The avalanche of foreclosures that followed the crash of the American housing market brought adversity to borrowers, confusion to mortgage lenders, headaches to regulators, and a windfall for a number of independent consultants. Foreclosures are often considered to be some of the most damaging processes to local economies, but even these sad proceedings can end up benefiting a certain group.
The foreclosure crisis reached an unpleasant apex approximately two years ago, when the first allegations of "robo-signing" surfaced. It began with Ally Bank, formerly known as GMAC Mortgage, and the grave accusation involved the massive signing of thousands of foreclosure legal documents that were never reviewed. Soon Bank of America and three other major lenders were being investigated for this questionable practice that resulted in many coerced foreclosures that should not have taken place.
State Attorney Generals and official from the U.S. Department of Justice brought suit against five major mortgage lenders and a historic settlement agreement was executed earlier this year. As the banking regulators, the U.S. Office of the Comptroller of the Currency (OCC) became involved and called for an independent review of foreclosures to be paid for by the offending banks. A recent article in American Banker magazine, however, indicates that consumer advocates are not convinced that the review process is of any benefits to borrowers.
Hefty Review Fees
Financial auditing firm PricewaterhouseCoopers (PwC) was retained by bankrupt servicer ResCap to review 20,000 mortgages and determine if the borrowers were wrongly foreclosed against. ResCap was in charge of servicing home loans originated by the defunct GMAC. The company set aside $250 million to pay PwC consultants to review the questionable mortgages, but ResCap only expects to pay no more than $60 million to the affected homeowners.
The discrepancy between how much the reviewers are being paid and how much the wronged borrowers will get in the end is leading some consumer advocates to believe that the fix might be in. The consultants are certainly raking in the fees, being paid up to $630 per hour or $12,500 per mortgage reviewed. This should not be of any concern to the OCC, but the problem seems to be centered on the fact these reviewers also consultants for these banks.
Questionable Review Methods
In November 2011, Congress called on the OCC to reveal the level of involvement that the banks had on the review process. In the case of Bank of America and its chosen reviewer, banking industry consulting firm Promontory, the bank compiled the mortgage files and included recommendations. At some point, the bank even proposed revisions to the final review.
A Promontory spokeswoman told American Banker that Bank of America's role in the review was limited to gathering loan files, but former bank employees stated that they had provided recommendations. In fact, some of the reviews conducted by Promontory took place in the former Countrywide Financial campus now owned by Bank of America.