GAO Keeps Pressure on Regulators to Prove Foreclosure Deal Works
Regulators need to strengthen oversight of mortgage servicers' foreclosure prevention steps required under an amended settlement struck last year, a watchdog agency said Tuesday.
The Government Accountability Office's report on how the regulators are monitoring progress by 15 top servicers to improve their processes had a decidedly softer tone than the watchdog agency's April 2013 audit ripping the independent foreclosure reviews by consultants hired to inspect loan files for errors.
That process was effectively scrapped last year and replaced with amended consent orders that instead required lenders to make $3.9 billion in cash payments spread among 4.4 million affected borrowers and spend $6 billion on foreclosure prevention efforts, such as loan modifications. (A 16th institution, OneWest Bank, elected to continue the file reviews.)
The GAO said payments to eligible borrowers—of amounts between $300 and $125,000—"generally fell within a reasonable range" and broad goals set by regulators for the "timeliness and amount" of the payments had been met.
Still, the report also identified areas where progress was lacking. Even though the amended plan called for general principles about where banks should direct resources for foreclosure prevention, it did not lay out specific actions the servicers should take, and the regulators' oversight of the guidelines has been limited.
The report specifically said the $6 billion in obligations for foreclosure prevention was not "informed by any data or analysis." The GAO also urged the regulators to be more transparent about their process for determining borrower payment amounts.
"While regulators used the amended consent orders to establish principles for foreclosure prevention activities, they did not require examination teams to evaluate or test servicers' activities related to these principles," the GAO said. "In particular, they did not require evaluation or testing of servicers’ policies, monitoring controls, and performance measures, to determine the extent to which servicers are implementing these principles to provide meaningful relief to borrowers."
The audit added that without "specific expectations for evaluating and testing servicers' actions to meet the foreclosure prevention principles, regulators risk not having enough information to determine whether servicers are implementing the principles and protecting borrowers."
The report—the third in a series of audits requested by congressional Democrats critical of the foreclosure review process—called on the Federal Reserve Board and the Office of the Comptroller of the Currency to take steps to evaluate the servicers’ implementation of the foreclosure prevention principles. It also recommended that the agencies release public reports detailing how they calculated specific borrower payments.
"Without making information about the processes used to categorize borrowers available to the public, such as through forthcoming public reports, regulators may miss a final opportunity to address questions and concerns about the categorization process and increase confidence in the results," the report said.
Senior agency officials said they agreed with the recommendations.
Comptroller of the Currency Thomas Curry wrote in an April 14 letter to the GAO that OCC examiners will use the foreclosure prevention principles outlined in the amended orders "as considerations when assessing the effectiveness of loss mitigation and foreclosure prevention actions."
He said the agency will also consider the recommendation for better transparency around the cash payment amounts. "We will consider including additional detail regarding the categorization of borrowers," Curry wrote.
Tonda Price, acting director of the Fed's consumer and community affairs division, said the central bank "was independently working toward the same outcomes that the GAO highlights."
"The Federal Reserve's supervisory teams have already established a schedule for this year that includes testing to assess the servicers' processes for following the foreclosure prevention principles," Price wrote in an April 14 letter.