The handling of the Independent Foreclosure Review by federal regulators, particularly the Federal Reserve and the Office of the Comptroller of the Currency (OCC), continues to churn debate, including whether borrowers have been fairly compensated.
The latest salvo comes from the Fed’s internal watchdog, the Office of Inspector General over the Board of Governors of the Federal Reserve System. The OIG found that the Fed was not sufficiently prepared to meet the challenges of the massive accord with 13 mortgage servicers over the mishandling of foreclosures and mortgage modifications in 2009 and 2010.
The most troubling aspect of the report for borrowers compensated under the plan is this excerpt that points to irregularities in the “categories of harm” under which applicants who had qualified for a payout were placed.
“While we did not seek to validate the results of the slotting exercise at an individual-borrower level, we found that data integrity issues at two mortgage servicers impacted the reliability and consistency of the slotting results,” the watchdog’s report said. “These issues may have resulted in borrowers who experienced similar harm receiving different payment amounts. We also determined that the (Federal Reserve) Board has not selected its approach to end the payment agreement.”
In February 2013, the Fed’s Board of Governors and the OCC issued amended consent orders that required the servicers to provide about $3.67 billion in payments to nearly 4.2 million borrowers based on possible harm and to provide other foreclosure prevention assistance.
Borrowers of the 13 servicers that joined the payment agreement in January 2013 had cashed or deposited checks representing about $3.15 billion, or approximately 86 percent, of the total $3.67 billion.
No Exit Strategy
Fed officials have not finalized a strategy to end the payout phase because the Fed Board’s “limited advance planning efforts” did not involve preparing for the “eventuality that all borrowers would not be located and that all checks would not be cashed or deposited.”
The Fed’s Office of Inspector General recommends that the Fed “finalize an approach” to end the payment agreement. This approach should include developing with the OCC a strategy to “appropriately allocate” any remaining funds that have not been cashed or deposited by borrowers.
The Fed should also continue efforts to locate uncompensated borrowers, the watchdog said
Some democratic lawmakers and consumer advocates have pushed regulators to reveal more details behind the initial “Independent Foreclosure Review” of servicer files to determine if borrowers were adequately compensated. The initial review was scuttled in late 2012 in favor of the payout agreement. The regulators have not complied with these requests.
The initial 13 mortgages servicers under the payout agreement are: Aurora, Bank of America, Citibank, Goldman Sachs, HSBC, JPMorgan Chase, MetLife Bank, Morgan Stanley, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo.