Regulators' mortgage servicing consent orders require the nation’s megabanks to conduct a thorough review of their foreclosures. On Friday they were told what "thorough" means.
In a four-hour meeting with bank representatives, officials from the Office of the Comptroller of the Currency prescribed a more extensive process than the review of a few hundred loans that the bankers originally hoped for.
"Just pulling a high-level sample isn't going to cut it," Joe Evers, the OCC's deputy comptroller for large banks, told American Banker before the meeting. "Some of the early thinking we've heard of isn't acceptable… If anyone thinks there are going to be shortcuts here, it's not going to happen."
Regardless of what the independent reviews find, there's little risk that the audits will air banks' dirty laundry. The findings will be sealed, a detail that has some industry critics howling.
The scale of the reviews will mean that Bank of America Corp. and Wells Fargo & Co. will each have auditors review several thousand foreclosure files from January 2009 through December 2010. (Among all residential servicers, B of A and Wells rank first and second, respectively, with a combined market share north of 40%, according to figures compiled by National Mortgage News.)
For all servicers, auditors will look at a larger number of files from the six states with the highest number of foreclosures, participants at the meeting said.
According to the OCC, any foreclosure mistakes will result in a broader review, potentially covering the whole portfolio.
"Even a single error in the sample population is going to require a deeper dive," Evers said. "It's up to the independent consultant to determine whether there was financial harm."
Along with the sampling, the OCC has mandated that the big banks design and publicize a consumer complaint review process through which borrowers who lost their homes to foreclosure can complain to the independent auditor.
Considering the thousands of foreclosure-related lawsuits already under way, such a program could potentially generate a huge number of complaints.
