As paychecks for consultants hired to review faulty foreclosures threatened to exceed compensation to the homeowners harmed by the flaws, the U.S. Comptroller of the Currency says he decided to end the reviews.
About 19 months after his agency ordered 14 of the largest mortgage servicers to hire consultants to search for foreclosure missteps, those consultants had made almost $2 billion and nobody who’d been cheated on a foreclosure in 2009 or 2010 had been paid, the comptroller, Thomas Curry, said in remarks prepared for an event today.
“It just doesn’t make sense for these servicers to continue funneling money to consultants that could be better used to help distressed borrowers who have lost their homes,” he said in the speech for a Women in Housing and Finance event. “The cost of concluding these reviews would far exceed the harm that would be found.”
Curry’s agency and the Federal Reserve reached $9.3 billion in settlements last month with 13 mortgage servicers for their foreclosure faults after a U.S. housing-market collapse contributed to the worst financial crisis since the Great Depression.
The deal, which has been criticized by some lawmakers and consumer groups, specified a cash payout of $3.6 billion that will be divided among 4.4 million borrowers and is “several times the potential payout had the reviews run their course,” Curry said.
Mortgage servicers including JPMorgan Chase & Co. and Goldman Sachs Group Inc. were accused of engaging in improper foreclosure methods in that period, including so-called robo-signing of documents.
The regulators’ 2011 orders for review also included steps firms had to take to fix their methods, which Curry said started a “sea change” in industry practices, including better communications with borrowers and controls to halt foreclosures when borrowers get loan modifications.
The review process “proved to be much more complicated than anyone anticipated,” Curry said. Late last year, as his agency was still spending $35 million trying to get wronged borrowers to sign up to have their cases reviewed, he said he and the Fed realized “that maintaining our course would significantly delay compensation without appreciable benefit to the affected borrowers.”
The bulk of the settlement with 13 of the largest mortgage servicers—$5.7 billion—will go toward mortgage assistance for current borrowers. The rest will provide direct cash to borrowers foreclosed on, with as much as $125,000 paid to those hurt the worst. The checks will start going out next month, Curry said.
Among firms ordered in 2011 to have foreclosures reviewed, three haven’t yet settled with regulators: Ally Financial Inc., IndyMac Bancorp’s successor OneWest Bank FSB and EverBank Financial Corp.
Democratic lawmakers have demanded the banking regulators explain what happened with the reviews, meant to find the specific wrongs that hurt borrowers.
Among those questioning Curry and others in recent weeks were Sen. Elizabeth Warren of Massachusetts and Rep. Maxine Waters of California, the senior Democrat on the House Financial Services Committee. Warren, responsible for setting up the Consumer Financial Protection Bureau before seeking office, signed a letter asking for further disclosures that could shed light on the settlement’s “sufficiency and integrity.”
Curry said the review process would have probably continued into 2014. Now, the servicers will categorize their former borrowers, assigning each to one of 11 groups depending on how much harm they potentially experienced. The regulators will determine payments for each.
“Changing course was the right thing to do for borrowers, for servicers, for the federal banking system and for the housing markets,” Curry said. He said the expensive data gathered by consultants will “immensely improve” the agency’s analysis, and the OCC will issue reports on the foreclosure mitigation efforts.