The Foreclosure Review Debacle: Billions to be Paid to “Independent” Consultants to Review Banks’ Self-Assessments of Wrongdoing
Criticism of the fatally-flawed independent foreclosure review process is rapidly mounting, with bankers complaining about the cost and consumer advocates complaining about the absurd process. The idea was simple. Banks misled millions of struggling homeowners trying to get loan modifications then wrongfully foreclosed on them, often engaging in blatantly illegal practices like robosigning along the way. So the worst offenders, including Bank of America and Wells Fargo, agreed to hire independent consultants to review borrower files and determine what compensation, if any, should be paid.
A ‘Terrible Joke’ on Wrongfully Foreclosed Homeowners
The process, however, has come under heavy fire. Former FDIC chairman Sheila Bair called the process a “ruse.” A file reviewer for Bank of America called it a “charade.” Another reviewer for Wells Fargo called the process “a mess,” “a total sham,” and “a terrible joke on the victims of foreclosure.” Consumer advocates have been no less kind.
Critics complain that much of the review and analysis is being conducted by the banks themselves rather than the independent consultants. ProPublica examined the consultants’ contracts and found that the four largest banks were participating “heavily” in the evaluating whether homeowners were harmed, including in some cases determining how much compensation a homeowner should receive.
The federal agency responsible for overseeing the banks claims that the findings do not influence the consultants, who are required to conduct their own reviews. But to many, it’s like asking the thief to investigate his crimes and make a sentencing recommendation to the judge.
A Deeply Flawed Process
Even if the consultants act independently, the review process itself seems deeply flawed. For example, American Banker described the impact of shoddy servicing and record keeping practices by Bank of America on its review:
File reviewers say modifications are particularly vexing to sort through because Bank of America had dozens of programs in place. In some cases, it also sent borrowers flurries of contradictory solicitations, rejections and new solicitations within a matter of weeks. Borrowers were offered loan mods that they did not qualify for or were rejected over a lack of paperwork already in the bank’s files.
According to one Bank of America employee, documents that were key to evaluating harm were missing from the bank’s files. Another frustrated reviewer for Wells Fargo files contacted Mandelman Matters to complain that review forms were designed to avoid findings of harm, that reviewers were instructed to ignore homeowner responses that do not include specific dates, and that he was told repeatedly to “quit digging” into errors he found. The same reviewer claims that of 10,000 Wells Fargo files submitted, the consulting firm found no harm in every single case.
Consultants Paid Billions By the Banks They Are Reviewing
Understandably, some critics worry that consultants have little incentive to find harm. These same consultants will be paid billions by the very banks they are reviewing, reportedly earning at least four dollars for every dollar that will be paid to homeowners. One consultant, Pricewaterhouse Coopers (PC) has contracts to perform reviews for four of the fourteen banks. American Banker reports that PC will earn more than $1 billion from the four contracts combined.
Another Source of Disappointment
If the critics are right, then the independent foreclosure reviews will be yet another source of disappointment for borrowers who were told to default, who made payments that were never applied, who were repeatedly deceived and in many cases denied modifications for which they were eligible, and who ultimately lost their homes and saw their credit destroyed.
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