandoned the review, to what extent will they be able to further examine whether certain banks committed systematic errors in their foreclosures, based on either preliminary results or based on information that they gathered through regular bank examinations or other sources?” Menendez asked, drawing the response from Evans on error rates.
Similar questions are being asked by other lawmakers, consumer advocates, and the IFR’s eligible borrowers themselves who have started to receive payouts this week from the regulators’ paying agent, Rust Consulting.
But by abruptly ending the IFR, regulators have managed to isolate the very files that are in question.
Many borrowers are disputing the categories into which they were placed. But there is no appeal process in the IFR settlement. Payout recipients are left with the option of taking legal action against their former mortgage servicer. The payout framework released by regulators determines where borrowers are slotted in a sweeping range from $300 to $125,000. However, the vast majority of IFR borrowers are getting a few hundred dollars each.
Sen. Elizabeth Warren, D-Massachusetts, also a member of the Senate Committee on Banking, Housing and Urban Affairs, and Rep. Elijah E. Cummings, D-Maryland, ranking member of the House Committee on Oversight and Government Reform, have written the Fed and the OCC seeking the documents from the shelved reviews.
The regulators responded to Warren and Cummings, stating that releasing the documents could be interpreted as a waiver of their authority to withhold proprietary business information from the public.
At Wednesday’s hearing, Evans further explained the GAO’s predicament on this very same matter to Menendez:
“Now, the regulators could have additional information and additional judgments that may help them make decisions about safety and soundness and corrective actions, but at this point we haven’t done that type of work to determine what we know and whether it’s statistically valid,” Evans said.
“Is that information that would be accessible to you if we asked you and charged you to do that?” Menendez asked Evans.
Evans’ response did not leave much hope for those seeking the deepest findings of the IFR.
The GAO’s Evans: “As part of our ongoing review, we will start to look at those issues. We’re more than willing to discuss with your staff the protocols governing our audit documentation, including any legal or privacy considerations such as those concerning banking information or any agency determinations that might be relevant, but we will continue to do this work for you and to have conversations with your staff.”
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