Minneapolis-based Rust Consulting, the firm entrusted with distributing $3.6 billion from the Independent Foreclosure Review and $1.5 billion from the National Mortgage Settlement, is getting much more attention that it probably expected from bank regulators, lawmakers and frustrated borrowers looking for answers.
The final straw for those increasingly looking at the firm was the erroneous batch of 96,000 checks sent May 3 that underpaid compensation recipients, the same group of borrowers who have dealt with wrongful or botched foreclosures by more than a dozen mortgage servicers since 2009.
Staff members from the office of Rep. Elijah Cummings, D-Maryland, one of several Democrats who are closely following the mishaps of the Independent Foreclosure Review (IFR), are scheduled to meet with executives of Rust Consulting this week.
“I am eager to understand how this company was selected as the paying agent and how regulators have overseen their work,” Cummings, who is the top Democrat on the House Oversight Committee, is quoted as saying by the Wall Street Journal.
Cummings and regulators are trying to figure out what exactly is going on with the firm, which has two decades of experience in managing financial settlements and claims.
The IFR payouts launched with a mailing on April 12, but bewildered and angry recipients quickly took to social media sites and blogs telling of how the checks bounced when they went to their own banks to cash or deposit the long-delayed compensation.
The “insufficient funds” issue was quickly resolved after the Federal Reserve stepped in.
Bank regulators have worked to “strengthen oversight of Rust Consulting’s execution of the payment process and is continuing to closely monitor the payment agreement,” a Fed spokesman told the Wall Street Journal.
But in prepared testimony before a Senate banking panel last month, David Holland, executive vice president of Rust Consulting, said his firm already provides “comprehensive daily statistical reporting” to the Office of the Comptroller of the Currency, the Federal Reserve and the mortgage servicers.
“Daily conference calls are held with the servicers covering project execution,” Holland said in his testimony. “Two times weekly, conference calls are held with the OCC and the FRB (Federal Reserve Board) covering project execution and future deliverables.”
Currently, Rust is under more intense scrutiny by compensation recipients themselves, many of whom are trying to get answers about the pending payments in the other foreclosure-abuse agreement, the older National Mortgage Settlement (NMS) between 49 state attorneys general and five of the top U.S. lenders.
Rust said that by “mid-2013″ it will start distributing the additional $1.5 billion from the NMS that is designated for up to 750,000 claimants who are part of the agreement. Many of these borrowers returned claim letters long before the Jan. 18, 2013 deadline.
But in recent days, Rust has waffled on a timetable. At one point, it stated on the NMS official website that the payouts would be mailed sometime in May, before reverting back to “mid-2013.”
Many NMS claimants expecting a payout have posted comments on eCreditDaily about futile attempts to get answers from Rust executives or representatives by phone, text or email. No one seems to know precisely when the NMS payments will start nor the amounts of the checks. Rust only indicates on the NMS website that payments “will exceed the minimum payment of $840 that was indicated on the claim form.”
One NMS claimant posted an email from a Rust representative stating that claims processing in the NMS is nearly complete and estimated that checks could start in June. Some state AG websites state June as the payout date, but state officials defer to Rust for any further information.
Late Monday, the NMS site was updated slightly, with Rust responding to speculation about check amounts, which is based on the precise number of claims. “The Settlement Administrator is not authorized to release specific information about the number of claims submitted at this time, pending the conclusion of the distribution process.”
Speculation Over NMS Payments
Regulators and state authorities have said from the beginning of the settlement’s announcement that an estimated 750,000 are eligible for payments. Early on, they also speculated that these homeowners each will receive on average $2,000. But the total number of actual claimants is not known publicly.
Bank regulators say Rust has extensive experience with handling large settlements and has been long involved with processing IFR claims. But Rust was chosen by the banks involved in the failed foreclosure reviews and the NMS. Regulators have been the target of criticism from lawmakers, consumer advocates and the Government Accountability Office for their handling of the Independent Foreclosure Review, that was largely abandoned in January in favor of a $9 billion settlement.
So far, lawmakers and eligible payout recipients have not been told how the banks and regulators arrived at the compensation amounts in the IFR settlement. Most of the IFR checks to 4 million borrowers amount to a few hundred dollars each.
NMS claimants have been doing as much research as bloggers and journalists into Rust Consulting, uncovering news releases of what some allege to be a conflict of interest between the firm and Citi, one of the five lenders party to the NMS — along with Ally/GMAC, Bank of America, JPMorgan Chase and Wells Fargo.
Citi Venture Capital International (CVCI), a unit of Citigroup Inc., is buying out Apollo Global Management and other unnamed minority shareholders in SourceHOV (Rust Consulting’s parent company) for an undisclosed amount.
One angry NMS claimant recorded a nearly 6-minute conversation with a Rust Consulting call-center representative and posted it on YouTube to demonstrate the futility of trying to get hard answers.
“You decide…who is victimizing the claimants for a second time. Who is too big to fail..the mortgage companies or Rust Consulting. Shame on them…” wrote the video’s publisher.
Meanwhile, bank regulators are still urging IFR payment recipients to call Rust for answers.
“Borrowers can call Rust at 1-888-952-9105 to update their contact information, verify that they are covered by the agreement, or with further questions. Information provided to Rust will only be used for purposes related to the agreement,” says the Federal Reserve’s page dedicated to the Independent Foreclosure Review.