[Senate Hearing 112-460]
[From the U.S. Government Publishing Office]
S. Hrg. 112-460
HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY AND
TRANSPARENCY IN FORECLOSURE REVIEWS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
ON
EXAMINING TRANSPARENCY, ACCOUNTABILITY, AND CONSISTENCY IN THE
FORECLOSURE REVIEW PROCESS AND THE ONGOING EFFECTS ON HOMEOWNERS AND
SERVICERS STEMMING FROM THE FORECLOSURE CRISIS
__________
DECEMBER 13, 2011
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Dawn Ratliff, Chief Clerk
Riker Vermiyle, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Housing, Transportation, and Community Development
ROBERT MENENDEZ, New Jersey, Chairman
JIM DeMINT, South Carolina, Ranking Republican Member
JACK REED, Rhode Island MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii PATRICK J. TOOMEY, Pennsylvania
SHERROD BROWN, Ohio MARK KIRK, Illinois
JON TESTER, Montana JERRY MORAN, Kansas
HERB KOHL, Wisconsin ROGER F. WICKER, Mississippi
JEFF MERKLEY, Oregon
MICHAEL F. BENNET, Colorado
Michael Passante, Subcommittee Staff Director
Jeffrey R. Murray, Republican Subcommittee Staff Director
(ii)
C O N T E N T S
----------
TUESDAY, DECEMBER 13, 2011
Page
Opening statement of Chairman Menendez........................... 1
WITNESSES
Julie L. Williams, First Senior Deputy Comptroller and Chief
Counsel, Office of the Comptroller of the Currency............. 3
Prepared statement........................................... 38
Responses to written questions of:
Chairman Menendez........................................ 125
Senator Reed............................................. 147
Senator Merkley.......................................... 147
Senator Corker........................................... 149
Senator Warner........................................... 150
Alys Cohen, Staff Attorney, National Consumer Law Center......... 16
Prepared statement........................................... 51
Responses to written questions of:
Chairman Menendez........................................ 152
Senator Corker........................................... 155
David C. Holland, Executive Vice President, Rust Consulting, Inc. 18
Prepared statement........................................... 110
Responses to written questions of:
Chairman Menendez........................................ 157
Senator Corker........................................... 160
Paul Leonard, Vice President of Government Affairs, Housing
Policy Council of the Financial Services Roundtable............ 19
Prepared statement........................................... 111
Responses to written questions of:
Chairman Menendez........................................ 161
Senator Reed............................................. 162
Senator Corker........................................... 162
Anthony B. Sanders, Ph.D., Distinguished Professor of Real Estate
Finance, George Mason University............................... 21
Prepared statement........................................... 113
Responses to written questions of:
Chairman Menendez........................................ 164
Senator Corker........................................... 165
Ann M. Kenyon, Partner, Deloitte & Touche LLP.................... 22
Prepared statement........................................... 120
Responses to written questions of:
Chairman Menendez........................................ 166
Senator Corker........................................... 170
Konrad Alt, Managing Director, Promontory Financial Group, LLC... 24
Prepared statement........................................... 121
Responses to written questions of:
Chairman Menendez........................................ 171
Senator Corker........................................... 177
Additional Material Supplied for the Record
Comptroller of the Currency Article VII Foreclosure Reviews
letter to Independent Consultants.............................. 179
Comptroller of the Currency Independent Foreclosure Review Key
Facts sheet.................................................... 182
Prepared statement of Scott G. Alvarez, General Counsel, Board of
Govenors of the Federal Reserve System......................... 183
HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY AND
TRANSPARENCY IN FORECLOSURE REVIEWS
----------
TUESDAY, DECEMBER 13, 2011
U.S. Senate,
Subcommittee on Housing, Transportation, and
Community Development,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee met at 2:31 p.m. in room SD-538, Dirksen
Senate Office Building, Hon. Robert Menendez, Chairman of the
Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ
Senator Menendez. Good afternoon. This meeting of the
Committee on Banking, Housing, and Urban Affairs Subcommittee
on Houston, Transportation, and Community Development will come
to order.
Today's hearing is entitled ``Helping Homeowners Harmed by
Foreclosures: Ensuring Accountability and Transparency in
Foreclosure Reviews.'' This topic is extremely important to our
Nation's homeowners, especially those who have been harmed by
illegal foreclosure practices. It is of particular concern to
the countless New Jersey homeowners who have contacted by my
office, almost all with terrible stories about their
experiences going through foreclosure, and many with stories of
being either mistreated or neglected by their mortgage
servicers.
As we attempt to correct for past illegal foreclosures, we
must have transparency, consistency, and accountability in the
foreclosure review program. If we do not remain committed to
transparency, consistency, and accountability, the foreclosure
reviews will be toothless.
After being hit hard by the foreclosure crisis and other
economic woes, American homeowners expect and deserve a fair
review and compensation where appropriate. The success of the
foreclosure review program is one of the factors in the
recovery of our Nation's housing market.
Transparency, consistency, and accountability in the
foreclosure reviews are necessary for the public and
policymakers to know that they are being performed fairly.
Transparency will ensure that borrowers and the public know who
is eligible for relief, what type of relief will be provided,
and the results on a bank-by-bank basis.
The public needs full and clear guidelines on what
constitutes financial harm to a borrower so that people who are
actually harmed do not fall through the cracks. There must also
be better guidance from homeowners who are facing imminent
foreclosure as to whether their foreclosures will be
temporarily halted or not.
And, finally, it is imperative that homeowners, advocates,
and counselors have a regular seat at the table and give their
input on the process. Many of the counselors have been working
with consumers a long time on these issues, and their input is
invaluable.
Consistency is critical so that similarly situated
borrowers with different servicers and different reviewers
receive similar treatment and outcomes. There must be
established protocols in place for both the foreclosure reviews
and compensation process to ensure that similarly situated
borrowers are treated fairly. Also, outreach and materials must
be available for people who speak different languages so that
they do not miss out on participating in this program.
Accountability will give the public confidence that our
bank regulators, the OCC, and the Federal Reserve are fairly
and effectively working to protect borrowers' rights and fix
harms caused by the banks they regulate. Although the Federal
Reserve did not appear today because of the Federal Open Market
Committee meeting, they have submitted a statement for the
record and will take questions for the record from all
Senators.
Senator Menendez. I would note that the Federal Reserve has
lagged the OCC in that they have not released their engagement
letters yet, and I would urge them, as the Chairman of the
Subcommittee, to move along quickly with that.
In terms of accountability, it is also important that the
third-party consultants who are making these critical decisions
are held accountable for doing these reviews independently of
the banks that hire them with the OCC's approval, which is a
challenge considering that most of them have done business in
some form with the same banks whose work they are now expected
to evaluate.
It is also important that banks be held accountable for
their results on a bank-by-bank basis with appropriate
penalties such as fines. And there must be clear standards on
how the OCC and the Fed will conduct oversight over the
consultant activities and the actions regulators will take
against consultants and servicers if it finds their performance
lacking. Moreover, there must be a measurable goal and
benchmark for the program so that all parties are publicly
accountable.
In closing, let me just say the foreclosure review program
could potentially impact about 4.6 million homeowners who are
eligible for review. We must begin to fix those unscrupulous
lending practices that took place and wrongful foreclosures
with the public interest as our core principle. And I look
forward to our witnesses today, both Ms. Williams of the Office
of the Comptroller of the Currency, as well as all of those on
the second panel who will help us come to an understanding of
where we are, where we are headed, and what needs to be done.
With that, I am happy to recognize any of my colleagues who
may have an opening statement. And if not, let me welcome Ms.
Julie Williams, who is the First Senior Deputy Comptroller and
Chief Counsel of the Office of the Comptroller of the Currency.
She is responsible for all of the agency's legal activities,
including legal advisory services to banks and examiners,
enforcement and compliance activities, litigation, legislative
initiatives, and regulation of securities and corporate
practices of national banks.
Ms. Williams, thank you very much, and we look forward to
your testimony.
STATEMENT OF JULIE L. WILLIAMS, FIRST SENIOR DEPUTY COMPTROLLER
AND CHIEF COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY
Ms. Williams. Thank you. Chairman Menendez and Members of
the Subcommittee, I appreciate the opportunity to appear before
you this afternoon to provide information on the status of the
OCC's implementation of enforcement actions that direct the
country's largest mortgage servicers to correct deficient and
unsafe or unsound servicing and foreclosure processing
practices and to provide remediation to borrowers financially
injured by those practices.
The OCC appreciates the Subcommittee's concerns regarding
transparency and accountability throughout this process. My
written testimony provides up-to-date information describing in
detail the independent foreclosure review process required by
our enforcement orders and the other required comprehensive
corrective actions that are underway. Our goals are clear: Fix
what was broken, identify borrowers who were financially
harmed, provide compensation for that injury, and make sure
this does not happen again.
The work to correct mortgage servicing and foreclosure
process defects involves many components. Efforts include:
establishing single points of contact to improve communication
with borrowers; addressing how to eliminate dual tracking;
improving oversight and management of third-party service
providers; enhancing operations related to MERS; and
improvements in management information systems, risk assessment
and management, and compliance oversight.
The OCC has also required the servicers to retain
independent consultants to conduct an independent review of
each servicer's foreclosure activities spanning 2009 through
2010. The independent review has two parts: first, a claims
process whereby borrowers who believe they were financially
harmed by defective servicing and foreclosure practices during
that period may obtain an independent review of their case;
and, second, a file review component.
The most public aspect is the claims process, which was
launched on November 1. Since that date, more than 2.7 million
letters have been sent to borrowers explaining how they may
request an independent review of their case. More than 4
million letters will be sent by the end of the year. To date,
less than 5 percent of those letters have been returned as
undeliverable, and the independent claims processor is working
to identify addresses for those undeliverable letters.
The OCC is requiring servicers to use advertising, a Web
site, a toll-free number, and various other forms of outreach
to increase awareness and understanding of the review process.
Advertising will kick off at the beginning of next year and
will include full-page advertisements in widely read national
publications as well as publications that serve minority and
underserved audiences. The OCC will monitor the effectiveness
of this effort, and additional advertising and outreach may be
required.
As of December 9th, the independent foreclosure review Web
site had been visited more than 280,000 times, and the toll-
free number had answered nearly 49,000 calls. The OCC also will
launch a series of public service announcements in January that
will include both print and radio spots in English and Spanish.
We are working with a number of public interest organizations
to explain the foreclosure review process. We are discussing
their concerns about the scope and effectiveness of the
outreach program and their suggestions for improvements.
In addition to this claims process, our enforcement orders
require the independent consultants to perform file reviews of
identified segments of borrowers. They are using sampling and
other tools to identify files for review subject to guidance
and oversight from the OCC. Currently, 56,000 files are under
review.
We are requiring 100 percent review of some borrower
segments, including cases involving the Servicemembers Civil
Relief Act, bankruptcy cases involving foreclosures in 2009 and
2010, cases referred by State or Federal agencies, and reviews
requested through the coordinated claims process that I have
described.
With respect to SCRA cases, I would like to close by
offering particular thanks to the Defense Manpower Data Center
of the Department of Defense and to the Department of Justice.
We reached out to both to explore how to effectively identify
servicemembers whose cases should be reviewed as part of the
100 percent review. And as a result of that collaboration,
processes have been developed that will ensure that all
eligible servicemembers are identified for inclusion in the 100
percent file review.
Again, I appreciate the opportunity to testify, and I look
forward to answering your questions.
Senator Menendez. Well, thank you very much.
Let me start off. You and I had a conversation a few days
back, and I just want to follow up on some of the points.
Will the OCC release full guidelines, other than your 20
examples, to the public for what constitutes financial harm to
a borrower?
Ms. Williams. Senator, what we have tried to do in the
information that we have released so far, in connection with
releasing the engagement letters, is to release what has been
developed to date by the OCC and the Fed as examples of types
of financial injury that could be covered in providing
financial remediation. So to the extent that the OCC and the
Fed have developed examples, we have made those available.
If there are other situations that are identified through
the process as it goes forward, if there are aspects of
clarifications of the examples that we have already made
available, that should be put out in order to fully inform the
public and potentially affected borrowers that there are other
possible examples, I think we are quite open to that.
Senator Menendez. What I do not understand is if you do not
release some sense of full guidelines, then how are borrowers
supposed to know if what happened to them will qualify for
relief or not? Because, obviously, their effort to do this, you
know, when they receive these letters, they have to make a
determination. There is going to have to be not only effort
into it, but obviously in some cases to assist them to do so
maybe even resources spent by them to pursue the possibility of
relief. And if you are not sure what is the universe, the
standard at the end of the day, I get concerned. You know, Ms.
Cohen in her testimony that will come up in the second panel
cites other examples of harm to borrowers that are not in your
20 examples: servicer delay, the cost of being placed in a
proprietary modification instead of a HAMP one, to mention a
few. So I am trying to get a sense of why do we not have a
broader outline of what is the guideline to understand what
financial harm is.
And, second, as a corollary to that, you state in your
written testimony that the OCC will provide guidance clarifying
compensation for certain categories of harm, but that, ``Any
such baseline expectations would not, however, override the
independent judgment of the independent consultants.'' And that
strikes me as somewhat backwards. Who is running the show--the
OCC as the regulator or the third-party consultants and the
servicers who hired them? Which, you know, goes to the general
concern about the objectivity of those really making the key
decisions here.
So why not a more fuller understanding of what is the
standard of financial harm? And why not in your providing a
baseline of--and guidance clarifying compensation for certain
categories of harm, why not say these are, in fact, to be
adhered to by the independent consultant?
Ms. Williams. Well, two separate questions, so let me try
to take them in turn.
As I indicated, what we and the Federal Reserve had tried
to do at the outset is to identify a number of examples of
types of injury. If a borrower feels that they have been
harmed, that they have been injured by servicing or foreclosure
practices, they can submit a claim and set out whatever type of
injury or harm that they think they have suffered. The way that
the form is designed is it does try to cluster some specific
questions around the categories that were identified by the OCC
and the Fed in the injury guidance. But there also is a portion
of the form where a borrower can tell their story, can present
their story of how they feel they have been harmed.
Interestingly, we have looked at the claims forms that have
been submitted so far, and 78 percent of those forms use at
least that ``Other'' category. In many of the forms the
borrowers are filling out more than one category on the form,
but in 78 percent of those situations, they are also filling
out the ``Other'' part of the form.
So what we want is for the borrower to tell their story
about how they feel they have been injured and get that
information into the review process with the independent
consultants. And we certainly will try--if there are other
general areas that we and the Fed think are appropriate for
supplemental injury guidance, we are certainly open to trying
to get the message out about those. But the claims process is
designed to let borrowers tell their story.
Senator Menendez. And the second part?
Ms. Williams. The second part, on the types of compensation
or remediation, we are in the process of trying to develop
guidance--this is a conversation involving the independent
consultants as well as the Federal Reserve--so that there is a
consistency, a range of consistency, around the types of
remediation that would be provided in connection with
particular types of financial harm. So you would not have a
situation if you were with Servicer X that you would get one
type of relief and if you were with Servicer Y you get a very
different type of relief or you get a very different dollar
amount. But the process also does contemplate that there is the
opportunity and the need for the independent consultants to
consider the facts that are before them and take those into
account. And we also do not want to tell any of the independent
consultants, if they feel they want to do better, then any sort
of general guidance that the agencies may put out, we would
certainly not say anything to try to hold them back.
Senator Menendez. But a baseline does not suggest you
cannot do better.
Ms. Williams. That is correct.
Senator Menendez. But by the same token, a baseline which
you then go on to say does not override the independent
judgment is not really a baseline.
Ms. Williams. It is certainly a sense of range to try to
encourage consistency in the results that are reached with
respect to particular types of injury. We do not want to
foreclose that there might not be facts and circumstances that
the consultants would find that might produce a variation off
of whatever guidance we provide.
Senator Menendez. I have other questions, but let me turn
to my colleagues. I have been given a list here from the
Committee staff, so in order of appearance, Senator Merkley.
Senator Merkley. Thank you very much, Mr. Chair.
I wanted to understand. The letter that families are
receiving lists six types of potential harm. Now, you say in
your testimony that you have included 20 types of harm to the
independent consultants. Why not alert homeowners to the full
range? They are not sophisticated analysts of detailed mortgage
issues. Why only list 6 of the 20?
Ms. Williams. The way that the form was designed for those
6, they are more general than the 22 categories that are listed
in the joint OCC-Fed guidance. And some might say that the 22
categories listed in the guidance are somewhat technical. So
the form was an effort to try to category generalize areas
where there could be types of injury. And then, as I mentioned,
there is a portion of the form where the borrower can fill in
any information the borrower wants to provide about injury.
Senator Merkley. Well, I am interested in the fact that 78
percent of the folks use ``Other.'' As you analyze what those
other categories are, do you find, oh, there are some themes
here of major forms of perceived mistakes that are worth
alerting people to, that these qualify? Or are you finding you
look at them and you go, oh, no, these would not qualify?
Ms. Williams. I personally do not know the details of what
has come in in the ``Other'' category, but that is information
that we will be very interested in. I could add just in terms
of the breakdown of the categories of the claims, 85 percent of
them are providing information with respect to a modification-
related type of harm; 63 percent about a mortgage balance
error; 47 percent are raising issues about improper or
incorrect fees; and 45 percent of what we have so far of the
claims forms indicate that the borrower thinks there was
inappropriate payment processing.
With those numbers you can tell there is overlap, so the
forms are obviously coming in with multiple categories being
filled out.
Senator Merkley. Why did you all want to keep the
independent reviewers secret?
Ms. Williams. We did not. We made that information publicly
available by releasing the engagement letters.
Senator Merkley. OK. I had the understanding that you
resisted, did not want to release those, and it was only public
pressure that you responded to. Is that wrong?
Ms. Williams. I think our plan had been that we were going
to release that information, and that we were going to release
the engagement letters. The names would become publicly
available with the release of the engagement letters.
Senator Merkley. So do you feel like there is some standard
that eliminates the conflict of interest between these
companies, which are often major companies that may have
contracts with all kinds of folks in the banking community? Was
there some kind of conflict-of-interest standard applied to
actually create something homeowners can count on as an
independent, unbiased point of view?
Ms. Williams. Senator, we did a couple of things in that
regard. We screened the independent consultants. We also
screened the law firms that each of the independent consultants
retained. And what we focused on was trying to identify
situations where the independent consultants or the law firms
might have previously taken positions relative to the types of
issues that they were going to be asked to render an
independent judgment on in their role as an independent
consultant. And where we felt there was any question about that
type of previous role by the independent consultants or the law
firms, we disqualified them.
We also required specific language in the engagement
letters between the independent consultants and the servicers
that the independent consultants not take direction from and
are not under the control of the servicers in a number of
important respects. The interim report that we released prior
to Thanksgiving together with the engagement letters lists
seven or eight, I believe, separate requirements that had to be
included verbatim in the engagement letters between the
independent consultants and the servicers with respect to not
being influenced by the servicers in their decisionmaking
process and taking direction and being overseen by the OCC or
the Fed.
Senator Merkley. I am out of time, so I will just note that
I feel I have a broad concern. This feels like a wild goose
chase. So many homeowners were told to make these reduced
payments or stop making payments, and then were told you do not
qualify for modification because you reduced your payments.
Just numerous elements concern me, but I am out of time, so I
will defer to my colleagues.
Ms. Williams. Senator, we are very concerned about that as
well, and our objective is to get as many borrowers who believe
that they were harmed into this pipeline so that their cases
can be reviewed.
Senator Merkley. Thank you.
Senator Menendez. Senator Reed.
Senator Reed. Who selected the independent consultants?
Ms. Williams. The independent consultants were initially
proposed by each of the servicers, and then they were reviewed
and signed off on or nondisapproved by the agency.
Senator Reed. Did you reject any of the proposed
independent consultants?
Ms. Williams. I believe we did, and I know that we rejected
a number of law firms because I was directly involved in that
process.
Senator Reed. In terms of the independent consultants, have
all of them done previous work or many of them done previous
work for the servicers that they are now supervising?
Ms. Williams. There are a number of situations where they
have done previous work for the servicers in different areas
generally, but they have had previous business engagements with
those servicers.
Senator Reed. I think at least appearance-wise it raises
questions about the true independence of these organizations
and the fact that these entities were proposed to you rather
than you, in fact, assigned a truly independent--and I think
that is not only perceptual, but is perhaps a substantive floor
that is hard to reconcile. Let me ask----
Ms. Williams. Senator, if I could address that.
Senator Reed. Yes, ma'am.
Ms. Williams. We did have internal discussions about that,
the process of retaining the independent consultants and
whether it would be feasible for the OCC to retain the
consultants, for example, and the difficulty with that is that
it put us in a position of having to go through a procurement
process that was going to be very time-consuming and raise a
lot of difficult questions about what standards were we going
to use to evaluate their qualifications under the criteria that
we would have to have followed.
So we felt that the independence requirements that we
required in the engagement letters helped to solidify the
understanding of the responsibilities of the independent
consultants.
Senator Reed. So you are telling me you did not have the
authority to order a servicer to engage a specific independent
consultant? You did not have that authority?
Ms. Williams. To say that they had to hire X firm and pay
for----
Senator Reed. Exactly, yes.
Ms. Williams. We would have to figure out what process we
would go through in order to determine which one that would be,
the qualifications of that----
Senator Reed. Wouldn't it be very similar to the process
you went through screening the proposed firms that were
selected by the company being reviewed?
Ms. Williams. I think our screening process was based more
broadly on this issue of the prior roles of the consultants in
connection with the issues that they were going to be asked to
opine on and their overall capacity, resources to carry out
the----
Senator Reed. I think you are saying two things here: that
you have done such a thorough screening that you are confident
that these independent reviewers are truly independent, yet you
could not do that before the fact, you had to rely upon the
recommendation of the individual who was being reviewed.
Doesn't that sound somewhat discordant in terms of your ability
or capacity?
Ms. Williams. Senator, I do not think it does in terms of
our role. One of the other challenges that we faced, quite
frankly, is the scope and scale of the firms that had the basic
capacity to do this work. We found that many of them had
various engagements with most of the servicers involved.
Senator Reed. Let me ask you another question. If a firm
that has had a previous engagement encounters a situation in
which they participated or rendered advice, are they obligated
to inform you immediately?
Ms. Williams. I am not sure if I understand the question,
sir.
Senator Reed. You have a firm that is now the independent
consultant.
Ms. Williams. Right.
Senator Reed. They discover a series of transactions that,
in fact, they were directly involved with. Do they have the
obligation to inform you immediately----
Ms. Williams. We would expect that they would inform us.
Senator Reed. Do they have the obligation, rather than you
have the expectation?
Ms. Williams. I would say that they have the obligation.
The expectation we have is that they would not have had that
sort of involvement.
Senator Reed. If they find--there is proprietary
information engaged here, but if they find proprietary
information that is potentially material to investors in terms
of the behavior of these servicers, and most of the holding
companies that own them are public companies, are they
obligated to inform you and the Securities and Exchange
Commission of their findings?
Ms. Williams. Again, I am not sure if I understand the
focus of your question. If they, in doing their reviews----
Senator Reed. If they are doing their review, find
potential criminal activity, potential failure to disclose
material facts that would be subject to reporting by the SEC,
are they required to inform you and the SEC of their
discoveries?
Ms. Williams. I do not know of their obligations to inform
the SEC. I think they would be obligated to inform us----
Senator Reed. And you would be obligated to inform the SEC?
Ms. Williams. We have a good working relationship with the
SEC----
Senator Reed. I am not talking about a good working
relationship. I am talking about if you find material
information that was material to investors that had not been
disclosed through this process, do you have the option to
inform the SEC or not?
Ms. Williams. No. No, of course not. If we find something
we think constitutes a violation of the Federal securities
laws, that is the sort of situation where we will work with the
SEC.
Senator Reed. Thank you. My time has expired.
Senator Menendez. I think there are a lot of questions, and
so we are going to go through a second round.
Let me ask you, why has the OCC not publicly released at
least nonconfidential parts of the action plans to implement
this program as I requested of the OCC and the Fed in July?
Ms. Williams. Senator, the action plans are quite
voluminous. They are, and I have looked at a number of them
myself, a mixture of a lot of very detailed functional process
information and some summary overview types of statements. They
have been submitted to us with assertions that the information
is highly sensitive, that it provides competitors with insights
into internal risk management methodology and business
strategies, with assertions that the information includes trade
secrets, operations information, confidential statistical data,
other confidential commercial and financial data within the
meaning of the Trade Secrets Act, for which there are sanctions
for release. So it is very difficult as a practical matter to
simply release the whole document without doing a very
elaborate review and redaction for that type of information.
If there are particular aspects of the action plans that
the Committee is interested in----
Senator Menendez. The Fed states in its testimony that it,
quote, ``expects to disclose significant portions of the
documentation related to the final action plans.''
Ms. Williams. Yes.
Senator Menendez. So why would the Fed be able to do that
but the OCC not?
Ms. Williams. I do not know what process they are going
through and they have not done it yet, so all I am saying is
that the process of dealing with the issues involved in
releasing the action plans is a lot more complicated than the
issues with the engagement letters, and I do volunteer to you,
Mr. Chairman, if there are particular things that are of
interest with respect to the action plans, I think we can try
to work with the Subcommittee----
Senator Menendez. Let me go through a few. You know,
openness and transparency in this process is going to be
critical to a belief that it was done, especially when you have
hired independent consulters for which there is--I have
concerns, Senator Merkley, I am sure others have concerns about
the process. You know, it is going to be critically important
to give this any validation at the end of the day. So I would
urge you to, in that spirit, be as open and transparent as you
can.
Let me ask you a series of questions and I hope you can
give me some brief answers. Homeowner advocates allege that
homeowners will be required to give up their legal rights to
other remedies if they apply for this program or take any
money, even a small amount. Is that accurate?
Ms. Williams. There has been no decision made that that
would happen.
Senator Menendez. OK. There has been no decision made. That
does not mean that there could not be a decision made that
would say, yes, that will happen.
Ms. Williams. There could be situations, depending upon the
type of relief that ends up being provided, where it may be
sensible for a servicer to seek a waiver. So, for example, if
the remediation that is provided is the homeowner gets the home
back, they get expenses paid and they get some lump sum
payment, form of compensation, on top of that, with a package
of remediation like that, that may be a situation where a
waiver would be appropriate.
Senator Merkley. So, in essence--but they would be able to
make that decision before they chose to give up their rights?
Ms. Williams. Absolutely.
Senator Menendez. Second, the consent orders do not end
dual track. They perpetuate it, since servicers are still
allowed to proceed with foreclosures while they are still
reviewing files of homeowners for a modification. Why are we
allowing that when that creates such a confusion to homeowners
at the end of the day?
Ms. Williams. Senator, the consent orders provided for a
halting of dual tracking when there was an approval of a trial
or permanent modification. This was an area, and I apologize
here, I am going to give a little longer answer--this was an
area where we specifically envisioned that in the event of a
global settlement involving the Department of Justice and the
State AGs that there would be a term sheet that would be a part
of that settlement that has more detailed standards in it that
would be incorporated into the action plans of the servicers.
We also anticipated that there would be changes made, which now
have been made, by the GSEs in their requirements for servicers
handling troubled mortgages and that those two would have to be
taken into account in the action plans at the end of the day.
The combination there results in actually more requirements in
stopping dual tracking than the basics that are provided in our
consent orders.
Senator Menendez. Let me finally ask, how many people are
eligible and how many do you expect to appeal?
Ms. Williams. For the National Bank and Federal Savings
Association population, it is just under four million. The
total for all of the servicers covered by the enforcement
orders is about four--maybe a little less than four-and-a-half
million.
Senator Menendez. And how many do you expect to appeal?
Ms. Williams. We do not know, sir.
Senator Menendez. And that raises the final question that I
am concerned about. If you have no sense of how many are going
to appeal, how will you know whether the third-party
consultants will have the personnel and the wherewithal to
review the cases in a timely manner, especially since dual
track is permitted?
Ms. Williams. What we will be doing through the supervisory
process is overseeing and checking the processes that the
independent consultants are using. We have also required the
independent consultants themselves to have certain quality
assurance, quality control functions, and they will be
performing that function themselves and we will check that,
too.
Senator Menendez. And if you felt they did not have the
sufficient personnel or wherewithal to pursue it, you would
have the ability to order them to do that?
Ms. Williams. To get more people or more resources.
Senator Menendez. Senator Merkley.
Senator Merkley. Thank you.
In the letter to homeowners, did you disclose that the
independent reviewers were selected by the companies that hold
the mortgages?
Ms. Williams. Senator, I do not believe that is in the
letter, but I would have to look at it specifically.
Senator Merkley. Do you think that that might be important
to whether a homeowner feels like it truly is an independent
process?
Ms. Williams. I can understand the issue that you all are
raising, and what I have tried to explain is why we think that
we have taken steps to make sure that the process has
integrity.
Senator Merkley. Do you think the banks would consider it
independent if the homeowner groups representing homeowners got
to choose the independent reviewer?
Ms. Williams. Would the banks consider that? I would
imagine that they would.
Senator Merkley. Well, please, that is so insincere, that
the banks would say, yes, the homeowners get to pick the
independent reviewer. I mean, absolutely, are you kidding me?
You would claim that the banks would do that? If so, why not
let the homeowners pick the independent reviewer if you think
the banks would agree to that.
Ms. Williams. If what you are describing----
Senator Merkley. I mean, that is just--it is absurd.
Ms. Williams. If what you are describing is a process where
each homeowner could pick the independent consultant for their
claim----
Senator Merkley. Yes, one--yes.
Ms. Williams. That simply would not, I think, be feasible
to implement----
Senator Merkley. Well, it would not be feasible----
Ms. Williams.----in any reasonable timeframe.
Senator Merkley.----but it would not be considered fair by
the other party, and I just--I mean, the fact that you have not
disclosed--you are talking to the American people here and you
are putting your reputation on the line, saying we have
established an independent process. You are not disclosing that
it is paid for by one party. You are not disclosing that these
companies have a relationship already with the party. And you
are not disclosing that one side chose the independent. And I
think to even call it independent is, in that situation, a
complete betrayal of your trust with the homeowner, homeowners
who feel like they have been manipulated and pushed so often
for so long. So each time I hear you say the word
``independent,'' I am just going to flinch.
Then the letter says, possible compensation or other
remedy, partway down the second page. What compensation? What
remedy? The homeowner has no sense that there is anything real
at the end of this journey. Why not fill in the homeowner on
kind of the types of compensation just so they might feel like
maybe this one is not a wild goose chase? Maybe this is real?
Ms. Williams. And that gets to the guidance discussions
that the Chairman was asking me about--what types of financial
remediation is expected. Our discussions that are ongoing to
develop some consistency and ranges of types of remediation
based on types of injury. So the sorts of things that one could
envision here are if injury involves the imposition of various
fees and charges that were not authorized and were not correct,
that there should be reimbursement for that. If someone lost
their home as a result of an impermissible foreclosure and the
property is still in the foreclosure pipeline and can be
returned to the borrower, that that would be a form of
financial remediation in that case.
Senator Merkley. Are you planning to send a second letter
to homeowners to, one, to clarify the way that the
independent--so-called independent process has been structured
so that homeowners are not misled by their own Government? And
second, to fill them in on a list of potential types of
compensation so they feel like, well, this is something real?
Ms. Williams. Senator, what we may do through subsequent
communications--and whether that is media or other form of
outreach--is try to provide more information about this
process. Now, when I say what we may do, there could be
subsequent mailings as part of that process. But we do
envision, as I mentioned in my testimony, that there will be a
substantial amount of additional information explaining the
independent foreclosure review that is going to be put out by
the independent consultants. And the OCC will be doing PSAs.
Senator Merkley. My time is running out, but I just request
that you be fully honest and transparent. The last thing
homeowners need after so many challenges--I mean, I can tell
you that the one person of a major bank has said the biggest
challenge they faced, or the biggest mistake they made was in
hiring kind of call room capable folks to discuss what are
complicated transactions that the call room folks did not
understand and that led to a lot of misinformation. They really
regretted that they had not hired people with mortgage
expertise so that there would be more accurate conversation.
And I really appreciated the fact that that was understood.
But if you view this from the point of view of the
homeowner, who did receive so much misleading information along
the line, and to recognize that servicers have all kinds of
different motivations, if you will, than, say, a corner bank
that owns a mortgage and there are extra layers of concern and
legal issue and communication, it is just the last thing
homeowners need is one more process where there is not full and
accurate disclosure.
And I will close by echoing the Chair's comment that the
failure to stop the foreclosure process while saying that there
may be a remedy means that potentially you are saying, yes, we
may find after 3 months that you have been unfairly--had your
home taken away, but too bad. We let it happen even while the
review was underway. I just--that is a continuation of this
sense of, really? That is the fair process here, that you are
going to consider this issue while my home is sold and then I
will not be able to get it back because it is gone.
Ms. Williams. Senator----
Senator Merkley. It is disturbing.
Ms. Williams. Two things. We are working on improving the
process, the intake process to try to forestall that situation
that you were describing. And finally, our goal is to get as
many borrowers who think that they were harmed into this
process, and I completely appreciate the points you are making
about part of the way to do that is for the borrowers to
believe that the process is credible. So----
Senator Merkley. Thank you. I am on my colleagues' time----
Ms. Williams.----it is in our interest to try to assure
that.
Senator Menendez. Senator Reed.
Senator Reed. Following up on this issue of the
independence of these consultants, is there any prohibition on
future work that these companies can do with the party that
they are independently supervising?
Ms. Williams. No, sir.
Senator Reed. Is there any prohibition about contemporary
work that they are doing in other fields?
Ms. Williams. In unrelated areas? No, sir.
Senator Reed. Well, yes, but--so, essentially--you know,
there is a difficult set of incentives for it to be truly
independent, since I think there is the notion that down the
road, you would like to continue to work with this enterprise.
Ms. Williams. One of the circumstances of these independent
consultants is that they were not dependent upon the particular
servicer here for their business success.
Senator Reed. Well, but they have done business in the
past. There is no prohibition against doing business in the
future. There is not even a contemporary sort of moratorium for
a period of time. Is there any obligation for them to report
back to the OCC on business engagements after the fact so you
could essentially make a judgment of these engagements----
Ms. Williams. I do not believe there is.
Senator Reed. Would that make sense?
Ms. Williams. I could take that back and we can think about
it.
Senator Reed. The Servicemembers Civil Relief Act has been
on the books since 1940, and I am pleased from what you said,
that you are going to have 100 percent review of every--I want
to make sure I heard you correctly--of every file involving a
servicemember?
Ms. Williams. That is in scope, yes.
Senator Reed. I do not know what ``in scope'' means. Could
you----
Ms. Williams. A borrower who was involved in any stage of
the foreclosure process during the years 2009 and 2010.
Senator Reed. And the other aspect of this is that,
apparently, since you complimented DOD and others, you had to
rely upon the Department of Defense for the information about
who was in the service and who was not in the service,
suggesting that the servicers had no idea they were dealing
with military personnel?
Ms. Williams. The problem was one of available data in
doing these independent reviews. There were two issues in order
to be able to facilitate the reviews. One is the timeframe that
the servicemember's the active duty information is typically
available through the Defense Manpower Data Center and the Web
site. The other is that it has been designed for what folks
refer to as ``pinging,'' individual names to check to see
whether they are active duty.
What was accomplished with DOD and the involvement of the
Department of Justice is to be able to do a batch processing
and to cover the time period covered by the independent
reviews.
Senator Reed. Let me ask a final question. Are you
confident now that, going forward, servicers will, in fact,
know if an individual is subject to the Servicemembers Civil
Relief Act going forward?
Ms. Williams. I am confident that once the steps that we
require be implemented are fully implemented, that that is the
case, yes, sir.
Senator Reed. When is that going to take place?
Ms. Williams. Some of them should already be in place and
others should be implemented through the early part of next
year.
Senator Reed. Finally, have you reached out to consumer
advocates like the National Consumer Law Center, to engage them
and participate with them and work with them in terms of
designing this program, vetting this program, responding to
their criticism?
Ms. Williams. We have been doing that over the course of
the last several weeks very actively and we had some very
constructive discussions, that I have been part of, and some
good suggestions about some of the elements of the media
campaign.
Senator Reed. May I ask, why was that not done earlier,
when you were designing the program, thinking about how you
would structure the selection of independent consultants, how
you would screen the consultants, how you would communicate
with consumers?
Ms. Williams. Part of that answer is that some of the
activities were activities that were being conducted by the
independent consultants, not by us. This is--what I am talking
about is interactions that we are having now. The other is that
we were initially thinking more in terms of implementation of
an enforcement consent order, and so there were various steps
that we saw taking place going forward. So we did not engage
right at the outset, but we are very engaged now.
Senator Reed. Thank you.
Senator Menendez. Thank you.
Well, thank you, Ms. Williams, for your testimony. You are
obviously very talented. Your legal skills were well exhibited.
Now, I just hope that you will use that talent and those legal
skills to address some of the Committee's concerns and take
some of the suggestions to heart, and more importantly than to
heart, to action, as to action. So with that----
Ms. Williams. Senator, thank you----
Senator Menendez.----we appreciate your testimony.
Ms. Williams.----and you have our commitment.
Senator Menendez. Thank you. With that, we appreciate your
testimony.
Let me call up the next panel.
Alys Cohen is a staff attorney at the National Consumer Law
Center's Washington office where she advocates before Congress
and the Federal regulatory agencies on predatory lending and
sustainable home ownership issues. We thank her from coming.
David Holland is the executive vice president of Rust
Consulting, Inc., which is contractor that does outreach to
homeowners for the foreclosure reviews.
Paul Leonard is the Housing Policy Council's vice president
of government affairs where he works with HPC member companies
on foreclosure prevention. The Housing Policy Council is
assisting the 14 mortgage servicers participating in the
foreclosure reviews with the communications regarding the
implementation of the public outreach effort.
Professor Anthony Sanders is a professor of finance at
George Mason University School of Management, and we welcome
him back. He has appeared before the Subcommittee many times
and imparted his knowledge. He is also a native of Rumson, New
Jersey, which makes him an eminent witness.
Ann Kenyon is a partner at Deloitte & Touche, the third-
party consultant for servicer JPMorgan Chase.
And Konrad Alt is a managing director at Promontory
Financial Group, the third-party consultant for servicers Bank
of America, PNC, and Wells Fargo.
So thank you all for joining us. I would ask you each,
since this is a rather large panel, but we wanted to get all
these diverse views in, to summarize your statement in about 5
minutes. We will have your full statements included in the
record, and with that, Ms. Cohen, we will start with you. Turn
your microphone on, please.
STATEMENT OF ALYS COHEN, STAFF ATTORNEY, NATIONAL CONSUMER LAW
CENTER
Ms. Cohen. Chairman Menendez, Senator Merkley, thank you
for inviting me to testify today. I testify here today on
behalf of the National Consumer Law Center's low-income clients
and on behalf of 20 State and national organizations, including
Americans for Financial Reform, who work daily in communities
gravely affected by the foreclosure crisis.
I have worked as an attorney in the area of sustainable
mortgage lending for almost 15 years and have spent the last 8
at NCLC, providing technical assistance, training, and policy
guidance to attorneys, housing counselors, policymakers, and
others.
In the face of a foreclosure crisis of unprecedented
proportions, the regulatory response has been staggeringly
inadequate. The banking agencies' consent orders and
foreclosure exams deny homeowners meaningful reviews and
redress. The foreclosure reviews are opaque, leave too much
control in the hands of the servicers--the firms that created
the mess in the first place--and threaten to strip further
rights from homeowners. Given the numerous shortcomings and the
potential for homeowner injury, we recommend that the Consumer
Financial Protection Bureau take over implementation of the
orders.
The CFPB is in a better position to balance the needs of
financial institutions with those of homeowners facing
foreclosure. The foreclosure reviews repeatedly favor banks
over homeowners, giving the servicers another chance to
perpetuate abuses unchecked, while hiding behind a fig leaf of
reform and accountability. That process cannot be permitted to
continue.
To the extent homeowners do participate in the current
process, servicers may use the process to strip homeowners of
their legal rights. A lump sum does not equal a sustainable
loan, and if you waive all your rights, you will have no chance
to save your home from foreclosure later. And participating
will be difficult because the outreach process is flawed at
every turn, including the five-page required form attached to
my testimony, which is written at a college reading level.
The form itself steers borrowers to narrow descriptions of
harm geared to underestimate the cost of servicer abuses.
Borrowers also are not being informed that they will receive a
broader review only if they do not specify a type of harm.
Homeowners who check off boxes on the form, even if they
inaccurately identify the harm they suffered, will only be
reviewed for the harms specified.
The failure to provide multi-language access, an electronic
submission option, and outreach in communities of color
demonstrates a lack of commitment to widespread redress. Even
the broader examples of financial injury provided to the
consultants by the regulators omit the most common types of
financial injury.
For example, servicer delays are widespread and expensive
for homeowners. Almost 89 percent of housing counselors in a
national survey reported that servicer processing delays are
the most common barrier to obtaining a loan modification. In
one recent case from Wisconsin, a servicer's 2-year delay in
converting a temporary modification to a permanent modification
resulted in additional interest charged to the homeowner of
nearly $43,000.
In addition, no provision is made for foreseeable
consequences of a wrongful foreclosure. Damaged credit scores
will increase credit and insurance costs and limit employment
and home rental opportunities. The review process and the
orders also provide no meaningful limitations on servicer
conduct during a foreclosure, even during the consultants'
reviews. As a result, homeowners may lose their homes while
seeking a review or simply while waiting for a modification.
The failure to provide for a foreclosure stop during a
review makes a mockery of any suggestion that the reviews will
make homeowners whole or that these steps will stop the abuses
from happening again. Reliance on other Government agencies to
fix these problems later is an abdication of responsibility, at
best.
Moreover, the reviews will be conducted in a vacuum without
firsthand input from interviews with homeowners and without
systemic input from stakeholders who work with homeowners.
After-the-fact feedback on advertising does not on its own
constitute meaningful participation in the process.
The OCC's longstanding record in siding with banks over
consumers and over States that seek to protect consumers raises
serious questions about whether the agency will promote a
process that meets the needs of homeowners. Most recently, the
OCC blatantly ignored Congress' directive to cut back on its
regulations preempting State laws, instead writing rules with
barely a superficial effort to comply with Dodd-Frank.
National servicing standards are still needed. The consent
orders in the foreclosure review process provide at best little
more than window dressing for business as usual, even though
business as usual has left us in the worst foreclosure crisis
in our Nation's history.
Thank you for the opportunity to testify, and I would be
happy to answer your questions.
Senator Menendez. Thank you.
Mr. Holland.
STATEMENT OF DAVID C. HOLLAND, EXECUTIVE VICE PRESIDENT, RUST
CONSULTING, INC.
Mr. Holland. Chairman Menendez and Members of the
Subcommittee, good afternoon. My name is David Holland. I am an
executive vice president with Rust Consulting. Rust has been
engaged by the servicers to administer certain aspects of the
consent orders for the Independent Mortgage Foreclosure
Borrower Outreach project. Since this program's inception, we
have worked closely with each of the key stakeholders--the
servicers, the independent consultants, the Office of the
Comptroller of the Currency, and the Federal Reserve Board--to
ensure that the terms of the consent orders are fully carried
out.
In general, Rust is a company that provides project
management and administrative services, typically in support of
large, complex, and time-sensitive programs. We are typically
engaged as a neutral third party with respect to the issues
behind the programs we administer. Our clients include both
plaintiff and defense law firms, and businesses and Government
agencies at the Federal, State, and local levels.
Beginning in June of 2011, we were contacted by several
individual servicers regarding our capabilities with respect to
this program. Eventually, we were engaged by all 14 servicers
to serve as the single administrative provider under the
consent orders. Broadly speaking, our responsibilities under
the consent orders are to notify borrowers about the program,
to answer their questions, to receive complaint forms, and to
handle inbound and outbound mail. More specifically, our
responsibilities for this project include the following:
We collaborated with the servicers to prepare plans to
ensure appropriate staffing across our responsibilities. An
example would be staffing our call center with the appropriate
number of customer service representatives to meet expected
volumes.
We received relevant data comprising the borrower lists
from the 14 servicers.
We standardized the formatting of names and addresses and
arranged for corrections to be made to addresses through the
National Change of Address service. We also performed up-front
``skip-tracing'' on the last known addresses for certain
borrowers as noted by the servicers in their data.
We continue to oversee the printing and mailing of request
for review packages to borrowers. The mailing campaign began on
November 1 and is scheduled to conclude on December 27. We
continue with additional mailings upon request or as better
addresses are received.
We have arranged for publication of notices according to a
media plan prepared by the parties. These advertisements will
begin running in January of 2012.
In addition, Rust established a call center to take
incoming calls from borrowers with questions about the program,
their eligibility for it, and their options under it. We have
been answering calls since November 1st. Borrowers' requests
for complaint forms may be placed through the call center, with
Rust fulfilling those requests.
In addition, we established an informational Web site to
provide basic information about the program to the public.
Borrowers can submit complaint forms by mail. We have
established separate P.O. boxes for each servicer.
And upon receipt of a complaint form, we send the borrower
an acknowledgement of receipt.
We image, data capture, and forward submitted complaint
forms to servicers and the independent consultants.
With mail sent by Rust to borrowers but returned by the
U.S. Postal Service as undeliverable, we attempt to find a
better address and, whenever possible, re-mail the notices to
those new addresses.
We provide comprehensive daily statistical reporting on
program activity and service levels to the associated parties,
including the servicers, the independent consultants, the OCC,
and the FRB.
It is our understanding that Rust may be asked to perform
additional related services yet to be determined.
Thank you, and I am happy to answer any questions that you
have.
Senator Menendez. Thank you.
Mr. Leonard.
STATEMENT OF PAUL LEONARD, VICE PRESIDENT OF GOVERNMENT
AFFAIRS, HOUSING POLICY COUNCIL OF THE FINANCIAL SERVICES
ROUNDTABLE
Mr. Leonard. Thank you, Chairman Menendez, Senator Merkley,
and Members of the Subcommittee. My name is Paul Leonard. I am
the vice president of government affairs for the Housing Policy
Council of the Financial Services Roundtable. Thank you for the
opportunity to testify today regarding the independent
foreclosure review process, and I will briefly summarize my
written testimony.
The goal of the independent review is to assess whether an
eligible borrower incurred financial injury and should receive
compensation or other remedy due to servicer errors,
misrepresentations, or other deficiencies in the foreclosure
process on their primary residence in 2009 and 2010. Everyone
in this process has the desire to get it right.
It is also important to note that the independent review
process is in addition to other ongoing efforts the industry
has made and will continue to make to reach and help at-risk
homeowners.
There are five important points about the independent
foreclosure review process.
First, the reviews are designed to determine if errors in
the foreclosure process caused financial injury to borrowers.
Second, the reviews of the borrower information are
independent of the servicers and will be overseen and verified
by the joint regulators.
Third, the review process includes a robust outreach
campaign that includes direct mail, paid advertising, and other
steps to reach potential borrowers.
Fourth, it will take some time to receive and complete the
actual reviews as the outreach efforts just began on November
1st, and as Mr. Holland testified, the advertising campaign
will begin in January.
And, fifth, the information provided to the regulators on
the independent foreclosure reviews throughout the process is
intended to be comprehensive and complete.
Everyone involved fully appreciates the importance of the
process, and we are working to ensure the reviews are conducted
as prescribed by the regulators. The 14 servicers working under
the guidance of the regulators have worked together to provide
a cohesive process to find lapses in the foreclosure process,
to correct them and remedy those that caused financial injury
to any homeowner.
In this spirit, the servicers have specifically followed
the direction within the consent orders. Additionally, they
have worked closely with the regulators to create a consistent
process for eligible borrowers to be contacted and have an
opportunity for a thorough, independent review of their
foreclosure case. The servicers have added senior leadership
and internal staff to help them with their respective borrowers
and support the review process.
While much of the public focus is on the outreach campaign,
it is important to note that the independent foreclosure review
actually contains two components. The first is the borrower
complaint process that enables eligible borrowers who believe
they have been financially harmed in the process to request an
independent review of their files. At the same time, the
required file look-back is happening, and that is a valid
statistical sampling of borrower accounts, including, as
Senator Reed pointed out, a review of 100 percent of borrowers
with certain characteristics, such as those who may have been
eligible for protection under the Servicemembers Civil Relief
Act.
Industry-wide, the joint regulators have determined that
the population eligible for reviews includes about a little
over 4 million borrowers. That does not mean that all of these
borrowers were financially harmed. However, this is the
universe of borrowers eligible for review.
To reach these borrowers, the public education campaign to
inform borrowers about the process has been launched. We are
assisting with that. It includes direct mail, national paid
advertising, and earned media. Servicers are also working with
nonprofit groups and consumer advocates about the process to
further help borrowers, and we are sharing that input with the
regulator.
The independent foreclosure review process is underway. It
is unprecedented in nature and requires close coordination
among many different entities while maintaining the
independence of the review process as a whole.
Ultimately, we believe these collective efforts will help
address concerns about the foreclosure process and hopefully
increase borrower confidence.
Thank you for the opportunity to speak today, and I am glad
to answer any questions.
Senator Menendez. Thank you.
Dr. Sanders.
STATEMENT OF ANTHONY B. SANDERS, Ph.D., DISTINGUISHED PROFESSOR
OF REAL ESTATE FINANCE, GEORGE MASON UNIVERSITY
Mr. Sanders. Chairman Menendez, Senator Merkley, and
Members of the Subcommittee, thank you for inviting me to
testify today. My name is Anthony B. Sanders. I am the
Distinguished Professor of Real Estate Finance at George Mason
University and senior scholar at the Mercatus Center. I was
previously director of asset-backed and mortgage-backed
securities research at Deutsche Bank and the co-author of
``Securitization,'' with Andy Davidson, as well as many other
housing finance and housing economics publications.
We are all painfully aware that house prices declined
precipitously from its peak in 2006-07 resulting in a 32.5
percent decline. Homeowners' equity in real estate fell 53.8
percent from its peak. While house prices are actually
increasing in some areas of the country, they continue to fall
in Western and Midwest States. According to Zillow, negative
equity rose to 28.6 percent of single-family homes with
mortgages in the third quarter of 2011. Unemployment and
partial unemployment remains horrific at 8.6 percent and 15.6
percent, respectively. And according to the Bureau of Labor
Statistics' latest report, 315,000 people dropped out of the
labor force while 120,000 nonfarm jobs were created amounting
to a net job loss of 200,000.
The combination of a recession, a catastrophic decline in
house prices, and continued unemployment levels not seen since
the Great Depression has resulted in a staggering number of
mortgage delinquencies, defaults, and foreclosures. According
to the LPS report, of December 1st, mortgage delinquencies are
down nearly 30 percent from the peak while the foreclosure
inventory is at an all-time high. As of October 2011, 2.33
million loans are less than 90 days delinquent, 1.76 million
loans are 90 days delinquent, and 2.21 million loans are now in
foreclosure. This sums up to 6.30 million loans delinquent or
in the state of foreclosure as of October. The foreclosures
rates are correlated with housing price declines and State
unemployment rates. Clearly, the housing market and high
unemployment rates are a drag on the economy, and households
have responded by reducing debt levels as a percentage of
disposable income, whether voluntary or involuntary. It is
clear that all parties involved have suffered enormously since
this began.
The Office of the Comptroller of the Currency, OCC, has
released its Interim Status Report dated November 2011. The
report discloses the independent consultants for the review,
and there is no reason to believe that these independent
consultants will skew or shape their findings in favor of the
servicers. Furthermore, given the level of scrutiny on the loan
modification process and foreclosures and the lender/servicers'
desires to put this process behind them, I am confident that
all parties will handle the review process accurately. And with
so many regulatory eyes on the foreclosure process, including
this Committee, I find it hard to believe that this process
will be anything but transparent. When we include the recent
Bloomberg Freedom of Information Act request against the
Federal Reserve, which disclosed some information we were
unaware of, I think this will be a continuing trend in the
market, so I am more comforted that this will be a smooth
process.
My concern is not with the selection of the independent
consultants, but with the time and costs involved in such a
laborious review process relative to the expected economic
assessment of harm.
In addition to reviewing foreclosures at the request of the
borrower--it is a good idea--and certain mandatory groups,
there will also be a sampling of foreclosures to detect
problems. Let us suppose that the 4.5 million eligible are
reviewed at a cost of $2,500 per review. That would result in a
cost to servicers of $11.25 billion. So depending on the number
of borrowers that ask for a ``free review'' and the sampling
size for all foreclosures, this process could be quite costly
to the lenders and servicers involved.
More importantly, what would be the penalties for harm done
to borrowers relative to the cost? There will likely be
egregious errors, such as violations of the law including
foreclosure on active military personnel, but I would be
surprised if these exceed 100 instances, or less than two-
tenths of 1 percent of the 4.5 million foreclosures. In terms
of modification errors, there are likely to be less than or
near 50,000 instances. In terms of technical errors, such as
robo-signing, it is difficult forecast how many there will be,
but technical errors like robo-signing should not result in any
financial harm to borrowers since they likely would have been
foreclosed upon after the documentation error was corrected.
So what we are doing is we are comparing a very large
number of costs potentially to damages that might amount to
approximately $1 billion. Again, any negative or any harm to
borrowers, of course, should be correct. But once the review is
completed and the remediation for financial harm is concluded,
I urge everyone to try to put the foreclosure issue behind us,
whether it is uniform servicing standards or whatever process
we want to undertake, and try to let the market and the economy
heal itself.
Thank you for the opportunity to testify before you today.
Senator Menendez. Thank you.
Ms. Kenyon.
STATEMENT OF ANN M. KENYON, PARTNER, DELOITTE & TOUCHE LLP
Ms. Kenyon. Chairman Menendez, Senator Merkley, good
afternoon. My name is Ann Kenyon, and I lead the Securitization
Advisory Group at Deloitte & Touche LLP. My experience for over
30 years has been in accounting and finance in both industry
and public accounting. Since joining Deloitte in 1997, I have
led or worked on many engagements for financial institutions,
commercial clients, and governmental entities with respect to
their issues in dealing with the capital markets.
Deloitte & Touche LLP and its affiliates have over 45,000
people in offices throughout the United States and perform
professional services in four key areas: audit, financial
advisory, tax, and consulting.
In your invitation, you asked me to discuss the consent
orders that were reached by the OCC last spring with the major
mortgage servicers and the foreclosure reviews that will result
from them. Article VII of the OCC Consent Order creates a
foreclosure review process for borrowers with residential
mortgages referred to foreclosure during 2009 and 2010.
As contemplated by the consent order, the objective of the
review is to identify borrowers who have suffered direct
financial injury as a result in any deficiencies identified in
the servicer's procedures in certain areas. Article VII calls
for the Bank to retain an independent consultant to conduct
``an independent review of certain residential foreclosure
actions regarding individual borrowers with respect to the
Bank's mortgage servicing portfolio.'' Deloitte serves as the
independent consultant for JPMorgan Chase Bank, and I am the
engagement partner on that matter. As required by Article VII,
the conduct of the review is subject to the monitoring,
oversight, and direction of the OCC. We have been and are
meeting with the OCC regularly to keep the OCC officials
apprised of the details of our approach and progress.
Deloitte's engagement consists of three stages. In the
first stage, Deloitte undertook the planning and coordination
necessary to conduct an effective foreclosure file review as
described in the consent order. The specific procedures to be
performed by Deloitte were approved by the OCC and established
based on the requirements of the consent order and discussions
with independent counsel.
As a public accounting firm, we do not practice law, so we
are guided by independent counsel, retained solely to advise
Deloitte in all matters requiring legal interpretation. These
procedures are generally described in Appendix E to our
engagement letter.
The second stage focuses on testing of the selected
foreclosure files. To execute this task, we have deployed file
testing teams to review applicable foreclosure files as a basis
for making appropriate recommendations for further actions.
File analysts will be assigned a file workload to execute
against the procedures in Appendix E. The analysts will conduct
necessary research and will obtain additional information as
necessary for each to form a sufficient basis of conclusion
with respect to the results of the procedures performed.
Finally, the analysts will recommend a file for further review,
for possible remediation activity or closure. Throughout the
process, the analysts will document the research,
recommendations, and basis for conclusions, and if the analyst
recommends a case for further review or possible remediation
activity, the basis for the recommendation will be documented
and reported to engagement leadership. In addition, Deloitte
will conduct quality assurance procedures on the work performed
by our team.
Finally, the third stage consists of the review, approval,
and issuance of the results of the foreclosure file testing.
Among other tasks, a written report will be prepared by
Deloitte and submitted to the OCC detailing the process,
testing methodology followed, and results of the procedures
performed by Deloitte in the review.
Our engagement letter was approved by the OCC in September,
and our work is well underway. As outlined in our engagement
letter, we anticipate delivery in late 2012 of the final report
based on the review.
I assure you that we at Deloitte take our responsibilities
as an independent consultant very seriously. We are working
hard to complete the foreclosure review in a timely and
effective manner so that the results of our work can be
reported to the OCC as promptly as possible. I am satisfied
with our progress to date, and I am confident in the quality of
the work performed. However, there is much more to be
accomplished.
I thank you for providing me with this opportunity to
testify and would be happy to answer any questions you have.
Senator Menendez. Thank you.
Mr. Alt.
STATEMENT OF KONRAD ALT, MANAGING DIRECTOR, PROMONTORY
FINANCIAL GROUP, LLC
Mr. Alt. Good afternoon, Mr. Chairman, Senator Merkley. My
name is Konrad Alt, and since 2004 I have been a managing
director of the Promontory Financial Group, responsible for our
San Francisco office. Many years ago, though, I was counsel to
the Senate Banking Committee, and I am honored to be back here
again today.
The independent foreclosure review is not the only piece
but I hope it will be an important piece of our country's
efforts to address the foreclosure crisis. Our country cannot
recover from this crisis until distressed homeowners and former
homeowners who have been injured by errors in the foreclosure
process receive the remediation they deserve. I want to commend
you, Mr. Chairman, for your leadership in addressing this most
serious foreclosure issue and for advancing transparency in
regard to the foreclosure review.
My comments here today are my own and those of my firm.
They do not necessarily reflect the views of any of the
financial institutions with which Promontory is working, nor
those of other independent consultants
As you know, the consent orders issued by the three Federal
bank regulatory agencies last April direct each servicer to
retain an independent consultant to conduct a foreclosure
review of certain residential foreclosures for the purpose of
finding borrowers who incurred financial injury as a result of
errors, misrepresentations, or other deficiencies in the
foreclosure process, so that they can receive appropriate
remediation.
Early in 2011, several of the servicers that received these
orders approached Promontory about our willingness and capacity
to perform the required independent review. Three of them
ultimately proposed to the OCC to engage us. In reviewing their
proposals, the agency requested and we provided exhaustive
information concerning our credentials and potential conflicts
of interest. After considering that information, the agency
approved all three engagements, and as a result I now head one
of our firm's review teams and help to coordinate Promontory's
work in this area.
Given the millions of consumers involved, this undertaking
is complex by its very nature. Many things can go wrong with a
mortgage or a foreclosure, and reviewing a particular file to
ascertain what, if anything, did go wrong can be both difficult
and time-consuming. Yet an overly protracted review is not
helpful to borrowers who have suffered or are at risk of
suffering genuine financial injuries. My colleagues and I want
you to know that we are working hard to do this job as fairly
and effectively as possible, to the highest professional
standards, and that every aspect of our work, from design to
implementation to results, is fully transparent to the agencies
and subject to agency examination and criticism.
Following approval of our retention, Promontory began to
develop a methodology to meet the challenges presented by the
foreclosure review. We developed that methodology in close
consultation with regulatory examiners and subject matter
experts, and adapted it to the particular circumstances of the
different servicers with which we are working. We detailed it
in engagement letters that the regulators reviewed and
commented on before authorizing their execution in September.
Our engagement letters, all of which the OCC has published
in redacted form on its Web site, make clear that Promontory
works at the agency's direction. Promontory, not the servicers,
determines what information to review and whether financial
injury has occurred.
Our engagement letters describe a two-pronged approach to
the foreclosure review. The first prong consists of a
meticulous review of a large number of files. We selected a
large portion of these files based on known risk factors--for
example, the commencement of foreclosure proceedings after the
issuance of a stay in bankruptcy--and the remainder according
to well-established statistical methods.
Consistent with the requirements of the consent orders, we
review each of the selected files with an eye to numerous
specific questions relating to compliance with applicable State
and Federal laws, the reasonableness of fees and penalties, and
the accuracy of servicer processing of borrower requests for
loan modifications. Thus far, we have been seeking to gain a
comprehensive and statistically rigorous understanding of the
file characteristics associated with financial injury.
Depending on what we learn, we may undertake further review of
file population segments based on those characteristics. This
could potentially lead us to review tens or even hundreds of
thousands of additional files.
The second prong of our approach to the foreclosure review
is an outreach effort, intended to afford every in-scope
borrower an opportunity to request an independent review of his
or her foreclosure file. Through a combination of direct mail,
advertising, and free media, we are trying to let all in-scope
borrowers know about the review opportunity and encourage those
who believe they may have been injured to request a review.
This outreach launched on November 1st and is now ongoing.
The file review and outreach efforts each have strengths
and weaknesses, but in combination they represent a powerful
approach to accomplishing the objectives of the foreclosure
review. If we miss any borrowers who have been financially
injured in our file review effort, those borrowers still have
the opportunity to bring themselves to our attention through
the outreach effort. Conversely, if the outreach effort fails
to reach portions of the borrower population who have been
injured, we should learn about that through the file review
process and be able to take additional steps as appropriate.
The logistics of these reviews are formidable. My team
includes many former bank examiners, attorneys, and other
professionals with relevant subject matter expertise. We have
also retained our own counsel, independent of the servicer, to
assist with issues of legal interpretation. Like Promontory,
our counsel faced careful review of credentials and conflicts.
Quality control and quality assurance are integral to the
success of our review, and we have taken care to build them
into the design and execution of both the file review and
outreach efforts. We conduct a mandatory training program for
each reviewer and rigorously monitor the quality of their work.
Mr. Chairman, our redacted engagement letters provide
considerable additional detail concerning our approach to this
assignment. We are proud to contribute what we can to the
solution. We will do our part to the best of our individual and
collective ability.
I will be pleased to try to answer any questions you or
your colleagues may have for me.
Senator Menendez. Well, thank you all for your testimony.
There is a lot of ground to cover here so let me start.
Mr. Alt, who is your client here?
Mr. Alt. We work at the direction of the OCC, sir.
Senator Menendez. So who do you consider your client?
Mr. Alt. I consider my client the OCC.
Senator Menendez. OK. And who is your fiduciary
responsibility to?
Mr. Alt. We take our direction from the OCC. We are fully
transparent to the OCC. That is to whom we owe our duty. We
are, in effect, an extension of the agency.
Senator Menendez. And who pays you?
Mr. Alt. The servicers pay us.
Senator Menendez. When the servicers came to you, what did
they ask you to do? When they were considering you as the
entity to represent them, what did they ask you to do?
Mr. Alt. They had questions about our expertise. They had
questions about our capacity, about whether this was an
assignment we were willing to take on. We had discussions about
that. It was a fairly standard interview process.
Senator Menendez. Ms. Kenyon, who is your client?
Ms. Kenyon. Our contractual arrangement is with JPMorgan
Chase. We work at the direction of the OCC.
Senator Menendez. So you consider your client JPMorgan?
Ms. Kenyon. We are--we consider that we are responsible to
all of the stakeholders in this process, but our contractual
arrangement is with JPMorgan Chase.
Senator Menendez. Mm-hmm. Who is your fiduciary
responsibility to?
Ms. Kenyon. I am sorry, Senator?
Senator Menendez. Who is your fiduciary responsibility to?
Ms. Kenyon. To be clear, my understanding is that Deloitte
has a responsibility to work at the direction of the OCC and
that Deloitte's work serves an important function for the
benefit of borrowers and the public. I am, however, not a
lawyer and have been advised that as an independent consultant
Deloitte does not stand in a fiduciary relationship to any
party.
Senator Menendez. So when your client--or, yes, you said it
is your client--when your client, JPMorgan Chase, came to you
and they could have chosen anybody, what did they ask you in
terms of their interest in your representation?
Ms. Kenyon. When they approached us, they asked us if we
were interested in doing the work, if we felt that we had the
expertise in doing the work, if we had the resources to do the
work, and that was the extent of the conversation.
Senator Menendez. To either you or Mr. Alt, when they came
to you, did they suggest that they would love to try to limit
the universe of their exposure?
Mr. Alt. No, sir.
Senator Menendez. You need to give me a verbal response for
the record.
Mr. Alt. Mr. Chairman, there was no suggestion of that.
Ms. Kenyon. Mr. Chairman, the bank is very mindful of the
limitations and the representations in our redacted engagement
letter and has behaved accordingly.
Senator Menendez. Let me ask you, Mr. Holland, you know,
homeowner advocates have raised concerns about the complaint
form being sent to millions of borrowers looking unofficial.
Some suggest it looks like a scam. There is no logo. There is
dense language that many will not understand. I personally went
to the Web site, which looks very unofficial to me, as well.
You state in your testimony that the servicers played a role in
both developing and even approving the complaint form and Web
site, which raises concerns about whether they were poorly
designed with the intention of not having as many homeowners
respond to the mailings and appealing. Why were servicers
involved in developing these forms to begin with?
Mr. Holland. Again, our position in this program is that of
a neutral, which is consistent with most of the work that we
do. I look at the key stakeholders as the independent
consultants, the OCC, Federal Reserve Board, and the servicers,
and the engagement, I guess if you will, by the parties was
such that they collaborated and instructed us what to do. We
were given essentially the format of the forms that were
supposed to be printed and mailed.
Senator Menendez. So you, in essence, just played the role
of a processor.
Mr. Holland. Third-party vendor, processor, yes.
Senator Menendez. So, in essence, you delivered the forms
as the servicers presented them to you?
Mr. Holland. Yes, that is correct.
Senator Menendez. The servicers are the ones who
constructed these forms, which makes me concerned about whether
or not the interest was to make it as clear and as useful as
possible to achieve the goal of informing significantly and in
a way that would be helpful to those who might have been
injured that there is a potential relief here versus doing it
in such a way that would limit that.
Mr. Leonard, let me ask you--you represent the trade
organization here--how is it that--do you not think it is a
little bit conflicting for the servicers to have devised what
it is that they were going to send out to everybody who
potentially could have a claim against them?
Mr. Leonard. Mr. Chairman, as you know, this entire--the
independent review process is part of consent agreements that
these 14 individual companies signed with their regulator. So
the entire process was developed with the oversight of the OCC
and the Federal Reserve. So the servicers are not directing the
process, but they are part of the process.
Senator Menendez. Well, but if they devised the form and
that is the form that was sent, would you not say they were
pretty much in control of that?
Mr. Leonard. No, because the OCC, the Fed, the independent
reviewers, it was a collaborative process, but the servicers
did not make the final----
Senator Menendez. Did the servicers submit those forms for
approval to the OCC, to your knowledge?
Mr. Leonard. I would have to go back and get an answer on
what the exact step-by-step process was, but the entire process
was overseen by the regulator.
Senator Menendez. Are you, either one of you, Ms. Kenyon or
Mr. Alt, have knowledge about whether or not the servicers
received----
Mr. Alt. The form in several drafts was submitted to the
OCC and the Federal Reserve and the final form reflects
considerable input from both agencies.
Senator Menendez. OK. So to the extent, then, that we have
a problem with the nature of the information to the public, you
would say to me that it goes back to the OCC?
Mr. Alt. I would say that, at the end of the day, the
agencies are responsible for approving the form and the form
reflects their approval.
Senator Menendez. Now, can both--Ms. Kenyon, can you and
Mr. Alt tell me unequivocally that your companies are in no
way, shape, or form in any way affected by the fact that you
have or may have additional work unrelated to this particular
contract with the entities that you are ultimately doing the
independent consultancy for, that that does not affect people's
judgment in any way?
Mr. Alt. Mr. Chairman, speaking for my company, we feel
very strongly that we are independent and we are trying, and we
believe are succeeding, in conducting ourselves with a high
standard of independence. Indeed, we feel that our entire
business model depends heavily on our ability to conduct
ourselves independently, not only in this engagement, but in
very many of our engagements.
Senator Menendez. And you have no concern that should you,
in a vigorous pursuit of this, according to what you believe
the OCC's mandate is to you, that Bank of America, PNC, or
Wells Fargo might not hire your firm in the future?
Mr. Alt. Mr. Chairman, our business model is focused very
much on helping financial institutions understand and resolve
regulatory issues, and we are successful with that business
model in part because of the credibility we enjoy among
regulators around the world. And we have that credibility, in
part, because of the independence that we maintain and our
track record of being willing to prescribe strong medicine when
it is needed. If we were to fall short of that standard in this
engagement, it would be fundamentally detrimental to our long-
term success.
Senator Menendez. Ms. Kenyon, I have the same set of
questions for you.
Ms. Kenyon. Yes, sir. When we attended a meeting in May
with the interagency regulators, it became very apparent to us
that independence was very, very critical. We have agreed with
the bank that, in fact, we would not accept any further
engagements within the home lending area. The process that we
have set up to ensure that is if any proposal comes to
Deloitte, the partner that is responsible for the overall
relationship for JPMorgan Chase is notified. He also notifies
me, and we have, in fact, turned down engagements that have
come through so that we do not----
Senator Menendez. In the home lending field?
Ms. Kenyon. In home lending.
Senator Menendez. Now, but that does not preclude Deloitte
from taking other opportunities from JPMorgan having nothing to
do with the home lending field?
Ms. Kenyon. If there is any doubt on the proprietary of us
accepting any engagement, we clear that with the bank.
Senator Menendez. Mm-hmm. And you are not concerned that--
your company is not concerned that your vigorous pursuit of
what the OCC's mandate here may cause them not to have the
favor of JPMorgan in the future as it relates to other non-home
ownership issues?
Ms. Kenyon. We are very, very mindful of our mandate to
maintain independence in this review, and any type of other
engagement that we would take would have nothing to do with
this engagement or with the matters under the subject area.
Senator Menendez. Senator Merkley.
Senator Merkley. Well, thank you, Mr. Chair.
I think there is both a substantive concern about conflicts
of interest. There is also a perception issue related to these
questions. Mr. Alt, you noted that when Promontory was involved
in these discussions with the OCC, that you submitted a list of
potential conflicts of interest. Is that a list that you are
willing to make public in terms of the parties having full
transparency about concerns about conflict of interest?
Mr. Alt. Senator, we provided that list to the OCC and I
believe, if I recall correctly, the same list appears in our
engagement letter and has been redacted by the OCC. I cannot
provide it to you, but I think you should take that up with the
OCC.
Senator Merkley. But you would be willing to provide it and
make that public?
Mr. Alt. I would have to consult with our counsel and make
sure that there are not issues. There could be issues relating
to other confidential matters and supervisory privilege having
to do with some of our previous engagements that would need to
be worked through.
Senator Merkley. Mr. Alt, I want to ask you to step outside
of the issue of independence to the appearance of independence.
As you noted, you are an expert in the independent advice
category. That is the business model. If you personally were
involved in an issue with a firm, if you were involved in a
contest over how a transaction went down and the other side
chose the adjudicator, paid the adjudicator, designed the
process, designed the form, would you consider that to have the
full appearance of independence?
Mr. Alt. Senator, I would agree with you that it raises
concerns. It raises questions on its face. But I would also
say, in my experience, that independence is about practice and
not just about appearance and I think it is important to drill
down below the level of appearance, and understand how the
relationship works in fact. But I agree with you. It is an
issue that is well worth your time to explore.
Senator Merkley. Thank you. I appreciate that, because you
all are bringing huge amounts of expertise which are really
necessary to get this job done. I would probably have preferred
that the OCC choose the auditor so that--in each case, the
independent reviewer, so that there is a third party choosing
the reviewer rather than one party to the conflict. I think it
would send a clear message of independence.
I want to turn, Professor, to a comment you make in your
testimony, in your written testimony but you also gave in your
verbal testimony, that technical errors like robo-signing
should not result in any financial harm to borrowers since they
would be foreclosed upon after the documentation error is
corrected. Is it your sense, then, that in this process, when a
robo-signing error is raised or discovered, that there would
not be any sort of financial compensation to the party that was
incorrectly foreclosed on?
Mr. Sanders. Well, my point I was trying to make was that
if they were supposed to be foreclosed upon anyway, that is,
they defaulted on the note and then they went through, received
the robo-signing thing, were foreclosed upon, and it turns out
they can show documentation that they had the right to
foreclose upon them, then what would be the loss to the
homeowner if they were foreclosed upon anyway?
Senator Merkley. Well, I can tell you that in my State, if
the law requires a party that initiates a foreclosure to have
ownership of the mortgage and that that was not followed, that
is a pretty significant legal breach.
But let me turn to Ms. Kenyon and ask, is it your sense
that if there is a robo-signing issue, that there will not be
any sort of financial compensation to a homeowner who was put
out of their home in a process that was, if you will, not fully
legal?
Ms. Kenyon. I am sorry, Senator. I could not hear your
question.
Senator Merkley. Do you agree with the Professor that a
robo-signing mistake should not involve any financial
consequences?
Ms. Kenyon. I believe that when we have put together the
remediation construct, we are looking--we are mindful and
instructed to look for direct instances of financial harm. So
to the degree that the deficiency led to direct financial harm,
then we will make remediation appropriately.
Senator Merkley. I do not think that quite answered the
question, and let me put it, if you were in a home that was
illegally foreclosed on, you would say, well, I was thrown out
of my home in an incorrect process. But is your evaluation now
as a company saying that person did not suffer any financial
harm and should not be compensated? That is your approach to
this in terms of the impact on the family?
Ms. Kenyon. The objective of the review is to identify
borrowers who have suffered direct financial injury as a result
of the deficiencies----
Senator Merkley. Is getting thrown out of your home through
an illegal process direct financial injury in terms of the way
you have been instructed to approach this issue?
Ms. Kenyon. If, based on counsel, the borrower is removed
from his home illegally, then there would be possible financial
injury into that construct.
Senator Merkley. How would you calculate that injury? Based
on what?
Ms. Kenyon. We have discussed several different ways of
calculating that injury. There are many competing views on
that, and the construct is under approval--the construct is
under consideration for the OCC.
Senator Merkley. OK. And Mr. Alt, do you share the
Professor's view that a robo-signing error does not involve any
financial harm?
Mr. Alt. The robo-signing scenario is one of the scenarios
in which the OCC and the Fed have indicated that harm could
arise. Whether it arises, in fact, is going to be a question
that is probably determined by reference to other circumstances
in the file.
Senator Merkley. So if a family is put out of their home
illegally, maybe their rent that they are paying is no more
than their mortgage payment was, is that a basis you would say
they suffered no financial harm? I am trying to get a sense of
what really--I mean, or is it just kind of, well, no, their
rent is less than their mortgage was, so there is no financial
harm. It was an illegal process. They were put out of their
home by mistake, but there is no harm so there is no
compensation.
Mr. Alt. Well, Senator, I think that you are getting at
some of the nuances that need to be taken into account in
trying to reach a determination of whether harm has occurred. I
think, as Ms. Kenyon has alluded to, we are waiting for
guidance from the OCC. All of the independent consultants are
waiting for guidance from the OCC and the Federal Reserve that
will help all of us understand, we hope, how to evaluate harm
and what sort of remediation is appropriate in situations of
exactly this type.
Senator Merkley. Will the details on those analyses be
conveyed to homeowners so they can evaluate whether they should
spend the time pursuing this process? In other words, are we
saying to homeowners, here is another wild goose chase. You are
not going to get compensated for a robo-signing mistake, so do
not even ask unless you can show you were thrown into a
homeless shelter and were robbed or something of that nature.
Or are people just going to apply thinking that they are now
getting a third-party compensation for harm knowing that the
harm to their family of illegally being thrown out of their
house was huge distress, maybe a divorce, the children had to
change schools, they are in complete disarray. Should a person
even bother responding to this form without the sort of
information about whether there is actually an intention to
compensate for the challenges that they faced?
Mr. Alt. My colleagues and I are very committed to trying
to find financial injury where it has occurred so that people
can receive appropriate remediation. We believe that is
important work, and I hope very much that this process will not
prove to be a wild goose chase for people that have been
injured in that way.
Senator Merkley. Thank you.
Senator Menendez. Thank you.
I just have one or two other questions and then we will let
you all go.
I have read some questionable job ads that have appeared
and I wonder about the qualifications of some of those who are
being hired to do these interviews, not interviews, these
reviews. So can you tell me what steps you have taken to have
the right people conduct these reviews? What is the background,
the expertise of people conducting these reviews so that all of
us up here in judgment of whether or not this is a process that
ultimately there can be confidence in can feel that we have got
the right people with the right backgrounds doing the review
that for many people may be the single most important decision
made in their life?
Mr. Alt. Senator, our projects have hundreds of people
working on them, and they work in a wide range of capacities
and those capacities require a wide range of skills and
backgrounds. And some of those jobs are truly clerical and
require little or no experience of any kind and others require
many years of subject matter expertise. They may require
advanced professional degrees----
Senator Menendez. I understand there is a whole team, but
let me maybe hone in on my question.
Mr. Alt. Please.
Senator Menendez. So I file an appeal and now my case is,
because it was one of your people who--one of the companies on
which you are providing the independent consulting on, and it
now goes to someone. I am not talking about the clerical staff
who puts the paperwork together. I am talking about what is the
qualification of the core individuals sitting in judgment as to
whether I have a valid claim.
Mr. Alt. So in our approach, we have a pyramidal structure,
as you would find in many organizations, and at the lower
level, you would typically find people that will have had some
experience in some facet of the mortgage business, and they
will have gone through a mandatory training program and their
work at the lowest level will be guided by assistance----
Senator Menendez. How long is that mandatory training
program?
Mr. Alt. It is a week of classroom training and then a week
with somebody sitting beside you and helping you understand how
to operate our system and apply the rules. And their work will
be overseen by multiple levels of people with, as a general
rule, progressively higher amounts of experience in subject
matters, which means there is a very active quality control and
quality assurance program because we want to make sure that we
get it right.
Senator Menendez. So the core of the individual making this
judgment is someone who has some background in the mortgage
business and has got 2 weeks of training?
Mr. Alt. Senator, that is a characterization of the very
lowest level of our organization, but you should not have the
view that that is who is doing all the work. All of that work
is----
Senator Menendez. Could you submit to the Committee what
the structure is?
Mr. Alt. It is described in the engagement letter that has
been made public.
Senator Menendez. The entire structure that you are
referring to?
Mr. Alt. Yes, Senator.
Senator Menendez. And who is engaged at those different
levels of the structure?
Mr. Alt. I will have to go back and refresh. I am not sure
whether our engagement letter----
Senator Menendez. OK. Well, that would be important,
because just knowing the structure without knowing who is
actually reviewing my file----
Mr. Alt. Fully understood.
Senator Menendez.----is important.
Mr. Alt. Senator, I should also have mentioned that we
have, in addition to the file review pyramid that I described,
we also have a separate quality assurance group which is
composed exclusively of experienced subject matter experts, and
they randomly sample all of the work. They report directly to
me. And in that way, we keep very tight control over the
quality of the work that we are doing----
Senator Menendez. Ms. Kenyon, what is your process?
Ms. Kenyon. Senator, we have not hired externally for this
project. We have staffed it solely with Deloitte resources to
this point. When we look for resources, we, especially at the
senior levels, we have identified people with prior mortgage
banking experience, experience in controls and procedures work,
people who have backgrounds and familiarity with financial
institutions and processes as well as experience dealing with
financial assets.
When our staff comes on board, we subject them to a 3-week
training process, again, similar to Mr. Alt's structure, and I
also described in my testimony, we have segregated and
organized our group into teams. The more junior resources
execute the procedures. There are managers and senior managers
who review those executed procedures. And in addition, I have
organized a very large partner group to oversee specific
subject areas.
Senator Menendez. So it is the same question I asked Mr.
Alt. So at the core, who is reviewing my file? I filed an
appeal. Who is reviewing my file? Forgetting about the clerical
universe that puts the paperwork together, who is reviewing my
file? Give me the essence of that person's background.
Ms. Kenyon. That is a lower level resource who has had
training and is given specific----
Senator Menendez. What is the period of time of that
training?
Ms. Kenyon. At least 3 weeks for this very specific project
in the procedures that we have crafted. And then that work is
reviewed by two levels of staff and then it goes through our
quality assurance process. It is overseen generally by a
partner, as well.
Senator Menendez. And when you say it is overseen by two
levels of staff, first of all, what is the nature of that staff
that reviews it and what is the extent of their review? Is that
a checklist? What is the extent of their review?
Ms. Kenyon. The extent of their review is that they will
take a specific number of files, look at the procedures that
are performed, look in particular for any apparent exceptions
that have been found, and double-check the quality of the work.
Senator Menendez. Let me ask you both, is there going to be
any direct borrower contact between your operation and the
homeowners? Or is it whatever they submit, that is the end all
and be all?
Mr. Alt. We do not anticipate any direct borrower contact
at this time.
Senator Menendez. OK. So how is it--is that the same with
you?
Ms. Kenyon. That is correct.
Senator Menendez. So how is it possible to fully evaluate a
homeowner's claim fairly without communicating with the
homeowner, particularly if proof of their claims, you know,
they may have not known how to substantiate their claims? They
may have made a very valid claim and you may be looking for
substantiation of that claim, especially for homeowners who do
not have a counselor or an attorney to guide them through the
process and do not really know what the proof is. How do you--
how are you going to make that judgment? Is the judgment going
to be, well, I read their narrative and there is nothing to
back up their narrative, so, therefore, sorry, we do not think
you qualify?
Mr. Alt. If it is our view that more information is
necessary in order to understand the complaint that is being
made, we have the ability to direct the servicer to request
that information from the homeowner, or former homeowner.
Ms. Kenyon. The same is similar for us, Senator. The other
thing that I would point out is when the homeowner makes a
claim, we are comparing the claim against the processes and
procedures that we have developed for the foreclosure file
review. So, in effect, we are reviewing the bank's
determination the first time around. If there is need for
additional information, then again, as we said, we will work
through the appropriate parties to get that.
Senator Menendez. Do you envision yourself frequently
asking the servicers to get additional information?
Mr. Alt. I do not yet know the answer to that, Senator. The
process is fairly recently launched, and at this point, we are
still waiting for many of the files.
Senator Menendez. Having listened to Ms. Williams describe
that the overwhelming universe that responded, responded in a
narrative form about what they thought was happening to them, I
thought very much that they provided all of the substantial
information to back up that narrative, and without that, it is
very difficult to judge their claim, it would seem to me,
because if you take the claim and if the claim through the
narrative might lead to the belief that, yes, there is a
possibility, but I do not see the back-up for this, then it
would almost be impossible to judge that claim without getting
additional information, which means engaging the servicers.
Mr. Alt. I think you raise a real possibility, Senator, and
you could very well be right, but we will have to see.
Senator Menendez. Let me ask you, housing counselors have
been at this a long time, and unlike some of you who in this
particular case, not in terms of your companies and its
expertise, but in this particular exercise are fairly new to it
and could use that perspective and information, what provisions
are being made by you to work with housing counselors who are
assisting borrowers? Is there any?
Mr. Alt. Senator, we--our work here is really--our ability
to talk about it publicly is really at the discretion of the
OCC. The enforcement process, the supervisory process, is
subject to legal restrictions. It is very difficult for us to
engage directly with housing counselors unless the OCC wants
to. I think it would be--I welcome the input of the housing
counselors. I do believe they bring useful expertise. So that
sort of transparency seems desirable to me. But I think the
question is perhaps better directed to the OCC.
Ms. Cohen. Excuse me, Mr. Chairman----
Senator Menendez. Yes. I was just going to turn to you
next. I was not forgetting about you.
Ms. Cohen. I just wanted to----
Senator Menendez. I wanted to lay a foundation here of what
I guess is the operation, which is why we invited you. We
agreed not to speak about your specific clients, but I do want
to get a sense of your operation, how you are going about this.
So I was going to turn to you. I will listen to whatever it is
that you wanted to say, but I wanted to ask you a broader
question. Has what you have heard here today assuaged your
original statement in any respect?
Ms. Cohen. Thank you for your question, Mr. Chairman. The
specific response I wanted to make is that we met with the OCC
recently, with Ms. Williams. We asked for input. We asked for a
meeting with the consultants. We were told that that may not be
possible, and we were also told that the decision to do that is
not theirs but is the decision of the consultants.
Your broader question is about whether I feel more
comfortable now than I did before I came in the door and I
would say, definitely not. Most of what we heard today
underlines the role that the servicers have in driving the
process, the vacuum that the consultants are operating in, and
the absolute exclusion of the most important stakeholders in
the process, the homeowners. We really appreciate your focus on
them today.
Senator Menendez. I want to dwell for a moment on your
first part. You were told by the OCC that it may not be
possible for you to engage in a conversation with the
consultants and it was the consultants' decision to do that,
not the OCC's?
Ms. Cohen. That is correct.
Senator Menendez. Well, let us presume that is right for
the moment, since we have you here. Is there any reason why,
assuming the OCC says it is OK for you to do it, that you would
not do it?
Mr. Alt. If I can--if the OCC is comfortable and I can have
that conversation without getting into confidential supervisory
information, I imagine we can have a conversation. But it is
hard for me to envision how we can do that.
Senator Menendez. Well, could there not be broad elements,
that housing counselors have wide experiential factors, they
have seen some reoccurring realities. Bringing those
reoccurring realities to your attention would be helpful in
your review, I would think.
Mr. Alt. Yes, Senator, absolutely, but the--I only work
with one--well, I work primarily with one servicer and my firm
works with three. If the housing counselors want input at a
policy level, which is what I believe I hear you asking about,
I do not work at the policy level. I work at the level of these
individual servicers to execute the policy that is----
Senator Menendez. Well, maybe my question is ill put. So
housing counselors have an experiential factor that they have
seen A, B, and C overwhelmingly take place that we would
consider reasonable elements--let us say the OCC considers
elements of harm, maybe 1 of the 20 examples, but they are done
in a certain way. Giving you an insight as the independent
consultant that is reviewing the files of those who make a
claim with that background, would it not give you something to
be looking at based upon the fact that there is a wide number
of cases in which A, B, or C took place?
Mr. Alt. As I said earlier, Senator, I fully accept that
the housing counselors have value to add here and I think their
input could be very useful.
Senator Menendez. Well, we will have to talk to the OCC
because this is unacceptable to hear that they say it may not
be possible, it is up to you. You tell me the OCC is the one
that has to decide. So we are going to put everybody in the
room and figure it out.
Ms. Cohen. Mr. Chairman?
Senator Menendez. Yes.
Ms. Cohen. There is something in my testimony about the
engagement letters. They appear to have been done through the
General Counsel's office at the servicers and then with the
consultants, and it appears to us that that was done to create
an attorney-client privilege between the servicers and the
consultants. I do not know if that is related to this, but it
is something that seems to us like it is related.
Senator Menendez. Well, we will get to it.
Finally, Dr. Sanders, I have great respect for your work,
but I may have gotten this wrong. I may have understood you
wrong in your testimony. Is your testimony that the potential
economic costs outweighs the right of remedy for an individual?
Mr. Sanders. No, that is not what I was saying. What I was
saying----
Senator Menendez. I am relieved.
Mr. Sanders. No. I was saying that this is a very expensive
process for the servicers and if there are damages to borrowers
uncovered, by all means, that is what we should be doing. But
what I am saying is that in terms of more steps, do we keep
repeating this process over and over again? I am hoping this
works very fine--
Senator Menendez. So you are not criticizing this process
as something that is undesirable or unwanted. You are saying
that after this process is consummated, that you do not believe
there should be any other iteration of it?
Mr. Sanders. Well, no, not quite. What I am saying is I
hope this solves everyone's angst, and we solve these types of
problems. People receive remedies if due. What I am saying is
that this is not costless to the banks and servicers. It is
quite expensive. So if this solves it, I just want to be----
Senator Menendez. That is very true. It is not costless to
them. Neither was it costless to the individuals who may have
been falsely brought into a process in which they were unjustly
made the determination. Obviously, no one entered into consent
agreements because they were holier than thou and had no harm
committed upon anyone because they would have never agreed to
such a consent agreement. So it just seems to me that there is
a universe here of people who were harmed, and at the end of
the day, they deserve, clearly, relief. I think it is easy to
suggest that when you are not one of the persons harmed, it is
very easy to say this has a cost. When you are one of the
persons harmed, that is pretty significant.
Mr. Sanders. Mm-hmm.
Senator Menendez. With thanks to all of you for your
testimony, the record will stay open for 1 week. Other Members
of the Committee may ask questions in writing. We urge all of
you to answer the questions as expeditiously as possible.
And with the thanks of the Committee for all of your
testimony, this hearing is adjourned.
[Whereupon, at 4:31 p.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow]:
PREPARED STATEMENT OF JULIE L. WILLIAMS
First Senior Deputy Comptroller and Chief Counsel
Office of the Comptroller of the Currency *
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*Statement Required by U.S.C. 250:
The views expressed herein are those of the Office of the
Comptroller of the Currency and do not necessarily represent the views
of the President.
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December 13, 2011
Chairman Menendez, Ranking Member DeMint, and Members of the
Subcommittee, I appreciate the opportunity to appear before you this
afternoon. My testimony provides information on the status of the OCC's
implementation of enforcement actions that direct the country's largest
mortgage servicers to correct deficient and unsafe or unsound mortgage
servicing and foreclosure processing practices and to provide
remediation to borrowers who were financially harmed by those
practices.\1\
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\1\ Eight national bank servicers were examined by the OCC: Bank of
America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank,
and Wells Fargo. The OTS also examined four Federal savings association
servicers and two holding companies: Aurora Bank, FSB; EverBank (and
the thrift holding company, EverBank Financial Corp.); OneWest Bank,
FSB (and its holding company IMB HoldCo LLC); and Sovereign Bank. On
July 21, 2011, regulatory responsibility for Federal savings
associations transferred from the OTS to the OCC under the Dodd-Frank
Wall Street Reform and Consumer Protection Act. Consent orders taken by
the OTS prior to the transfer against Federal savings associations
remain in effect and enforceable by the OCC. Consent orders taken by
the OTS against thrift holding companies remain in effect and
enforceable by the Board of Governors of the Federal Reserve System.
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The OCC appreciates the Committee's concerns regarding transparency
and accountability throughout this process and my testimony provides
up-to-date information in three main areas. First, I describe the
independent foreclosure review process required by our enforcement
actions, which will provide financial remediation to borrowers
financially harmed by servicing and foreclosure process defects
identified in our enforcement actions. Second, I describe other
comprehensive actions under way required by our actions to correct
deficient and unsafe or unsound practices in mortgage servicing and
foreclosure processing. Third, I summarize initiatives stemming from
the foreclosure crisis that will affect mortgage servicing standards
and practices and enhance protections for borrowers in other important
respects.
I. Background
Before addressing these three areas, it is useful to provide a
brief background.
In the fall of 2010, following reports of irregularities in the
foreclosure processes of several major mortgage servicers, the OCC
directed the largest national bank servicers to conduct self-
assessments to identify problems related to foreclosure processing.
Concurrently, the OCC, the Board of Governors of the Federal Reserve
System (FRB), the Federal Deposit Insurance Corporation, and the Office
of the Thrift Supervision (OTS) coordinated efforts to conduct
``horizontal'' examinations of foreclosure processing at 14 large
federally regulated mortgage servicers during fourth quarter 2010.\2\
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\2\ See ``Interagency Review of Foreclosure Policies and
Practices'' (http://www.occ.gov/news-issuances/news-releases/2011/nr-
occ-2011-47a.pdf), April 13, 2011.
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The examinations evaluated controls and governance over bank
foreclosure processes, including compliance with applicable Federal and
State law. Examiners evaluated bank self-assessments and remedial
actions, assessed foreclosure operating procedures and controls,
interviewed bank staff, and conducted an in-depth review of
approximately 2,800 borrower foreclosure cases in various stages of
foreclosure, spanning the 2009-2010 period. Examiners focused on
foreclosure policies and procedures, organizational structure and
staffing, third-party management, quality control and audits, accuracy
and appropriateness of foreclosure filings, and loan document control,
endorsement, and assignment. When reviewing individual foreclosure
files, examiners checked for evidence that servicers were in contact
with borrowers and had considered alternate loss mitigation efforts,
including loan modifications.
In general, the examinations found the loans in the sample were
seriously delinquent. However, the examinations also found critical
deficiencies in foreclosure governance processes, document preparation
processes, and oversight and monitoring of third parties. These
deficiencies constituted unsafe and unsound banking practices, which
also resulted in violations of certain laws, regulations, or rules. All
servicers exhibited similar deficiencies, although the number, nature,
and severity of deficiencies varied by servicer.
The sample of foreclosures reviewed as part of the interagency
examination provided a basis for enforcement action; however, it is
important to recognize that, due to the limited number of files that
were reviewed, this process could not have identified the universe of
borrowers who might have been financially harmed by those deficiencies.
On April 13, 2011, the OCC, the FRB, and OTS announced the issuance
of cease and desist orders against each of the 14 servicers subject to
our respective jurisdictions, and two service providers reviewed as
part of the examinations. Crucial components of these enforcement
actions are processes to identify borrowers who suffered financial
injury as a result of the practices identified in the orders, and to
provide financial remediation to them through an independent
foreclosure review process.
II. Independent Foreclosure Review
The consent orders required the servicers to retain independent
consultants to conduct comprehensive independent reviews of foreclosure
activities in 2009 and 2010. The scope of work to be undertaken by the
independent consultants was set out in engagement letters between each
servicer and its consultant. The OCC reviewed these letters and
required changes to ensure compliance with the intent of our orders and
a level of consistency across the servicers. The OCC accepted the
letters in late September, and made them publicly available on November
22, 2011.\3\
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\3\ See http://www.occ.gov/topics/consumer-protection/foreclosure-
prevention/independent-review-foreclosure-letters.html. Some
proprietary and personal information was redacted from the engagement
letters prior to their release. Examples of redacted information
include: names, titles, and biographies; proprietary systems
information; references to specific bank policy; fees and costs
associated with the engagement; and descriptions of past work performed
by the independent consultants.
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Since the acceptance of the letters in September 2011, the
independent consultants have refined and adjusted processes,
procedures, and methods outlined in the letters in consultation with
OCC staff. In many cases, some details of the processes being
implemented differ from those described in the letters because of
subsequent direction from the OCC. Most notably, the OCC required
changes to ensure a uniform and coordinated claims process among the
servicers.
The independent consultants retained by each servicer to conduct
these reviews of national banks and Federal savings associations are:
AllonHill, LLC, for Aurora Bank;
Clayton Services, LLC, for EverBank;
Deloitte & Touche, LLP, for JPMorgan Chase;
Ernst & Young, LLP, for HSBC and MetLife Bank;
Navigant Consulting, Inc., for OneWest;
PricewaterhouseCoopers, LLC, for Citibank and U.S. Bank;
Promontory Financial Group, LLC, for Bank of America, PNC,
and Wells Fargo Bank; and
Treliant Risk Advisors, LLC, for Sovereign Bank.
The OCC required independence of the consultants and the law firms
hired by the consultants. During the selection process, we rejected
some proposed consultants and law firms to prevent conflicts of
interest. We focused particularly on situations where consultants and
law firms may have previously expressed positions on the issues on
which they would be called upon to express independent judgment in the
foreclosure review process. To formalize our expectations for
independence from the servicers, the OCC required engagement letters to
contain specific language stipulating that consultants would take
direction from the OCC and prohibiting servicers from overseeing,
directing, or supervising any of the reviews. The OCC specifically
required each consultant to:
Comply with requirements of the order and conduct each
foreclosure review as independent from any review, study, or
other work performed by the servicer or its contractors or
agents with respect to the servicer's mortgage servicing
portfolio or the servicer's compliance with other requirements
of the consent order.
Ensure its work under the foreclosure review would not be
subject to direction, control, supervision, oversight, or
influence by the servicer, its contractors, or agents.
Require immediate notification to the OCC of any effort by
the servicer, directly or indirectly, to exert any such
direction, control, supervision, oversight, or influence over
the independent consultant, its contractors, or agents.
Agree that the independent consultant is solely responsible
for the conduct and results of the foreclosure review, in
accordance with the requirements of article VII of the order.
Pursuant to the monitoring, oversight, and direction of the
OCC: 1) promptly comply with all written comments, directions,
and instructions of the OCC concerning the conduct of the
review, and 2) promptly provide any documents, work papers,
materials or information requested by the OCC, regardless of
any claim of privilege or confidentiality.
Agree to provide regular progress reports, updates and
information concerning the conduct of the foreclosure review to
the OCC, as directed.
Conduct the review using only personnel employed or
retained by the independent consultant to perform the work
required and not to employ services provided by the servicer's
employees, contractors, or agents unless the OCC provides
written approval.
Adhere to requirements with respect to communication with
the servicer, which provide for the independent consultant to
use documents, materials, or information provided by the
servicer, and to communicate with the servicer, its
contractors, or agents, to conduct the review. Within these
limits, agree that servicer's employees may not influence or
attempt to influence determinations of the consultant's
findings or recommendations.
Agree that legal advice needed in conducting the review
shall be obtained from the outside law firm whose retention to
advise the independent consultants has been approved by the OCC
and not to obtain legal advice (or other professional services)
in conducting the review from the servicer's inside counsel, or
from outside counsel retained by the servicer or its affiliates
to provide legal advice concerning the order, or matters
contained in the order.
Require the servicer to agree that if the OCC determines
that the consultant has not fully complied with the standards
for independence, the OCC may direct the servicer to dismiss
the consultant and retain a successor consultant.
These standards and oversight by the OCC are aimed at ensuring that
the end result of the review, the findings and recommendations of the
independent consultants, will be the product and opinion of those
consultants, not of the servicers, their directors, their managers, or
their attorneys.
The independent foreclosure review process includes two
components--a coordinated claims process that will review cases based
on borrowers' requests, and a ``look-back'' review that will examine
cases identified by the independent consultants.
The Coordinated Claims Process
The coordinated claims process provides the opportunity for
borrowers to request a review of their case if they believe they
suffered financial injury as a result of errors, misrepresentations, or
other deficiencies in foreclosure actions pertaining to their primary
residence, between January 1, 2009, and December 31, 2010. For any
financial injury that the reviews identify, the consent orders require
financial remediation.
On November 1, 2011, outreach efforts began to inform ``in-scope''
borrowers of the review process. As described below, these efforts are
multi-faceted, and we are continuing to make adjustments to improve the
scope and effectiveness of the borrower outreach efforts.
To be ``in scope'' and eligible for review, a borrower's loan must
have been active in the foreclosure process between January 1, 2009 and
December 31, 2010; the property must have been the primary residence;
and the loan must have been serviced by one of the servicers below:
America's Servicing Company
Aurora Loan Services
Bank of America
Beneficial
Chase
Citibank
CitiFinancial
CitiMortgage
Countrywide
EMC
Everbank/Everhome
GMAC Mortgage
HFC
HSBC
IndyMac Mortgage Services
Metlife Bank
National City
PNC
Sovereign Bank
SunTrust Mortgage
U.S. Bank
Wachovia
Washington Mutual
Wells Fargo
A loan is considered active in the foreclosure process if:
The property was sold due to a foreclosure judgment.
The loan was referred into the foreclosure process, in
which case the borrower may have been notified in writing, but
was removed from the process because payments were brought up-
to-date or the borrower entered a payment plan or modification
program.
The loan was referred into the foreclosure process, but the
home was sold or the borrower participated in a short sale or
chose a deed-in-lieu-of-foreclosure action.
The loan was referred into foreclosure and remains
delinquent but a foreclosure sale has not taken place.
To inform borrowers of the coordinated claims process, the OCC has
required direct mail, a Web site, a toll-free number, advertising, and
other outreach.
Direct mail began on November 1, 2011, with an integrated claims
processor, which all servicers are using, starting the process of
mailing a request for review form to more than four million borrowers
with instructions on how to fill out and return that form to request an
independent review. The form walks borrowers through examples of
situations that would be likely examples of financial injury, but it
also allows borrowers to simply tell their story. The crucial objective
is to get as much information as possible into the pipeline for an
independent foreclosure review. Borrowers must return the form by April
30, 2012.
The direct mail effort includes use of address tracing methods to
locate borrowers who lost their home to foreclosure. If an address is
not current, the integrated claims processor will run the borrower data
through a national change-of-address database to find a current
address. Returned mail will be processed through a third-party consumer
database using information from credit bureaus, public records and
registrations, utilities, phone number databases, etc., to determine
most likely current addresses. Mail will be processed three times in an
attempt to determine the most likely address. As of December 9, less
than 5 percent of mailings have been returned undeliverable, and
secondary addresses have been found for 57 percent of those where the
tracing process has been completed.
As of December 9, 2011, more than 2.7 million letters have been
sent, nearly 15,000 claims forms have been received, and the rate of
completed forms returned for processing has increased significantly
each week so far.
A Web site--www.IndependentForeclosureReview.com--and toll-free
phone number--1-888-952-9105--were also launched on November 1, 2011.
Both provide information about the review process. Assistance is
available from the toll-free number Monday through Friday from 8 a.m.
to 10 p.m., and Saturday from 8 a.m. to 5 p.m. (Eastern time). As of
December 9, the Web site has been visited 280,643 times since its
launch, an average of 7,385 visits per day. During that same period,
the toll-free number has received 48,679 calls, an average of 1,281 per
day, and over 3,317 callers have requested forms to be sent to them.
The outreach effort also will include print and online advertising.
The print advertising includes full-page advertisements in widely read
national publications (e.g., Parade Magazine, People, TV Guide).
Additional publications that serve minority and underserved audiences
also are being identified. The presently proposed print advertising
outlets have a combined circulation in excess of 60.5 million. The
audience and reach of these advertisements include saturation in
geographic and demographic sectors most affected by foreclosure. The
first advertisements will appear in January.
The online advertising includes purchasing keywords (e.g.,
``foreclosure review'') on major search engines (e.g., Google, Bing) to
allow people to find information about the review more easily. By
purchasing keywords associated with the foreclosure review, these
efforts will redirect significant numbers of people to the independent
foreclosure review Web site.
In addition to the mailings, Web site, phone number, and
advertising by the servicers, other OCC outreach efforts include making
housing counselors and community organizations aware of the independent
foreclosure review through our electronic communications network and
discussions with these groups. The announcement of the kickoff of the
foreclosure reviews and the subsequent release of the interim report
were distributed to more than 32,000 subscribers to our email
information service. This electronic distribution network will be used
to share additional communications about these reviews with interested
community and consumer organizations as well as others who subscribe to
this service.
The OCC is working with a number of public interest organizations
involved in housing counseling to explain the foreclosure review
process, and we have undertaken an ongoing dialogue with a number of
groups regarding their concerns about the scope and effectiveness of
the outreach program. These conversations have included constructive
comments and suggestions, and will result in improvements to the
outreach program. The outreach program is a work in process, and we
continue our dialogue with these important organizations.
The OCC has also determined to offer a series of public service
announcements in January 2012 which will include both print and radio
spots in English and Spanish. The print items will be distributed to
more than 7,000 local newspapers and publications. The 30-second radio
items will be distributed to more than 6,500 small radio stations
throughout the country. Spanish items are distributed to more than 700
Spanish-language newspapers and 500 Spanish-language radio stations.
The public service items will highlight the toll-free number, the Web
site, eligibility, and the deadline for action. Based on OCC's
experience with similar public service placements, we expect the items
to appear in radio and print more than 1,200 times in 40 states during
January, February, and March.
``Look-Back'' Reviews
In addition to the coordinated claims process, a ``look-back'' file
review supplements the coordinated claims process to further identify
deficiencies, errors, or misrepresentations that may have caused
financial injury. In October, the independent consultants began
selecting files for reviews, in accordance with plans contained in
engagement letters submitted to, and accepted by, the OCC.
The consent orders allow the consultants to use sampling and other
tools to identify certain types of files for review. Guidance from the
OCC described methods and controls to ensure that samples are
representative of the in-scope mortgages. The engagement letters
contain descriptions of the statistical basis for the sampling methods
used as approved by the OCC.
Some segments require 100 percent review, including cases involving
the Servicemembers Civil Relief Act (SCRA), certain bankruptcy cases
facing foreclosure in 2009 and 2010, cases referred by State or Federal
agencies, and reviews requested through the coordinated claims process
described above. With respect to SCRA cases, I would like to offer
particular thanks to the Defense Manpower Data Center of the Department
of Defense and the Department of Justice (DOJ). We reached out to both
to explore how to effectively identify servicemembers whose cases
should be reviewed as part of the 100 percent review. The result of
that collaboration is that processes have been developed that will
enable the names of all identified in-scope borrowers for each servicer
to be batched-checked against servicemember information relevant to the
in-scope period. This is an invaluable step to ensure that all eligible
servicemembers are included in the 100 percent file review.
Mortgages in the sampling population may be segmented based on
characteristics that include geography, third-party attorney, types of
borrower history in paying mortgages, prior customer complaints, and
participation in modification programs, such as the Federal Home
Affordable Modification Program (HAMP). The segments and sizes of the
samples selected for review were determined by the consultants, based
on guidance from the OCC and in consultation with the servicers, but
not determined or dictated by servicers.
In some cases, sampling may be appropriate at the outset, but
initial results may lead to more in-depth review. These second-level
reviews are subject to OCC oversight to ensure they are appropriately
structured and implemented. The OCC expects the consultants to assess
the results of the ongoing reviews continuously to identify potential
``pockets'' or systemic instances of financial harm and adapt the
review plan accordingly. The tolerance for error is low--reliability,
or confidence level, should not be less than 95 percent.
During the ``look-back'' reviews, the independent consultants must
assess:
Whether the foreclosing party had properly documented
ownership or was otherwise a proper party to the action;
Whether the foreclosure was in accordance with applicable
State and Federal law;
Whether the foreclosure sale occurred when a loan
modification or other loss mitigation request was under
consideration, or when the loan was performing in accordance
with a trial or permanent loan modification, or when the loan
had not been in default for a sufficient period to authorize
foreclosure;
Whether, for any nonjudicial foreclosure, the foreclosure
sale and post-sale confirmations were in accordance with the
mortgage loan and State law requirements;
Whether a borrower's account was charged only fees or
penalties permissible under the terms of the loan, applicable
State and Federal law, and were reasonable and customary;
Whether the frequency of fees assessed was excessive under
the terms of the loan or applicable State and Federal law;
Whether the requirements of HAMP and proprietary loss
mitigation programs were followed; and
Whether any errors, misrepresentations, or other
deficiencies identified in the review resulted in financial
injury to any borrower or mortgagee.
As of December 9, more than 56,000 files are actively under review.
Financial Injury and Remediation
When independent consultants find errors, misrepresentations, or
other deficiencies, their next steps are to determine whether financial
injury occurred and to recommend remediation when it does. Financial
injury is defined as monetary harm directly caused by a servicer error.
Examples of financial injury identified in joint OCC-Federal Reserve
guidance that was provided to the independent consultants include, but
are not limited to, the following:
1. The borrower was not in default pursuant to the terms of the note
and mortgage at the time the servicer initiated the foreclosure
action.
2. The servicer initiated foreclosure or conducted a foreclosure
sale in advance of the time allowed for foreclosure under the
terms of the note and mortgage or applicable State law.
3. The borrower submitted payment to the servicer sufficient to cure
the default pursuant to the terms of the note and mortgage, but
the servicer returned the payment in contravention of the terms
of the note or mortgage, State or Federal law, or the
servicer's stated policy covering payments when in default.
4. The servicer misapplied borrower payments, did not timely credit
borrower payments (including failure to properly account for
funds in suspense), or did not correctly calculate the amount
actually due from the borrower, in contravention of the terms
of the note and mortgage, State or Federal law, investor
requirements, or the servicer's stated policy covering
application of payments.
5. The borrower paid a fee or penalty that was impermissible.
6. A deficiency judgment was obtained against the borrower that
included the assessment of a fee or penalty that was
impermissible.
7. The servicer placed an escrow account on the mortgage and the
placement resulted in monies paid by the borrower into escrow
in contravention of the terms of the note or mortgage, State or
Federal law, or the servicer's stated policy covering escrow
accounts.
8. The servicer placed insurance on the mortgage and the placement
resulted in monies paid by the borrower toward insurance in
contravention of the terms of the note or mortgage, State or
Federal law, or the servicer's stated policy covering placed
insurance.
9. The servicer miscalculated the amount due on the mortgage and
secured a judgment against the borrower for an amount greater
than the borrower owed.
10. A borrower's remittance of funds to a third party acting on
behalf of the servicer was not credited to the borrower's
account.
11. The borrower was performing under the terms of an approved trial
loan modification or an approved permanent loan modification,
but the servicer proceeded to foreclosure in contravention of
the terms of the modification offered by the servicer to the
borrower.
12. A borrower was denied a modification in contravention of the
terms of the governing modification program or the servicer's
stated policy covering modifications.
13. There is evidence that the borrower provided or made efforts to
provide complete documentation necessary to qualify for a
modification within the period such documentation was required
to be provided by the governing modification program and the
servicer denied the loan modification in contravention of the
terms of the governing modification program or the servicer's
stated policy covering modifications.
14. The servicer initiated foreclosure or completed a foreclosure
sale without providing adequate notice as required under
applicable State law.
15. The servicer foreclosed on or sold real property owned by an
active military servicemember in violation of SCRA.
16. The servicer did not lower the interest rate on a mortgage loan
entered into by a military servicemember, or by the
servicemember and his or her spouse jointly, in accordance with
the requirements of SCRA.
17. The servicer failed to honor a borrower's bona fide efforts to
redeem a sale under applicable State law during the redemption
period.
18. The borrower was protected by the automatic stay under the
bankruptcy code and a court had not granted a request for
relief from the automatic stay or other appropriate exception
under the bankruptcy code.
19. The borrower was making timely pre-petition arrearage payments
required under an approved bankruptcy plan and was current with
their post-petition payments.
20. The borrower purchased a payment protection plan; was or should
have been receiving benefits under the plan; and those benefits
were not applied pursuant to the contract.
21. The servicer was not the proper party, or authorized to act on
behalf of the proper party, under the applicable State law to
foreclose on the borrower's home, and this resulted in or may
result in multiple foreclosure actions or proceedings.
22. The servicer failed to comply with applicable legal
requirements, including those governing the form and content of
affidavits, pleadings, or other foreclosure-related documents,
where such failure directly contributed to: (a) the borrower
paying fees, charges, or costs, or making other expenditures
that otherwise would not have been paid or made; or (b) the
initiation of a foreclosure action or proceeding against a
borrower who otherwise would not have met the requirements for
initiating such an action.
If the independent consultants determine that financial injury
occurred as a result of errors, misrepresentations, or other
deficiencies, they will develop recommendations for remediating that
injury. In addition to providing guidance in the form of 22 scenarios
where financial injury might be present, we are also considering
guidance that will clarify expectations as to the amount and type of
compensation recommended for certain categories of harm. Any such
baseline expectations would not, however, override the independent
judgment of the independent consultants. Rather the objective would be
to help ensure remediation recommendations are consistent across the 12
OCC-supervised servicers for similarly situated borrowers who suffered
similar harms. The independent consultants will always have the
flexibility to take account of the facts and circumstances of
individual borrowers to arrive at compensation tailored to the
borrower's individual situation where the independent consultants
determines a different amount of compensation is appropriate.
The reviews are expected to take several months to complete.
However, independent consultants and servicers have implemented a
process to escalate the review of borrowers' cases where foreclosure
sale is imminent. The independent consultants and servicers have
identified loans that have been scheduled for near term foreclosure
sale. Requests for review from in-scope borrowers in those cases are
subject to special processes: prioritized review by the independent
consultant and concurrent review by the servicer focused on rapid
identification of bases to postpone the foreclosure action. To assure
speed and consistency in the servicers review, we plan to provide
direction on minimum criteria for this review.
III. Other Actions Required by OCC Consent Orders
In addition to the independent foreclosure review, our consent
orders direct other work to correct unsafe and unsound practices in
mortgage servicing and foreclosure processing. Work includes efforts to
correct deficiencies in mortgage servicing activities, oversight and
management of third-party service providers, activities related to
Mortgage Electronic Registration Systems (MERS), management information
systems, risk assessment and management, and compliance oversight.
Mortgage Servicing
The consent orders require servicers to correct deficiencies in
mortgage servicing. Plans submitted by the servicers include:
Measures to ensure that staff members handling loss
mitigation and loan modification requests routinely communicate
and coordinate with staff members processing foreclosures on
the borrowers' properties;
Deadlines for responding to requests for loan modifications
and other communications from borrowers as well as deadlines
for making final decisions on loan modification requests;
deadlines must be at least as responsive as the timelines under
HAMP;
An easily accessible and reliable single point of contact
established for each borrower throughout loan modification and
foreclosure processes;
A requirement for written communications to each borrower
identifying the single point of contact and specifying how a
borrower can communicate with the contact;
A requirement that each single point of contact have access
to data necessary to provide borrowers with timely, accurate,
and complete information about the status of their loan
modification requests and foreclosure cases;
Measures to ensure that staff members are trained
adequately about handling mortgage delinquencies, loss
mitigation, and loan modifications;
Procedures and controls to ensure that, before a
foreclosure sale occurs, a final decision regarding a
borrower's loan modification request (either on a trial or
permanent basis) is communicated in writing to the borrower
within a reasonable period and explains the reasons why the
borrower did not qualify for the trial or permanent
modification;
Procedures and controls to ensure that, when a loan has
been approved for modification on a trial or permanent basis,
no foreclosure or further action preceding foreclosure occurs,
unless the borrower defaults on the terms of the trial or
permanent modification;
Policies and procedures to enable borrowers to submit
complaints about the loan modification process, denial of
modification requests, the foreclosure process, or foreclosure
activities that impede the pursuit of foreclosure prevention
options, as well as a process for making borrowers aware of the
complaint procedures;
Procedures for promptly considering and resolving
borrowers' complaints, including a process for timely
communication of the resolutions;
Policies and procedures to ensure that payments are
credited promptly; that payments, including partial payments to
the extent permissible under the terms of applicable legal
instruments, are applied to scheduled principal, interest, and
escrow before fees, and that any misapplication of borrowers'
funds is corrected promptly;
Policies and procedures to ensure that timely information
about foreclosure prevention options is sent to borrowers in
the event of delinquencies or defaults, including plain
language notices about loan modifications and foreclosures;
Policies and procedures to ensure that servicers properly
maintain and track documents related to foreclosures and loan
modifications, so that borrowers are not required to resubmit
the same documents already provided, and that borrowers are
notified promptly of the need for additional information; and
Policies and procedures to consider loan modifications or
other foreclosure prevention activities with respect to junior
lien loans, and to factor the risks associated with such junior
lien loans into loan loss reserving practices.
Each servicer has established policies and procedures for providing
single points of contact to assist borrowers throughout the loan
modification and foreclosure processes. Actions include the
establishment of procedures for communicating information about the
single points of contact to the borrowers including direct ways to
reach these contacts; creation of training programs to instruct single
points of contact about their responsibilities; establishment of
specific organizational structures to perform these duties; and the
creation of standard communication strategies for conveying information
to and from borrowers. Servicers are required to initiate processes for
establishing single points of contact and supporting procedures by the
end of 2011.
All servicers have implemented controls to prevent ``dual
tracking'' of loans to ensure no foreclosure or further legal action
relating to foreclosure occurs when a borrower's loan has been approved
for modification on a trial or permanent basis. Specific actions
related to ``dual tracking'' vary from servicer to servicer but include
review at designated points before the foreclosure sale, enhanced
communication between loss mitigation and foreclosure processing staff,
and development and use of matrices or checklists to ensure appropriate
holds are placed on further foreclosure processing when appropriate.
Third-Party Management
The consent orders require servicers to improve oversight of third-
party service providers that support mortgage servicing and foreclosure
activities. The servicers submitted plans in July and work is under way
to establish processes for appropriate due diligence in evaluating the
qualifications of potential third-party service providers before
entering into new contractual arrangements. The plans also provide for
regular reviews of third-party service providers and assessment of
their performance based on qualitative standards for competence,
completeness, and legal compliance rather than standards based solely
on the volume of foreclosures processed or the speed of processing.
Additionally, the plans provide for the secure custody and accuracy of
records transferred to these third parties during the foreclosure
process.
Specific actions vary from servicer to servicer. Examples of
actions include:
Assessing risks associated with third-party activities to
determine specific levels of oversight and activities based on
identified risks.
Establishing new policies, or enhancing existing policies,
for oversight of third parties.
Enhancing due diligence in assessing the capabilities of
potential third parties.
Establishing oversight committees to monitor the practices
and activities of third parties, to implement processes to
assure the quality of their work, and, if necessary, to
terminate underperforming or noncompliant third parties.
Creating procedures to track complaints about third-party
activities and performance.
Scheduling and conducting onsite audits and quality
assurance processes of third parties.
Including language in service contracts with third parties
setting specific work standards.
Periodically assessing the performance of third-party
service providers, including attorneys and law firms providing
foreclosure counsel, and the discontinuation of servicing
contracts and agreements when appropriate.
Improving management information systems used by third
parties to ensure accuracy of records contained in, and
transmitted by, those systems.
MERS
The consent orders require servicers to ensure appropriate
oversight and controls of their activities with respect to MERS and
compliance with MERSCORP's membership rules, terms, and conditions.
Servicers' action plans submitted in July required, at a minimum:
Processes to ensure that all mortgage assignments,
endorsements, and all other actions with respect to mortgage
loans serviced or owned by the servicer out of MERS' name are
executed only by a certifying officer authorized by MERS and
approved by the servicer;
Processes to ensure that the servicer maintains up-to-date
corporate resolutions from MERS for all servicer employees and
third parties who are certifying officers authorized by MERS,
and up-to-date lists of MERS certifying officers;
Processes to ensure compliance with all MERS requirements
and with the requirements of the MERS Corporate Resolution
Management System;
Processes to ensure the accuracy and reliability of data
reported to MERSCORP, including monthly system-to-system
reconciliations and daily capture of all reports of problems
with registrations, transfers, and status updates on open-item
aging reports; and
An appropriate MERS quality assurance work plan and annual
independent tests of the control structure of the system-to-
system reconciliation process, the error correction process,
and adherence to the servicer's MERS Plan.
Work is under way to implement these plans and includes:
Incorporating MERS into servicers' third-party oversight
programs, including periodic review, quality assurance, and
independent audits.
Enhancing controls and standardizing processes for
executing mortgage assignments by MERS certifying officers.
Establishing training, certification, and assignments and
endorsements related to MERS.
Improving processes for controlling data quality.
Creating and executing quality assurance work plans to
ensure accuracy and compliance with MERS-related procedures.
Establishing periodic--in some cases daily--reconciliations
of key reports and data to ensure compliance with MERS
requirements and prompt resolution of discrepancies.
Increasing the number of staff members dedicated to
overseeing MERS-related activities.
Corrective actions to enhance oversight and controls of activities
related to MERS are expected to be in effect by the end of the first
quarter of 2012.
Management Information Systems
The consent orders require the servicers to improve management
information systems that support mortgage servicing and foreclosure
processing. Each servicer has submitted a plan for the operation of its
management information systems for foreclosure and loss mitigation to
ensure the timely delivery of complete and accurate information to
permit effective decisionmaking regarding foreclosure, loan
modification, or loss mitigation. The plans include descriptions of
systems used by servicers for foreclosure and loss mitigation purposes.
They also include timetables for changes or upgrades necessary to
monitor compliance with legal requirements, servicing guidelines of
Government-sponsored enterprises (GSE), and requirements of the consent
orders. Improvements to management information systems will ensure
accuracy of records and provide staffs working on foreclosures and loss
mitigation efforts access to necessary and timely information provided
by the borrowers. Work is under way and includes:
Consolidation of mortgage servicing platforms.
Standardized and automated workflows to assist personnel
with loan modification and foreclosure decisions and
processing.
Development of standardized reporting and improved quality
controls.
Implementation of case management software to provide
better access to single points of contact interacting with
borrowers.
Periodic audits.
Evaluation of requirements and documentation to ensure that
management information systems meet the needs of stakeholders
from mortgage servicing, loss mitigation, foreclosure
processing, and MERS-related activities.
Escalation and enhanced reporting to executives and boards
of directors.
Enhancing management information systems is a continuous process.
Substantive improvements have been made and will continue throughout
the next year.
Risk Assessment and Risk Management
The consent orders require the servicers to assess risks posed by
their mortgage servicing operations and develop plans to manage those
risks. Servicers have conducted their assessments and developed
specific action plans to effectively mitigate or manage identified
risks on an ongoing basis. Work on those plans is under way and
includes:
Conduct periodic third-party audits or self evaluation of
risks associated with mortgage servicing and foreclosure
processing.
Conduct periodic assessment of risks and develop action
plans to reduce risks from specific functional areas, including
loan modifications, disposition of bank-owned real estate,
bankruptcy, and compliance with SCRA.
Strengthen policy and internal guidance concerning
foreclosure and loss mitigation.
Identify specific individuals or groups accountable for
compliance and operational risk associated with mortgage
servicing and foreclosure practices.
Integrate key processes to ensure consistency of policy and
procedures related to foreclosure and loss mitigation
activities.
Establish additional training associated with foreclosure
and loss mitigation risks.
Develop and report key indicators to support monitoring and
evaluating risk.
Use compliance testing on a regular basis.
Implementation of risk management plans is expected to be in effect
during the first quarter of 2012. Assessment and monitoring will be an
ongoing servicer activity.
Compliance Committees, Compliance Programs
The consent orders require a number of actions to ensure compliance
with the orders and with applicable laws and regulations. As a result
during the third quarter of 2011, the servicers set up compliance
committees responsible for the development and implementation of
compliance programs, action plans, policies and procedures, and
strengthened operating processes to correct the deficiencies cited by
the enforcement actions. At a minimum, each committee includes three
members of the institution's boards of directors. The compliance
committees are also responsible for reporting actions required by the
enforcement orders, and for taking corrective action for any ongoing or
repeated noncompliance.
The consent orders required comprehensive action plans to address
compliance. Servicers submitted those plans in July, and work is under
way to implement the plans. Plans addressed financial and personnel
resources, organizational structure, and specific controls to ensure
the affidavit, declarations, and notarization processes comply with
applicable laws and regulations.
Actions vary by servicers and include:
Changed management and leadership to ensure accountability
and clarify responsibilities for mortgage servicing,
foreclosure, and loss mitigation.
Changed reporting structures to centralize oversight of
mortgage servicing, foreclosure, and loss mitigation functions.
Increased number of personnel responsible for conducting
audits and dedicated to ensuring compliance, as well as for
mortgage servicing, foreclosure, loss mitigation, and
information technology supporting these functions.
Implemented training programs for signers of sworn
documents and notaries to emphasize the personal knowledge
required and specific requirements of State law.
Increased training requirements for customer assistance
specialists, single points of contact, and compliance
personnel.
Brought previously outsourced preparation of sworn
documents in-house.
Created or revised templates for sworn documents to conform
more closely with State and local laws, in judicial and
nonjudicial foreclosure states.
Implemented quality control processes to ensure proper
completion of sworn documents, including, at some servicers,
real-time monitoring by dedicated quality assurance staff.
Established foreclosure referral checklists to verify loss
mitigation efforts, bankruptcy status, and the borrower's
status related to the SCRA.
Established dedicated units to specialize in SCRA and to
correct SCRA-related issues.
Established testing of loan modification denials, sworn
document completion, and regulatory compliance, as part of
quality control initiatives to verify compliance with loan
modification program requirements, GSE loan servicing
guidelines, and Federal laws including SCRA and bankruptcy.
Established periodic evaluations by senior managers of
policies, staffing, and functional performance related to
mortgage servicing, foreclosure, and loss mitigation.
As work continues to improve compliance controls across the
servicers, the OCC expects the servicers to complete the implementation
of new processes, policies, and enhanced controls during the first part
of 2012.
IV. Other Efforts to Enhance Mortgage Servicing Standards and Practices
While the actions taken under our consent orders are significant,
there are a variety of other efforts, stemming from the foreclosure
crisis, that are underway at the Federal and State levels that will
affect mortgage servicing standards and practices and enhance borrower
protections. The following summarizes some of those efforts.
Interagency Effort to Establish Uniform Mortgage Servicing Standards
Staff from the OCC, FRB, Federal Deposit Insurance Corporation,
Consumer Financial Protection Bureau (CFPB), and other participating
agencies are working to develop proposed national standards to address
all aspects of mortgage servicing. Ideally, key requirements would be
in the form of enforceable regulations, supplemented with compliance
guidelines that can be used to fill in details and provide
illustrations of practices that comply with the regulatory standards.
The objective is to achieve rigorous, uniform ``rules of the road'' for
responsible servicer conduct. It is vital that any standards that the
agencies adopt apply to, and are implemented by, all firms engaged in
mortgage servicing--not just federally regulated depository
institutions--and that there is strong oversight of all servicers'
compliance.
Other Federal and State Attorneys General Settlement Activities
For well over a year, the OCC has been in regular communication
with the DOJ and other Federal agencies regarding our foreclosure-
related enforcement actions and how those actions relate to other
Federal and State enforcement and settlement activities that may
pertain to the types of activities covered by our orders. For example,
we discussed with the DOJ how the detailed action plans required by the
orders, particularly for mortgage servicing and foreclosure procedures,
had the potential to synchronize with the terms of the settlement under
discussion with the same mortgage servicers, State attorneys general,
DOJ, and certain other Federal agencies. On June 13, 2011, the OCC, the
FRB, and the OTS announced a 30-day extension of certain timelines
under the orders--at the request of the DOJ--to facilitate that process
of coordination of servicer actions. We continue a constructive
dialogue with the DOJ on all these subjects.
Changes in Federal Law: Dodd-Frank Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank) has several provisions that affect mortgage servicing. It
amended the Truth-in-Lending Act (TILA) and the Real Estate Settlement
Procedures Act (RESPA) and granted authority for these and other
``enumerated consumer protection laws'' to the CFPB on July 21, 2011.
The amendments to TILA require periodic notices to borrowers
disclosing information related to the servicing of the loan and
prohibit fees for providing a statement of balance or for modifying a
high cost mortgage; impose requirements for establishing and disclosing
escrow accounts for a variety of mortgages; and require timely payoff
notices and payments be credited on the date of receipt. The amendments
to RESPA regulate the force-placement of hazard insurance, and require
timely response to borrower complaints, contact information for the
owner or assignee of the mortgage; and compliance with ``any obligation
found by the [CFPB] to be appropriate to carry out the consumer
protection purposes of [RESPA].'' The Dodd-Frank Act also requires the
Secretary of the Department of Housing and Urban Development (HUD) and
the Director of the CFPB, in consultation with the Federal banking
agencies, to create a database with information on delinquent loans and
foreclosures. Finally, the Dodd-Frank Act authorizes the CFPB to issue
regulations that identify as unlawful ``unfair, deceptive, or abusive''
practices in connection with mortgage servicing.
Changes in GSE Guidelines
In addition to these new requirements under Federal laws, Fannie
Mae and Freddie Mac announced two initiatives related to servicing that
could have widespread impact. The first, announced with the Federal
Housing Finance Agency (FHFA) and HUD in January 2011, would lead to
new compensation structures that determine how servicers of single-
family loans in mortgage-backed securities pools are paid. This
initiative would align compensation structures with the objective of
improving service for borrowers, providing flexibility in servicing
nonperforming loans, and promoting liquidity in the mortgage securities
market. On September 27, 2011, at the direction of the FHFA, the GSEs'
issued a discussion paper, ``Alternative Mortgage Servicing
Compensation,'' setting forth a series of potential approaches and
inviting public comment.
The second GSE initiative, announced in June, is to develop uniform
policies for servicing delinquent loans that will enhance and
streamline outreach to delinquent borrowers and establish performance-
based monetary incentives for compliance. Under these guidelines, which
largely took effect October 1, 2011, a foreclosure will not be
permitted on a mortgage owned or guaranteed by Fannie Mae or Freddie
Mac until the servicer has conducted a formal review of the borrower's
eligibility under all available foreclosure alternatives, including
loan modifications, short sales, and deeds in lieu of foreclosure.
Servicers will be expected to continue to help these borrowers qualify
for a foreclosure alternative. Given the significance of the GSEs to
the mortgage market, these new standards will act as the catalyst for
conforming changes nationwide.
V. Conclusion
The consent orders issued by the OCC, the FRB, and the OTS in April
were significant steps toward ensuring this country's mortgage
servicing industry operates in a safe and sound manner and borrowers
are treated fairly. As a result of these actions more than four million
borrowers involved in the foreclosure process in 2009 and 2010 have the
opportunity to receive free, independent reviews of their cases. Where
wrongful financial injury is identified, our consent orders require
remediation. We expect to issue a report on the results of the
independent foreclosure review at the conclusion of that effort. In
addition to the independent foreclosure review, other efforts required
by our orders are well under way to correct deficiencies in mortgage
servicing and foreclosure processing that our examiners identified in
their reviews during the fourth quarter of 2010. Much of the work to
correct identified weaknesses in policies, operating procedures,
control functions, and audit processes will be substantially complete
in the first part of 2012; other initiatives will continue through the
balance of 2012. OCC examiners provide ongoing oversight to this
process and will continue to monitor efforts to ensure compliance with
our consent orders.
I appreciate the opportunity to appear before the Subcommittee this
afternoon, and look forward to addressing your questions.
______
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PREPARED STATEMENT OF DAVID C. HOLLAND
Executive Vice President, Rust Consulting, Inc.
December 13, 2011
Introduction
My name is David C. Holland. I am an executive vice president based
in Rust Consulting's Minneapolis, Minnesota headquarters. Rust
Consulting, or ``Rust,'' has been engaged by the servicers to
administer certain aspects of the Consent Orders for the Independent
Mortgage Foreclosure Borrower Outreach project. Since this program's
inception, we have worked closely with each of the key stakeholders--
the servicers, the Independent Consultants, the Office of the
Comptroller of the Currency, and the Federal Reserve Board--to ensure
that the terms of the Consent Orders, as defined and detailed in our
Statements of Work with each servicer, are fully carried out.
Rust provides project management, data management, notification,
contact centers, claims processing, and fund distribution, typically in
support of large, complex, and time-sensitive programs.
Most often, these services are provided in the context of the
settlements of class action lawsuits: Rust is one of the country's
largest class action settlement administrators. However, we also
provide these basic services in the context of other, similar programs,
such as mass torts, data breach responses, product recalls, and an
assortment of public sector programs. Rust has handled approximately
3,500 programs in all.
We typically are engaged as a neutral, third party with respect to
the issues behind the programs we administer: our clients include both
plaintiff and defense law firms; businesses of all sizes and spanning
many industries; and Government agencies at the Federal, State, and
local levels.
Beginning in June 2011, we were contacted by several individual
servicers regarding our interest in and capabilities with respect to
this program. Throughout the summer, Rust submitted several proposals
to servicers according to their own RFP processes and eventually we
were engaged by all 14 servicers to serve as the single administrative
provider under the Consent Orders--a decision we believe benefits
borrowers as well as the parties to the Consent Orders by minimizing
points of contact for all involved, streamlining processes and
communications, and helping ensure consistency in all aspects of these
tasks.
Responsibilities Under the OCC and FRB Consent Orders
Broadly speaking, our responsibilities under the Consent Orders are
to notify borrowers about this program, to answer their questions, to
receive their complaint forms, and to handle in- and out-bound mail
associated with these general tasks. The content of materials involved
in this process, such as request for review package and complaint
forms, Web site text, and telephone scripts, was developed by or with
the servicers and OCC, and is put into use only after approval of all
of those parties. A more specific listing of our responsibilities
includes the following.
1. Rust collaborated with the servicers to prepare different plans
for various contingencies to ensure appropriate staffing or
service levels across our responsibilities, e.g., for staffing
our call center with an appropriate number of representatives
to meet various situations.
2. Rust received relevant data comprising the borrower lists from
the 14 servicers.
3. Rust standardized the formatting of names and addresses of those
borrowers and arranged for corrections to be made to addresses,
when possible, through the National Change of Address service.
Rust also performed up-front ``skip-tracing'' on the last known
addresses for certain borrowers as noted by the servicers in
their data.
4. Rust continues to oversee the printing and mailing of request
for review packages to borrowers, with this mailing campaign
having begun on November 1 and scheduled to conclude the series
of weekly mailings on December 27. We continue to follow up
with additional mailings on-request or as better addresses are
received.
5. Rust has arranged for publication of media notices according to
a media plan prepared by the parties. These advertisements will
increase the likelihood that any borrowers who did not receive
a notice via direct mail could hear of and participate in the
program. These advertisements will begin running in January
2012.
6. Rust established a call center to take incoming calls from
borrowers with questions about the program, their eligibility
for it, or their options under it. We have been answering calls
since November 1. Borrowers' requests for complaint forms may
be placed through this call center, with Rust fulfilling those
requests.
7. Rust established an informational Web site to provide basic
information about the program to the public.
8. Rust has established separate Post Office boxes for each
servicer to handle inbound mail related to the Consent Orders.
9. Upon receipt of complaint forms, Rust sends borrowers
acknowledgement of receipt.
10. Rust images, data captures, and forwards submitted complaint
forms to servicers and ICs.
11. To facilitate the processing of those forms that are not signed,
Rust follows up with the associated borrowers by sending
deficiency letters requesting they sign and resubmit their
forms.
12. Rust receives and handles other inbound mail.
With mail sent by Rust to borrowers but returned by the
U.S. Postal Service as undeliverable, Rust attempts to find
better addresses and, whenever possible, to re-mail the notices
to those new addresses.
With mail not categorized as undeliverable or as
completed complaint forms, Rust processes according to agreed-
upon procedures, attempting to link the information to a
specific borrower and complaint file.
13. Rust provides comprehensive daily statistical reporting on the
activity and service levels related to the previously listed
activities to the associated parties, including the servicers,
the ICs, and the OCC and the FRB.
14. Rust may be asked to follow up on complaints in some manner not
yet defined, per the servicers' future needs and instructions.
______
PREPARED STATEMENT OF PAUL LEONARD
Vice President, Housing Policy Council of the Financial
Services Roundtable
December 13, 2011
Chairman Menendez, Ranking Member DeMint, and Members of the
Committee, my name is Paul Leonard and I am Vice President of
Government Affairs for the Housing Policy Council of the Financial
Services Roundtable. I thank you for the opportunity to testify
regarding the Independent Foreclosure Review process.
The goal of the reviews is to assess whether an eligible borrower
incurred financial injury and should receive compensation or another
remedy due to servicer errors, misrepresentations, or other
deficiencies in the foreclosure process on their primary residence in
2009 and 2010. Everyone involved in this process--the residential
mortgage loan servicers, consultants and the regulators--has the desire
to get it right.
Importantly, these independent reviews supplement other ongoing
measures the industry has underway to help identify and assist at-risk
homeowners.
I would like to make five main points about the Independent
Foreclosure Review effort:
First, the reviews are designed to determine if errors in
the foreclosure process caused financial injury to borrowers.
Second, the reviews of the borrower information are
independent of the servicers, as verified by the joint
regulators.
Third, the review process includes a robust outreach
campaign that includes direct mail, paid advertising and other
steps to reach potential eligible borrowers.
Fourth, it will take time to receive and complete the
reviews, as the outreach efforts just began November 1.
And fifth, the information provided to the regulators on
the Independent Foreclosure Reviews throughout the process is
intended to be comprehensive and complete.
All involved fully appreciate the importance of this process, and
are working to ensure the reviews are conducted exactly as prescribed.
In this spirit, the servicers have specifically followed the direction
within the consent orders. They have worked closely with the regulators
to create a consistent process for eligible borrowers to be contacted
and have an opportunity for a thorough, independent review of their
foreclosure case. Additionally, the servicers have added senior
leadership and internal staffing to successfully execute this effort
for the benefit of their respective borrowers.
Equally as important, the experience and information gained through
the reviews will be used to further strengthen industry practices.
While much of the public focus has been on the outreach campaign,
it is important to note that the Independent Foreclosure Review
actually contains two components:
a borrower complaint process that enables eligible
borrowers who believe they may have been financially injured in
the foreclosure process to request an independent review of
their files, and
a required file look-back of a valid statistical sampling
of borrower accounts, including a review of 100 percent of
borrowers with certain characteristics--like those who may have
been eligible for protection under SCRA.
Eligible borrowers--as described previously--must meet one of four
conditions during the applicable timeframe:
Their primary residence was sold due to a foreclosure
judgment.
Their mortgage loan was referred into foreclosure, but was
removed from the process because payments were brought up-to-
date or the borrower entered a payment plan or modification
program.
Their mortgage loan was referred into foreclosure, but the
borrower sold the home or participated in a short sale or deed-
in-lieu.
Or, their mortgage loan was referred into foreclosure,
remains delinquent at this time and has not gone to foreclosure
sale.
Industry-wide, the joint regulators determined that the population
eligible for reviews includes about 4 million borrowers. This does not
mean all of these borrowers were financially harmed. This is simply the
total universe of borrowers eligible for review.
At the direction of the regulators and under the consent orders, a
robust public education campaign to inform borrowers about the borrower
complaint process has been launched. It includes direct mail, national
paid advertising, and earned media. Servicers also are working to
inform nonprofits and consumer advocates about the process to further
help borrowers.
For both borrower complaints and the statistical sampling look-
back, the servicers will provide the necessary files--including all
data and documents--to enable the independent consultants to determine
if a borrower suffered financial injury. The regulators provided 22
potential financial injury scenarios. Here are three examples:
There is evidence that the borrower did everything the
modification agreement required, but the foreclosure sale still
happened.
The servicer initiated foreclosure or completed a
foreclosure sale without providing adequate notice as required
under applicable State law.
Or, inaccurate fees may have been charged or mortgage
payments were inaccurately calculated, processed or applied.
The review process is underway. To ensure the process is operating
effectively, senior leaders from the participating servicers and their
regulators are meeting frequently--often daily--to discuss the details
of what is occurring and to cooperatively institute continuous
improvements in order to make the Independent Foreclosure Reviews
successful. The servicers are fully cooperating with their regulators
ensuring all information provided is comprehensive and complete.
This is an unprecedented undertaking that has required multiple
residential mortgage loan servicers, consultants and the regulators to
develop a consistent process for the review effort, while maintaining
the independent nature of the reviews.
And as I mentioned earlier, it takes place alongside other
important work underway to help borrowers facing financial hardships to
avert foreclosure--including many borrowers who are a part of the
eligible population for reviews. Ultimately, we believe these
collective efforts will address concerns about the foreclosure process
and will increase borrower confidence. Thank you for the opportunity to
speak today and I will be glad to answer any questions you have.
______
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PREPARED STATEMENT OF ANN M. KENYON
Partner, Deloitte & Touche LLP
December 13, 2011
Chairman Menendez, Ranking Member DeMint, other Members of the
Subcommittee, good afternoon. My name is Ann Kenyon and I lead the
Securitization Advisory Group at Deloitte & Touche LLP. My experience,
for over 30 years, has been in accounting and finance in both industry
and public accounting. Since joining Deloitte in 1997, I have led or
worked on many engagements for financial institutions, commercial
clients and governmental entities with respect to their issues in
dealing with the capital markets.
Deloitte & Touche LLP (Deloitte) and its affiliates have over
45,000 people in offices throughout the United States and perform
professional services in four key areas--audit, financial advisory, tax
and consulting.
In your invitation, you asked me to discuss ``the Consent Orders
that were reached by the OCC last spring with the major mortgage
servicers and the foreclosure reviews that will result from them.'' You
have heard already today directly from the Office of the Comptroller of
the Currency (OCC) and will hear more from this panel on the Consent
Orders and resulting foreclosure reviews.
As you know, Article VII of the OCC Consent Order creates a
foreclosure review process for borrowers with residential mortgages
referred to foreclosure during 2009 and 2010 (the ``Review''). The
Review is set forth in Article VII and is designed to determine
whether, among other items:
a foreclosure action was properly brought, particularly
with respect to certain Federal and State laws;
a foreclosure sale occurred under appropriate
circumstances;
fees and charges assessed were permissible;
various loss mitigation programs were handled appropriately
so that each borrower had an adequate opportunity to apply for
such a program, any such application was handled properly, a
final decision was made on a reasonable basis, and was
communicated to the borrower before the foreclosure sale.
As contemplated by the Consent Order, the objective of the Review
is to identify borrowers who have suffered direct financial injury as a
result in any deficiencies identified in the servicer's procedures in
the areas noted above.
Article VII calls for the Bank to retain an ``independent
consultant'' to conduct ``an independent review of certain residential
foreclosure actions regarding individual borrowers with respect to the
Bank's mortgage servicing portfolio.'' Deloitte serves as the
independent consultant for JPMorgan Chase Bank and I am the engagement
partner on that matter. As required by Article VII, the conduct of the
Review is subject to the monitoring, oversight, and direction of the
OCC. We have been and are meeting with the OCC regularly to keep OCC
officials apprised of the details of our approach and progress.
Deloitte's engagement consists of three stages. In the first stage,
Deloitte undertook the planning and coordination necessary to conduct
an effective foreclosure file review as described in the Consent Order.
The specific procedures to be performed by Deloitte were established
based on the requirements of the Consent Order and discussions with
independent counsel. The Consent Order contemplates OCC approval of the
procedures proposed. As a public accounting firm, we do not practice
law, so we are guided by independent counsel, retained solely to advise
Deloitte in all matters requiring legal interpretation. These
procedures, developed with advice of independent counsel, are generally
described in Appendix E to our engagement letter, which appears on the
OCC Web site in redacted form. As a result of these considerations,
procedures for review of the loan files within the scope years, data
gathering/sample selection processes, and project management routines
were established and as indicated previously, are contained within our
approved engagement letter.
Concerning data gathering/sample selection, key activities have
included information gathering to support the development of the sample
methodology and identification of the specific populations and sample
size(s) required. In order to arrive at an effective and statistically
valid sample of foreclosure files, a sampling methodology was developed
that is outlined in Appendix D to our engagement letter. The goal of
the sampling methodology, required by the Consent Order, is to confirm
that the sample set selected for testing is representative of the
characteristics of the total population from which the sample is
derived, thus enabling us to produce results that achieve prescribed
levels of confidence and precision. Additionally, identification of
specific high risk populations of loans was done pursuant to OCC
guidance, and these populations include all borrowers who were
protected under the U.S. Bankruptcy Code as well as borrowers eligible
for protection under the Servicemembers Civil Relief Act.
The second stage focuses on testing of the selected foreclosure
files. To execute this task, we have deployed file testing teams to
review applicable foreclosure files as a basis for making appropriate
recommendations for further action. Each file testing team consists of
a team leader, supported by multiple file analysts and certain
specialists. The file analysts will be assigned a file workload to
execute against the procedures in Appendix E to our engagement letter.
The analysts will conduct necessary research and will obtain additional
information as necessary for each to form a sufficient basis of
conclusion with respect to the results of the procedures performed.
Finally, the analysts will recommend a file for further review, for
possible remediation activity or closure. Throughout the process, the
analysts will document the research, recommendations and basis for
conclusions, and, if the analyst recommends a case for further review
or for possible remediation activity, the basis for the recommendation
will be documented and reported to engagement leadership. In addition,
Deloitte will conduct quality assurance procedures on the work
performed by our team.
Finally, the third stage consists of the review, approval, and
issuance of the results of the foreclosure file testing. Among other
tasks, a written report will be prepared by Deloitte and submitted to
the OCC detailing the process, testing methodology followed, and
results of the procedures performed by Deloitte in the Review.
Our engagement letter was approved by the OCC in September, and our
work is well under way. As outlined in our engagement letter, we
anticipate delivery in late 2012 of the final report based on the
Review.
Additionally, and pursuant to guidance from the OCC, Deloitte has
worked actively in the servicers' effort to initiate a borrower
outreach program. This program, as described in Appendix C to our
engagement letter, was established so that borrowers were provided a
fair opportunity to file claims or complaints due to errors,
misrepresentations, or other deficiencies associated with foreclosures
initiated or completed during the review period. All servicers agreed
to work through a single claims processing firm, Rust Consulting, with
experience in setting up integrated claims processes, conducting
outreach, and processing claims requests. The program was launched on
November 1, 2011, and we are actively reviewing the responses that have
been received thus far.
I assure you that we at Deloitte take our responsibilities as an
independent consultant very seriously. We are working hard to complete
the foreclosure review in a timely and effective manner so that the
results of our work can be reported to the OCC as promptly as possible.
I am satisfied with our progress to date and I am confident in the
quality of the work performed. However, there is much more to
accomplish.
I thank you for providing me with this opportunity to testify and
would be happy to answer any questions you have.
______
PREPARED STATEMENT OF KONRAD ALT
Managing Director, Promontory Financial Group, LLC
December 13, 2011
Good afternoon, Mr. Chairman. My name is Konrad Alt. Since 2004, I
have been a Managing Director of the Promontory Financial Group,
responsible for our San Francisco office. Many years ago, however, I
served as counsel to the Senate Banking Committee. I am honored to be
back here again today.
The independent Foreclosure Review is not the only piece, but I
hope it will be an important piece, of our country's efforts to address
the foreclosure crisis. Our country cannot recover from this crisis
until distressed homeowners and former homeowners who have been injured
by errors in the foreclosure process receive the remediation they
deserve. The Foreclosure Review seeks to accomplish this goal, and my
colleagues and I are mindful that our role in it brings serious
responsibilities. I want to commend you, Mr. Chairman, for your
leadership in addressing the foreclosure issue and advancing
transparency in regard to the Foreclosure Review.
My comments here today are my own and those of my firm. They do not
necessarily reflect the views of any of the financial institutions with
which Promontory is working, nor those of other independent
consultants. As you know, the independent Foreclosure Review grows out
of a set of enforcement orders involving 15 of our country's largest
mortgage servicers and 3 Federal bank regulatory agencies: the Office
of the Comptroller of the Currency, the Federal Reserve Board and the
Office of Thrift Supervision, now a part of the Office of the
Comptroller of the Currency. Among other requirements, these orders
direct each servicer to retain an independent consultant to conduct a
``Foreclosure Review'' of certain residential foreclosures for the
purpose of finding borrowers who incurred financial injury as a result
of errors, misrepresentations, or other deficiencies in the foreclosure
process, so that they can receive appropriate remediation.
Early in 2011, several of the servicers that received these orders
approached Promontory about our willingness and capacity to perform the
required independent review. Three of them ultimately proposed to the
OCC to engage us. In reviewing their proposals, the agency requested
and we provided exhaustive information concerning our credentials and
potential conflicts of interest. After considering that information,
the agency approved all three engagements. As a result, I now head one
of our firm's review teams and help to coordinate Promontory's work in
this area. Two of my colleagues head similar engagements at other
institutions.
Given the millions of consumers involved, each with individual
circumstances, this undertaking is complex by its very nature. Many
things can go wrong with a mortgage or a foreclosure, and reviewing a
particular file to ascertain what if anything did go wrong can be both
difficult and time consuming. Yet an overly protracted review effort is
not helpful to borrowers who have suffered or are at risk of suffering
genuine financial injuries. My colleagues and I want you to know that
we are working hard to do this job as fairly and effectively as
possible, to the highest professional standards, and that every aspect
of our work, from design to implementation to results, is fully
transparent to the agencies and subject to agency examination and
criticism.
Allow me to elaborate. Following approval of our retention,
Promontory began to develop a methodology to meet the challenges
presented by the Foreclosure Review. We developed that methodology in
close consultation with regulatory examiners and subject matter
experts, adapted it to the particular circumstances of the different
servicers with which we are working, and detailed it in engagement
letters that the regulators reviewed and commented on before
authorizing their execution in September.
Our engagement letters, all of which the OCC has made public in
redacted form on its Web site, make clear that Promontory works at the
agency's direction. Importantly, Promontory, not the servicers,
determines what information to review in each borrower's file and
whether financial injury has occurred.
Our engagement letters set forth a two-pronged approach to the
Foreclosure Review.
The first prong of our approach consists of a meticulous review of
a large number of files. We selected a large portion of these files
based on known risk factors--for example, the commencement of
foreclosure proceedings after the issuance of a stay in bankruptcy--and
the remainder according to well-established statistical methods.
Consistent with the requirements of the consent orders, we review each
of the selected files with an eye to numerous specific questions
relating to compliance with applicable State and Federal laws, the
reasonableness of fees and penalties, and the accuracy of servicer
processing of borrower requests for loan modifications. Thus far, we
have been seeking through this part of our review to gain a
comprehensive and statistically rigorous understanding of the file
characteristics associated with financial injury. We estimate that this
effort will take our large team of analysts several months to complete.
If we learn of additional file characteristics associated with
financial injury, subsequent phases of work may entail further review
of file population segments based on those characteristics. This could
potentially lead us to review tens or even hundreds of thousands of
additional files.
The second prong of our approach to the Foreclosure Review is an
outreach effort, intended to afford every in-scope borrower an
opportunity to request an independent review of his or her foreclosure
file. Through a combination of direct mail, advertising, and free
media, we are trying to let all in-scope borrowers know about the
review opportunity, encourage those who believe they may have been
injured by servicer actions to request a review, and give them a form
to submit, along with any additional documentation they would like to
provide, to help our reviewers find and focus on the borrowers'
specific issues. This outreach effort launched on November 1 and is now
ongoing.
The file review and outreach efforts each have strengths and
weaknesses. But in combination they represent a powerful approach to
accomplishing the objectives of the Foreclosure Review. If we miss any
borrowers who have been financially injured in our file review effort,
those borrowers still have the opportunity to bring themselves to our
attention through the outreach effort. Conversely, if the outreach
effort fails to reach portions of the borrower population who have been
injured, we should learn about that through the file review process and
be able to take additional steps as appropriate.
The logistics of these reviews are formidable. Hundreds of
professionals are working on my review team. Members of the team
perform roles ranging from data entry to file review to statistical
analysis, systems development, and various management responsibilities.
The team includes many former bank examiners, attorneys and other
professionals with relevant subject matter expertise. We have also
retained our own counsel, independent of the servicer, to assist with
issues of legal interpretation that arise in the course of our review.
Like Promontory, our counsel faced careful regulatory review of its
credentials and conflicts before we received authorization to retain
them.
Quality control and quality assurance are integral to the success
of this review, and we have taken care to build them into the design
and execution of both the file review and outreach efforts. We conduct
a mandatory training program for each reviewer. Team leads oversee the
work of each reviewer and review every indication of an error in the
foreclosure process. Our review processes also include extensive
quality control systems and dozens of individuals with quality control
responsibilities.
Further, a third group, somewhat in the nature of an internal audit
function, has responsibility for Quality Assurance and reports directly
to me. The Quality Assurance unit samples output from both the file
review and outreach efforts to help maintain consistency and a high
standard of performance across the two groups.
Mr. Chairman, our redacted engagement letters provide considerable
additional detail concerning our approach to this assignment. We hope
that you and your colleagues will see in that detail and in my comments
here today evidence of a thoughtful, serious and professional effort--
one worthy of the serious problem we are all trying to remedy. We are
proud to contribute what we can to the solution, and we will do our
part to the best of our individual and collective ability.
I will be pleased to try to answer any questions you or your
colleagues may have for me.
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN MENENDEZ FROM JULIE
L. WILLIAMS
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Q.1. How many third-party consultants were submitted by the
servicers to OCC for review, and of those, how many were
rejected by the OCC for conflicts of interest? Specific names
are not necessary.
A.1. With respect to third-party independent consultants and
independent counsel that were subject to non-objection under
the April 13, 2011 Consent Orders, the OCC and OTS rejected 12
separate firms: two proposed independent consultants and 10
proposed independent counsel because they did not satisfy
independence criteria (one rejected consultant was proposed
under the Consent Order between the OCC and MERS). We also
understand that one other consultant withdrew its name from
consideration after independence concerns were raised.
Q.2. How many of the third-party consultants are currently
doing other work for the servicers that is unrelated to
mortgages or foreclosures? Specific names are not necessary.
A.2. With respect to the national bank and Federal savings
association servicers, eight consultants have current
engagements with the servicers, and four do not.
Q.3. How many of the third-party consultants formerly did other
work for the servicers that was unrelated to mortgages or
foreclosures? Specific names are not necessary.
A.3. Most of the independent consultants have done some work
for the servicers at a previous time.
Q.4. Can the OCC extend the deadline for homeowners past April
to allow more time for those who are just hearing about it
through the media campaign to submit claims? If not, please
specify why maintaining the April 30, 2012 deadline is
necessary.
A.4. On February 15, 2012, the OCC and the Federal Reserve
announced an extension of the deadline for individuals to
request a review under the Independent Foreclosure Review. The
new deadline is July 31, 2012, and provides an additional 3
months for borrowers to request a review. The deadline
extension provides more time to increase awareness of how
eligible borrowers may request a review through this process,
and to encourage the broadest participation possible.
Q.5. What outcome will the OCC view as success? Will this
effort be successful if 2 percent of eligible borrowers seek a
review, for example?
A.5. Due to the unique nature of this process, i.e., the number
of borrowers who suffered financial injury within the scope of
the OCC's orders is unknown, there is no ready yardstick by
which to measure success based on any expected percentage of
returns. The OCC is reviewing all relevant data, including the
reach of borrower outreach efforts, to determine whether an
effective outreach campaign was launched. The file review,
which is separate from the coordinated complaint process, is an
equally important part of the foreclosure review process and
provides another means for identifying financially harmed
borrowers. In evaluating the reach of the entire process, both
efforts in combination must be considered.
Q.6. What are the fair housing implications of the review
period the OCC selected (2009-2010)? The earliest loans to go
through foreclosure were subprime loans, many of which were
targeted to communities of color, yet those folks are left out
of this review for no apparent reason. Please provide data
comparing the racial statistics of homeowners who were
foreclosed on during the 2009-2010 period compared to the years
immediately preceding that.
A.6. The OCC review period includes all borrowers who were in
any stage of the foreclosure process during 2009-2010,
including ``pending'' foreclosures, regardless of when the
foreclosure action was initiated. Thus, borrowers who started
the foreclosure process in 2008 (and in some cases in 2007)
whose foreclosures continued to be in process as of 2009 will
be covered under the review, as well as those borrowers whose
foreclosures began in 2009 and 2010 and are still in the
process today.
We do not have available the statistics on the racial
composition of homeowners who were foreclosed on during the
2009-2010 period, compared to the years immediately preceding
that period.
Q.7. Will the OCC set up a system to collect claims requests
from borrowers who were in the foreclosure process either
earlier or later than their limited scope of review? What will
happen to complaints that come in from borrowers whose
foreclosures may have been improper, but were completed before
January 1, 2009 or initiated after December 31, 2010?
A.7. The OCC foreclosure review and remediation process is
being conducted pursuant to the terms of the April 13, 2011
Consent Orders and accordingly covers borrowers who had pending
or completed foreclosures in the period of 2009 to 2010.
Complaints submitted that are out-of-scope where the borrower
has raised concerns that his or her foreclosure may have been
improper can be referred to the servicer's customer complaint
channels, and the borrower may also contact the OCC's Customer
Assistance Group. See www.helpwithmybank.gov, to submit a
formal complaint.
Q.8. How will the OCC ensure that all homeowners are reviewed
for all financial injury, regardless of which boxes they check?
A.8. The purpose of the background questions is to assist
borrowers in communicating how they believe they were
financially harmed. The independent consultants will focus
their review on these areas to ensure that the borrowers'
specific concerns are evaluated. To the extent borrower
descriptions are incomplete, inadequate or vague, independent
consultants will treat such claims as a ``generalized''
complaint subject to a full scope review. In addition, we have
instructed independent consultants that all servicer errors
identified during the file review that resulted in financial
injury must be remediated as appropriate.
Q.9. As Senator Reed suggested at the hearing, can the OCC
request that the independent consultants report the exact
nature of any engagements they have with the servicers? I
request that you do that for a period of 3 years following the
completion of the reviews, and that the OCC submit that
information to Congress, including this Housing Subcommittee.
A.9. The OCC considered existing engagements for the firms who
serve as independent consultants prior to issuing non-
objections for each firm. Neither the independent consultants
nor the servicers were placed on notice at the time of their
engagement that they would be subject to any ongoing
restrictions or monitoring with respect to future engagements.
We also do not have generalized authority to impose reporting
requirements on the independent consultants following the
conclusion of their work on the foreclosure reviews. This
information could be accessible to the OCC through the
supervisory process; however, since it would constitute
otherwise confidential supervisory information and could be
considered proprietary information, we would need to further
discuss if such information could be made available.
Q.10. What additional steps can the OCC mandate of servicers to
improve contact rates with borrowers? What are the most
effective methods of outreach so that borrowers will respond to
solicitations?
A.10. As required by the OCC and the Federal Reserve, the
servicers prepared an extensive national media campaign,
launched last November, to advise borrowers about the
Independent Foreclosure Review process and the ability to
submit a Request for Review form. The OCC has also met with
community and housing advocates to discuss additional potential
methods to reach eligible borrowers. Based on those meetings,
the OCC required that the servicers increase the scope of their
media campaign to reach additional demographic groups and to
make information available in additional languages other than
English, which the servicers have agreed to do. The OCC also
made use of its Public Service Announcement campaign in January
to highlight the Independent Foreclosure Review. And as noted
previously, the OCC has extended the deadline for the
submission of Request for Review forms until July 31, 2012,
which will provide additional time for servicers to contact
borrowers. The OCC will continue to monitor return rates
subsequent to the advertising launch and will make
determinations whether additional media is necessary at that
time.
The OCC is also encouraging servicers to provide resources
to housing counselors to help make borrowers aware of the
opportunity to take advantage of the Independent Foreclosure
Review and, where needed, to assist those borrowers during the
process. Bank of America has already funded an initiative to
engage recognized HUD-approved counseling intermediaries to
support enhanced outreach to customers who may be eligible for
the Independent Foreclosure Review and to provide help in
completing the application. The initiative supports 11 HUD-
approved intermediary agencies (who are also National
Foreclosure Mitigation Counseling fund recipients) and their
nonprofit affiliates and is designed to support grass roots
visibility to reach as many eligible customers as possible
including low- and moderate-income, multicultural and those who
may be experiencing language barriers. The outreach will
include: mailings and outbound calling directed at customers
believed to be eligible for the foreclosure review; traditional
grass roots outreach events to provide information to
individuals and families; and other activities designed to
communicate information to the community, such as newsletters,
Web sites, PSAs, and purchased ads. These organizations will
also manage two toll-free numbers (one aimed at Spanish
speaking borrowers) and will assist borrowers in requesting and
completing the Request for Review form, including assembling
supplemental information and documents as necessary.
Q.11. What role will the courts play in this foreclosure review
process? Are the consent orders for example approved by a
court?
A.11. The OCC's Consent Orders are not subject to court
approval and are issued pursuant to the OCC's enforcement
authority under 12 U.S.C. 1818. However, the OCC may file an
action in the appropriate Federal district court for injunctive
relief to enforce the Orders if the servicers do not comply
with them.
Q.12. Why were these consent orders done under the OCC's safety
and soundness powers and not under consumer protection powers?
If this review process may be irreparably tainted by bias of
the consultants and the entire manner in which the OCC set up
these reviews, why shouldn't the Consumer Financial Protection
Bureau take over this whole foreclosure review process since
the primary basis for the consent orders is really consumer
protection?
A.12. The deficiencies identified through the horizontal
examinations of the largest national bank servicers raised
serious safety and soundness issues rising to the level of
unsafe and unsound banking practices. As such, it is entirely
appropriate for the OCC, as the servicers' prudential
regulator, to take action to ensure that those unsafe and
unsound practices are promptly corrected. The jurisdiction of
the Consumer Financial Protection Bureau does not include
unsafe and unsound banking practices, thus it would be
inappropriate for them to take over the foreclosure review
process or any other aspect of the actions required to comply
with the Consent Orders.
Q.13. You stated in your testimony that it has not been decided
whether homeowners would have to give up their legal rights to
other remedies if they apply for this program or take any
money, even a small amount. Given the inherent biases of the
consultants who are conducting these reviews, why should
homeowners have to give up their right to have their case
reviewed by a court? Unlike the consultants, the court is truly
an independent third party.
A.13. With respect, we cannot concur with your statement that
the consultants have ``inherent biases'' that will impact the
independent reviews. Our experience to date with the
independent consultants simply does not support that
characterization.
No final decisions on the issue of releases have been made
at this time by the OCC. Should any form of release be
permitted, however, borrowers will always be given a choice to
either accept the offer of remediation or to reject the offer
and pursue their claims in alternative venues, including the
courts. The issue is simply one of avoiding duplicative
compensation for the same injury and achieving closure in
connection with at least some issues in the mortgage/
foreclosure crisis arena.
Q.14. The OCC banned the practice of proceeding with
foreclosure where the bank already agreed to a loan
modification with the homeowner, but why specifically did the
OCC not ban the practice of proceeding with foreclosure when
the borrower had already requested a modification and the bank
hasn't yet responded? Not banning the latter creates great
confusion for homeowners and can easily lead to the kinds of
illegal foreclosures these Consent Orders are supposed to
remedy.
A.14. The OCC's Consent Orders require servicers to implement
procedures under approved action plans to ensure that no
further foreclosure or legal action predicate to a foreclosure
occur when the borrower's loan has been approved for a trial or
permanent modification, unless the borrower is in default on
the terms of the trial or permanent modification. It was also
contemplated under the Orders that servicers will be required
to revise action plans to comply with any higher standards that
might be required by developing national servicing standards,
other negotiated settlements or contractual agreements,
including those subject to the National Mortgage Settlement, or
in some respects, new requirements imposed by the GSEs. It is
important to recognize, however, that contractual requirements
and requirements imposed by other sources will affect how new
higher standards can be implemented in practice.
Q.15. Will these Consent Orders interfere in any way with the
actions currently underway by the Department of Justice and
State Attorneys General? The Federal Reserve and FDIC have said
they do not intend to do that, am I correct that the OCC also
does not intend to do that?
A.15. That is correct. For over a year, the OCC has been in
close communication with Department of Justice (DOJ) officials
as settlement negotiations have progressed. The Consent Orders
do not interfere with the National Mortgage Settlement
announced by DOJ, other Federal agencies and State Attorneys
General.
Q.16. Ms. Cohen in her testimony cites several examples of harm
to borrowers that are not included in your examples, such as
servicer delay, the cost of being placed in a proprietary
modification instead of a HAMP one, and the cost of an
improperly damaged credit score. Senator Merkley also gave the
example of robo-signing. Will each of those four examples be
treated as ``financial harm'' to the borrower, too? Please
address each of those four examples in detail. In addition to
instructing the servicers to correct the credit score, will
homeowners be compensated for past financial injury occasioned
by a poor credit score, such as lost employment, lost
alternative housing, higher insurance and credit costs? What
steps will the OCC take to ensure that credit scores are
corrected in a timely way?
A.16. The OCC and the Federal Reserve have considered these
examples and others as we work to formalize the financial
remediation framework. As discussed above, we have contemplated
how to incorporate into the framework financial injury
resulting from servicer delays in processing borrower
applications for loan modifications in cases where there was a
requirement to process a completed application within a
specified timeframe (i.e., under HAMP) that was not met. The
framework will also address direct financial injury resulting
from a wrongful denial of a HAMP loan modification in the case
where the borrower qualified for another modification but
suffered financial injury as a result of the wrongful denial;
and it will address damage to credit scores resulting from
servicer error. With respect to robo-signing, as discussed
above, in cases where the independent consultant determines
that there was direct financial injury suffered as a result of
robo-signing of affidavits, then there will be remediable harm.
However, the act of robo-signing alone does not in and of
itself constitute direct financial injury that is compensable
under the Independent Foreclosure Review.
Q.17. How will you ensure uniformity of remedies across
servicers? Your reference in your testimony to ``baseline''
rules for compensation that didn't have to be followed by the
third-party consultants was disturbing and could lead to wildly
inconsistent results for similarly situated homeowners. When
will you release full guidance as to how financial compensation
will be calculated for borrowers?
A.17. The remediation framework currently being finalized by
the OCC and the Federal Reserve will provide types and amounts
of remediation expected under several scenarios. The
remediation framework will assure consistency in the
remediation provided to similarly situated borrowers who suffer
similar injury. The remediation framework has been referred to
as ``baseline'' standards, because if the independent
consultant or servicer proposes to offer remediation above what
is set forth in the framework for a particular borrower or
groups of borrowers, the OCC would not object. There is also a
need to provide the independent consultants with some amount of
flexibility to determine whether a different type or amount of
compensation may be required to address the borrower's direct
financial injury under a borrower's particular circumstances.
The remediation framework is expected to be released in March
2012.
Q.18. Under current policy, the OCC is directing servicers and
their independent consultants to escalate the review of certain
borrower claims when the borrower's home is scheduled for a
near-term foreclosure sale. As I understand it, borrowers will
qualify for an escalated review if their foreclosure is 30 days
away (this timeframe may be extended for borrowers where the
independent review may take longer to complete). Will the OCC
make public the specific timetables, at each servicer, where
borrowers will qualify for an escalated review? Will the OCC
consider prohibiting servicers from proceeding to a foreclosure
sale in certain circumstances? Can the OCC guarantee that
servicers will not complete any foreclosure sales while the
escalated review is still pending? Will post-foreclosure review
really be sufficient to address their concerns after they've
already lost their homes? I'm concerned that most homeowners
will not be expecting to lose their homes while they are
awaiting a decision and most will likely assume that in
applying for the program their foreclosure will be stopped
until the review process is over.
A.18. The OCC has issued guidance to the independent
consultants and servicers to try to prevent any borrower who is
receiving an independent foreclosure review from losing their
home without their file first receiving an independent review
or a pre-foreclosure sale review. All borrower requests and
other files selected for an independent foreclosure review will
be monitored on at least a weekly basis to determine if a
foreclosure sale is scheduled. The independent consultants will
prioritize their review of these requests and files according
to the scheduled foreclosure sales date. Additionally,
servicers, subject to independent consultant testing and
validation, will be required to promptly review all borrower
requests for an Independent Foreclosure Review and borrower
submitted documentation to determine if a scheduled foreclosure
sale should be postponed, suspended or canceled. Servicers,
after being notified of a borrower request for review, also
must promptly determine whether the borrower is currently in an
approved active loss mitigation program or is being actively
considered for a HAMP or other modification or loss mitigation
program and whether further foreclosure proceedings and/or
scheduled foreclosure sale be postponed, suspended or canceled
as required by the applicable program standards. We encourage
borrowers who believe they have a basis to submit a request for
review and are facing foreclosure to submit their requests as
soon as possible and to also continue with their foreclosure
prevention efforts directly with the servicer, since submission
of the request for review form just prior to foreclosure sale
may not allow for sufficient time for the above checks to be
completed.
Q.19. Why hasn't the OCC already released the full guidelines
(other than the approximately 22 examples) to the public for
what constitutes ``financial harm'' to a borrower? Am I correct
that a more comprehensive definition and examples could easily
be released without releasing any proprietary information? When
will the OCC do that? If you don't release the full guidelines,
then how are borrowers supposed to know if what happened to
them will qualify for relief or not? That seems to me like
really basic information that you should have released in
November before you started sending letters to homeowners. I'm
deeply concerned about the inadequate reference in your
testimony to merely ``supplemental guidance'' and that the OCC
just isn't getting the message that full public transparency is
absolutely essential to having any public confidence in these
reviews, especially since the OCC has already tainted the
reviews with its decision to allow banks to choose their own
judges.
A.19. The OCC and the Federal Reserve expect that the final
remediation framework, which will provide types and amounts of
remediation expected under various scenarios, will be complete
in March. We plan to make it publicly available at that time.
Q.20. How will the OCC conduct oversight of consultant
activities? What actions will it take if it finds their
performance lacking or if it finds that they are doing what's
in the best interests of the big banks instead of what's in the
public interest? Will there be a process where the first line
of reviewers at the consultants can directly contact the OCC
about these problems without going through their supervisors at
the consultants or any other layers of bureaucracy?
A.20. OCC oversight of all independent consultants involved in
the foreclosure review process is conducted on a two-tiered
level OCC examiners regularly review and discuss consultants'
work, often onsite at individual institutions, and discuss
activities and findings with OCC senior managers on an ongoing
basis. At an agency-wide level, OCC senior managers meet
separately each week with the independent consultants, the
Federal Reserve staff, and the servicer consortium to discuss
progress, issues, and challenges. The independent consultants
have been provided multiple direct points of contact with OCC
supervisors in our Washington, DC, headquarters as well as
onsite OCC supervisors at each institution and are encouraged
to raise any issues of concern. OCC senior managers also meet
periodically with community and housing advocates and other
Federal agencies to discuss the Independent Foreclosure Review
process.
Full and timely compliance with the Consent Orders will
help ensure that both the industry and the public interest are
well served going forward. If the OCC determines timely
compliance with Consent Order requirements is hindered due to
shortcomings in individual consulting firm performance, several
steps can be taken. They range from providing the applicable
firm a notice of opportunity to improve, to requiring the
servicer to terminate the contract and replace the firm.
Q.21. Will the OCC consider establishing an ombudsman to handle
borrower complaints about the independent foreclosure review
process? What is the process for borrowers who file complaints
about the handling of their cases by the consultants?
A.21. The Independent Foreclosure Review is a process
established pursuant to the Consent Orders. It is not subject
to an appellate type review of individual decisions by the
OCC's Ombudsman; however, the OCC will take into consideration
complaints received about how the process is being conducted in
its oversight of the independent consultants and servicers
pursuant to the Consent Orders.
Q.22. How will the OCC conduct oversight of servicers who are
not providing the consultants with complete and accurate
information in a timely manner?
A.22. OCC examiners regularly review and discuss the
independent consultants' work, often onsite at individual
institutions, and discuss activities and findings with OCC
senior managers on an ongoing basis. OCC senior managers meet
each week with the consultants, and have provided the
consultants multiple direct points of contact with OCC
supervisors and onsite examiners to raise any issues of
concern. The OCC closely monitors the status of file reviews
performed by the independent consultants from intake to final
conclusion. The OCC will immediately address any identified
impediments to the Independent Foreclosure Review process.
Should any servicer fail to provide the consultant with
complete and accurate information in a timely manner, the OCC
will address the issue immediately and directly with the
servicer.
Q.23. Some of the engagement letters between servicers and
their independent consultants invoke attorney-client privilege
and attorney work product privilege over the whole process and
confidential treatment of the engagement letter itself. In
fact, all servicers used their general counsel's office to
engage the independent consultants and outside counsel, and
some servicers name their general counsel as project lead. Some
servicers engaged additional outside legal counsel for the
review directly rather than through the primary consultant. So,
given all of this information, does an attorney-client
privilege exist between any of the servicers subject to the
consent orders, or any of their employees, and the independent
consultants or outside counsel retained by them? How does such
attorney-client privilege interact or interfere with the
responsibilities that consultants have to the OCC? Will this
attorney-client privilege at all limit what information will be
made public?
A.23. By statute, the OCC has complete and unfettered access to
all of the books and records of the servicers, including
documents created by the independent consultants in connection
with the foreclosure review, regardless of whether or not they
are privileged. Therefore, claims of privilege have no impact
on the responsibilities that the consultants have to the OCC.
Additionally, the OCC required the servicers to waive attorney-
client privilege between them and the law firms that were hired
to advise the independent consultants if the servicer engaged
the law firm and paid the firm's fees directly. While some
servicers engaged the independent counsel via an engagement
letter signed by their general counsel and asserting various
privileges, this does not create a legal impediment to either
the regulators' or the consultants' access to information and
documents maintained by the servicers concerning the
foreclosure review.
Q.24. In their testimony, the Federal Reserve Board commits to
imposing fines on servicers found to have acted improperly.
Will the OCC commit to doing the same? When the results come
out, what factors will you be considering in deciding whether
and how much of a monetary penalty to impose on servicers?
Suppose for example that a homeowner got charged $5,000 in
illegal fines. It seems to me that asking the bank to give back
the $5,000 to the homeowner alone doesn't provide sufficient
deterrence and that the bank should be fined multiple times
that amount to discourage that illegal behavior in the future.
Do you agree with that assessment?
A.24. On February 9, the OCC announced agreements in principal
with Bank of America, Citibank, JP Morgan Chase and Wells Fargo
to settle civil money penalties for deficient, unsafe and
unsound mortgage servicing practices. The servicers agreed not
to contest the OCC's ability to impose civil money penalties
totaling $394 million, and the OCC agreed to hold the $394
million in penalties in abeyance, provided that the banks take
actions and/or make payments under the National Mortgage
Settlement with a value that meets or exceeds that amount. The
OCC's civil money penalty enforcement action is similar in
approach to the civil money penalty action taken by the Federal
Reserve.
Q.25. What information will the OCC report to the public on the
results of reviews and the compensation provided to borrowers,
including information on a per servicer, per consultant basis?
It is not acceptable to me from a public accountability and
transparency standpoint to have aggregate results released
without accountability on a bank-by-bank basis. I and many
other Members of the Senate want to know for example, how many
people in New Jersey were harmed by the foreclosure practices
of a particular servicer and how much compensation people
received for that wrongdoing. Will this report on outcomes
include information on race and national origin? Income level?
Home location? Other demographic factors?
A.25. In July 2011 testimony, the OCC committed to producing an
interim report, which it published on November 22, 2011, and a
final report of the results at the conclusion of the
Independent Foreclosure Review process and other efforts to
correct deficiencies identified in the Consent Orders. To
provide additional information and transparency around the
Independent Foreclosure Review process, the OCC plans to issue
additional periodic, public summaries of the developments in
implementation of the Consent Orders and the Independent
Foreclosure Review. The OCC has not yet determined the content
and format of that final report.
Q.26. How exactly did the OCC determine that it would not be a
conflict of interest for a consultant to review the work of a
servicer when that consultant is being paid or has been paid to
do work for that same servicer?
A.26. The engagement of independent consultants subject to the
OCC's Consent Orders followed the same process the Federal
banking agencies generally utilize with respect to
implementation of requirements to hire independent third
parties to conduct reviews under 1818 enforcement orders.
Under this process, the financial institution is required to
propose engagement of an outside independent party, which is
subject to agency non-objection, and the institution is
required to pay directly for the third-party services. The
banking agency oversees the engagement and examines the
results. Under this process, consultants are motivated to
perform their services independently, competently, and
thoroughly; because, if they do not, they risk having their
independence called into question, their resulting work-product
rejected, and they risk future approval by the regulators to
serve as an independent outside third party with respect to
other projects.
Q.27. Will the OCC and consultants institute a permanent
mechanism for meeting regularly with a broad cross-section of
homeowners and counselors for their input on the process before
major decisions are announced? For example, many have raised
concerns that the letters sent out to borrowers have no
official logo on them and many borrowers will think they are a
scam, a mistake which could have been caught if homeowner
advocates had been consulted before that form was finalized
rather than being written by the banks themselves with no input
from the other side.
A.27. The OCC, the Federal Reserve, and the independent
consultants have already begun a series of meetings and
consultations with community and housing advocates around the
Independent Foreclosure Review. Representatives from the
National Consumer Law Center, National Fair Housing Alliance,
Center for Responsible Lending, National Council of La Raza,
Consumer Action, and several other organizations, met with
independent consultants, the OCC, and the Federal Reserve on
January 5th. The advocates presented their experiences with
loan modification and foreclosure cases and explained their
specific concerns with the implementation of the Review. The
OCC has held two follow-up meetings with these and other
advocates to gain feedback on outreach initiatives and issues
presented by the Independent Foreclosure Review process. These
meetings will continue to be held every few weeks.
Q.28. Will the mandatory review of all files in certain
categories include the category of cases where borrowers
previously filed complaints with the servicers about
foreclosure actions that were pending in 2009 and 2010? The Fed
indicated in their testimony that they are requiring review of
all such files.
A.28. The independent consultants will review 100 percent of
all foreclosure-related complaints previously submitted by in-
scope borrowers that are forwarded by regulators, Government
agencies and other officials. Joint guidance provided by the
OCC and the Federal Reserve also calls for appropriate samples
of other borrower claims and complaints previously submitted to
the institution, and the OCC requires that the independent
consultants review all complaints submitted by in-scope
borrowers from January 1, 2011 through commencement of the
borrower outreach process on November 1, 2011.
Q.29. What was the OCC's role in designing, consulting on, or
approving the servicers' national print media outreach plan? If
homeowners, counselors, advocates or Members of Congress
request that changes be made to the national outreach campaign,
to whom should they send these requests (ex: the OCC,
servicers, their consultants, the Financial Services
Roundtable)?
A.29. The development and implementation of the national print
media campaign was an iterative process between the servicers
and regulators, but subject to final review and approval by the
OCC and the Federal Reserve. Feedback and suggestions gained
from ongoing meetings and communication with community and
housing advocates, including edits to the advertising copy and
use of recommended media outlets, was also incorporated into
this process. The OCC will continue to monitor the media
campaign to determine what media outreach would be beneficial.
Any recommendations and suggested changes to the national
outreach campaign should be made directly to the Federal
regulators.
Q.30. Please describe the exact process by which the claim
forms mailed to eligible borrowers were designed. Did the OCC
request that any changes be made after reviewing drafts of the
form from the servicers? If so, what changes were requested?
A.30. Development of the claims forms was an iterative process
between the OCC and the Federal Reserve, independent
consultants and servicers following a series of discussions
centered on the objectives of the outreach process and the
regulators' financial injury guidance. The approach centered on
providing a class action style notice to borrowers of their
opportunity to submit a claim for an independent review of
their foreclosure case. The OCC and the Federal Reserve
reviewed and accepted the final claims forms after several
edited iterations were drafted and submitted by the servicers
and the independent consultants. Required edits by the Federal
regulators included revisions to the cover letter, expansion of
the examples of situations that could result in financial
injury, simplification of questions, for example to ensure
proper capture of active duty servicemember information, and
incorporation of Spanish language disclosures.
Q.31. Did the OCC do any usability testing of the claim forms,
either with focus groups of borrowers or with form usability
experts?
A.31. The OCC did not conduct usability testing beyond internal
review among parties with varied expertise and experience,
interagency discussion with the Federal Reserve, and dialogue
with the servicers and independent consultants.
Q.32. Has the OCC either mandated or encouraged servicers to
provide funding to housing counselors, who are expected to
assist borrowers in completing the claim forms?
A.32. The OCC is encouraging servicers to provide resources to
housing counselors to help make borrowers aware of the
opportunity to take advantage of the Independent Foreclosure
Review and, where needed, to assist those borrowers during the
process. Bank of America has already funded an initiative to
engage recognized HUD-approved counseling intermediaries to
support enhanced outreach to customers who may be eligible for
the Independent Foreclosure Review and to provide help in
completing the application. The initiative supports 11 HUD-
approved intermediary agencies (who are also National
Foreclosure Mitigation Counseling fund recipients) and their
nonprofit affiliates and is designed to support grass roots
visibility to reach as many eligible customers as possible
including low- and moderate-income, multicultural and those who
may be experiencing language barriers. The outreach will
include: mailings and outbound calling directed at customers
believed to be eligible for the Independent Foreclosure Review;
traditional grass roots outreach events to provide information
to individuals and families; and other activities designed to
communicate information to the community, such as newsletters,
Web sites, PSAs, and purchased ads. These organizations will
also manage two toll-free numbers (one aimed at Spanish
speaking borrowers) and will assist borrowers in requesting and
completing the Request for Review form, including assembling
supplemental information and documents as necessary.
Q.33. As I understand it, the OCC could have directly retained
the independent consultants, and directed them to review the
actions of servicers subject to the consent orders. The OCC
could have then recouped costs related to these reviews via an
assessment on the servicers subject to the consent orders.
Please describe, in detail, why the OCC did not adopt this
approach. If Federal procurement rules were an issue, please
describe specifically which rules would have prevented the OCC
from swiftly engaging consultants.
A.33. The engagement of independent consultants subject to the
OCC's Consent Orders followed the same process the Federal
banking agencies generally utilize with respect to
implementation of requirements to hire independent third
parties to conduct reviews under 1818 enforcement orders.
Under this process, the financial institution is required to
propose engagement of an outside independent party, which is
subject to agency non-objection, and the institution is
required to pay directly for the third-party services. The
banking agency oversees the engagement and examines the
results. Under this process, consultants are motivated to
perform their services independently, competently, and
thoroughly, because, if they do not, they risk having their
independence called into question, their resulting work-product
rejected, and they risk future approval by the regulators to
serve as an independent outside third party with respect to
other projects.
The OCC considered the option of directly contracting with
independent consultants and determined that it would be more
appropriate and timely to have the servicers contract directly
with the consultants pursuant to the process described above.
For example, Federal Government procurement rules require that
the OCC conduct full and open competitions for services
including the services of consultants unless, for example,
there is only one source that can provide the services or there
are urgent and compelling circumstances. Even if circumstances
are considered urgent and so compelling, the maximum amount of
limited competition is required. Given that the services of up
to 12 independent consultants were needed, competition would
have to include more than 12 offerors.
The procurement process requires that the OCC develop a
request for proposals, advertise its requirement, evaluate
proposals, negotiate with offerors and make awards. This
process can be time consuming and, in the case of the
foreclosure reviews, could have taken as long as 6 to 9 months.
Because of the number of institutions involved, multiple
negotiations with offerors would have been necessary.
Additionally, as with any procurement, an interested party may
protest at the solicitation, offer or award phase to the U.S.
General Accountability Office. This adds risk and time to the
procurement process. Because the full scope of the work for the
consultants could not be defined up front, it would have been
difficult for offerors to price their services and for the OCC
to place a dollar value on the contracts. Also, the OCC
determined that flexibility in scoping requirements and in
making changes based on supervisory needs was important and
that such factors do not easily translate to Federal
procurement contract types. While there are some contract types
that allow more flexibility than others, the OCC would have
been in a position of continuously modifying its contracts to
ensure the scope of work was correct. The contract risk
associated with change in scope was, in our opinion, more
appropriately placed on the entities complying with the consent
orders rather than the OCC.
Q.34. What procedures are being established for both the
foreclosure reviews and the remediation process to ensure
uniformity so that borrowers get the same treatment no matter
which servicers or consultant they have?
A.34. The OCC and the Federal Reserve have collaborated to
provide guidance to the independent consultants with respect to
the foreclosure reviews, outreach/request for review process,
financial injury, prioritization of file reviews, and
remediation to ensure borrowers are treated in a consistent
manner. The regulators and independent consultants are in
regular, ongoing communication to share information and to
ensure standards are being applied in a consistent manner. We
have directed the independent consultants to include quality
control processes within their work flow to monitor the quality
and consistency of file reviews and address identified issues.
These quality control processes carry through to the
determination of financial injury as well as remediation. OCC
onsite examiners will review processes at each servicer, and
will also selectively test file work of the independent
consultants to help ensure both quality and consistency.
Q.35. Is it true that the results of the reviews will be shared
with banks for comment prior to release, but not with
homeowners, who will have no opportunity to comment prior to
release? I would urge you to give homeowners equal opportunity
to comment prior to release. It is bad enough that there are
deep concerns about the true independence of the reviewers
without even further biasing the process by allowing only one
side to comment on and influence the outcomes.
A.35. Independent consultants may share information with the
servicers for the purpose of correcting factual inaccuracies or
to obtain documentation in situations where incomplete or
missing documentation may be needed to reach an accurate
conclusion. The servicers are not permitted to influence
conclusions reached by the independent consultants with respect
to servicer errors, misrepresentations or deficiencies, or any
recommendations with respect to financial injury compensation
or other remediation.
Q.36. What steps will the consultants take to ensure that a
foreclosure does not happen while a review is underway? How
will the consultants know when a foreclosure sale is imminent
such that they should halt the foreclosure and/or provide a
faster review?
A.36. The OCC has issued guidance to the independent
consultants and servicers to try to prevent any borrower who is
receiving an independent foreclosure review from losing their
home without their file first receiving an independent review
or a pre-foreclosure sale review. All borrower requests and
other files selected for an independent foreclosure review will
be monitored on at least a weekly basis to determine if a
foreclosure sale is scheduled. The independent consultants will
prioritize their review of these requests and files according
to the scheduled foreclosure sales date. Additionally,
servicers, subject to independent consultant testing and
validation, will be required to promptly review all borrower
requests for an independent foreclosure review and borrower
submitted documentation, to determine if a scheduled
foreclosure sale should be postponed, suspended or canceled.
Servicers, after being notified of a borrower request for
review, also must promptly determine whether the borrower is
currently in an approved active loss mitigation program or is
being actively considered for a HAMP or other modification or
loss mitigation program and whether further foreclosure
proceedings and/or scheduled foreclosure sale be postponed,
suspended or canceled as required by the applicable program
standards. We encourage borrowers who believe they have a basis
to submit a request for review and are facing foreclosure to
submit their requests as soon as possible and to also continue
with their foreclosure prevention efforts directly with the
servicer, since submission of the request for review form just
prior to foreclosure sale may not allow for sufficient time for
the above checks to be completed.
Q.37. I was very disturbed by the testimony indicating that if
the consultants wish to contact or speak directly with
borrowers, they are expected to contact the servicer first. How
is it even remotely appropriate for the consultants, who are
supposed to maintain independence at all times, to have to
notify or get permission from the banks to contact borrowers?
Will the OCC change its directives so that consultants do not
have to either notify or get the permission of the banks to
directly contact borrowers? For consultants to evaluate
homeowner claims fairly requires open and direct communication
between the consultants and homeowners and their advocates and
should never be deterred by the servicer as an intermediary
between them.
A.37. Independent consultants do not have to obtain the
permission of servicers to contact borrowers, and servicers do
not dictate what additional information may or may not be
needed by the independent consultants from the borrower.
Independent consultants may exercise their judgment, consistent
with the terms of their engagement, in deciding whether to
request additional information from a borrower. It has never
been the OCC's position to prohibit contact between the
independent consultants and borrowers' rights advocates. In
fact, the OCC is facilitating such meetings.
Q.38. Is there a protocol requiring the consultants to reach
out to homeowner advocates when there is evidence in the file
that they were involved? Is there a protocol about how the
reviewers will respond to inquiries from parties authorized on
behalf of borrowers? If there are protocols, please describe
them. If there are not protocols, I respectfully ask that you
establish them.
A.38. The borrower is free to enlist the assistance of housing
counselors or other homeowner advocates to assist them in
preparing the complaint form. This can be done in several ways.
A borrower may request the Request for Review form from the
Independent Foreclosure Review call center, or use a Request
form already received in the mail, and sign and return the
form. If the borrower seeks to have a homeowner advocate
request a form or otherwise communicate on his or her behalf,
he or she would need to submit a signed written authorization
to allow the homeowner advocate to communicate with
representatives of the Independent Foreclosure Review. If the
homeowner advocate wishes to sign the form on the borrower's
behalf, a legal power of attorney is required.
We are pleased to report that on March 2, 2012, the
IndependentForeclosureReview.com Web site was enhanced to allow
for the intake of Request for Review forms online. This new
capacity for online submission of claim forms through the Web
site will facilitate and provide additional access for
borrowers and for borrower representatives to assist borrowers
in filing a request for review.
Q.39. Can you commit to contacting homeowners or their
advocates if pertinent information is missing? It is
tremendously important that the reviews not be conducted on
``submitted documents'' alone, since we know that servicers
have lost paperwork and servicer files may not be complete, and
that homeowners who don't have a counselor or attorney to guide
them through the process don't really know what proof they need
to send in.
A.39. For most cases, records required for review will be found
in the servicer files, attorney case files, and/or will be
supplied by the borrower in connection with their complaint
submission. However, the independent consultant may exercise
their judgment, consistent with the terms of their engagement,
in deciding whether additional information is needed from the
borrower.
Q.40. What experience requirements are mandated by the OCC for
foreclosure file reviewers? How long is the mandatory training
program for them? This strikes me as something that can't be
learned in a 2- or 3-week training program, but would take
years of experience. It seems to me that you really need
lawyers reviewing these files on such complicated legal
questions, but given some of the questionable job ads that have
appeared, I question the qualifications of some of those being
hired to do these reviews and make decisions that will have
profound impacts on the lives of struggling families.
A.40. In-depth and elaborate tools have been prepared by the
independent consultants and their outside counsel to assist
file reviewers, and reviewers are assigned based on experience
level of the task required (i.e., basic file review may entail
review by a contractor trained to respond to a specific
inquiry; quality assurance reviewers will have a higher level
of relevant experience). Training is also provided by the
independent consultants to file reviewers. Each of the
independent consultants also has engaged independent counsel to
help them address legal issues that require the assistance of
counsel in order to properly review a borrower case file. OCC
examiners also serve in an oversight role and will review
samples of individual files as another quality assurance
measure to ensure that the file reviews are being conducted
appropriately.
Q.41. If consultants are only reviewing borrowers for the items
they check on the letter, then why aren't borrowers informed of
that important fact in the letter?
A.41. The letter and Request for Review form encourage
borrowers to provide all information the borrower feels
relevant and provides clear opportunity for the borrower to
address any other issue in an open-ended question. Providing as
much information as possible in describing borrowers' concerns
helps ensure an accurate and effective review by the
independent consultants.
Q.42. What information obtained from borrowers will the
consultants or Rust share with the servicers? This has Fair
Debt Collection Practice Act implications, and there should be
clear and public guidelines on this. Homeowners are more likely
to trust the process if their personal information is not
shared with the servicer (counselors have already had
homeowners contact them who said that the potential use of
information by the servicer is one reason why they don't want
to return the form).
A.42. Information submitted on the borrower Request for Review
form is made available to the respective servicers in order to
facilitate the collection of necessary documents for review by
the independent consultants. However, we have directed
servicers to limit the use of contact or personal information
provided in connection with the Independent Foreclosure Review
only for purposes relating to the Independent Foreclosure
Review process. We believe this mandate will address any
borrower concerns regarding a servicers' use of updated contact
information for debt collection efforts against a borrower who
provides such information in connection with his or her Request
for Review submission. Our initial research into the matter
determined that use of Request for Review form information to
collect on borrower debts was never contemplated by the
servicers; nonetheless, we have issued a clear mandate to
provide eligible borrowers with these additional assurances.
Information concerning this mandated privacy policy now appears
on the www.IndependentForeclosureReview.com Web site.
Q.43. Testimony indicated that only 5 percent of mailings have
been returned undeliverable, and that seems like a surprising
statistic considering how many people who are foreclosed on
move multiple times afterward. What explains that low rate of
returns? Is it possible the letters are still sitting in unused
mailboxes without being returned as undeliverable? Is there any
in-person outreach being done to reach borrowers?
A.43. As of March 4 and after completion of all 4.3 million
initial mailings, 5.6 percent have been returned undeliverable
with no additional alternate addresses available. Second and
third mailings using an address trace process to reach
additional borrowers are currently nearing completion. The low
undeliverable rate is a result of effective efforts to identify
current and accurate addresses of potentially eligible
borrowers. To help reach those people where direct mailing is
unsuccessful, the OCC and the Federal Reserve have also
required nationwide public awareness advertising. In addition,
the OCC published public service articles and radio spots for
use in small newspapers and radio stations throughout the
country and continues to conduct media interviews on the
subject. The OCC and the Federal Reserve are also facilitating
educational and awareness outreach meetings with housing
advocacy groups, including two nationwide Webinars, to increase
awareness of this effort.
The OCC also is encouraging servicers to provide resources
to housing counselors to help make borrowers aware of the
opportunity to take advantage of the Independent Foreclosure
Review. As previously described, one major servicer has already
funded an initiative to engage 11 HUD-approved counseling
intermediaries to support enhanced outreach to reach as many
eligible customers as possible including low- and moderate-
income, multicultural, and those who may be experiencing
language barriers.
Q.44. What has the borrower response rate been so far among the
borrowers who have been contacted? What percentage have already
returned their completed forms?
A.44. All of the scheduled 4.3 million independent foreclosure
review forms have been mailed, and second and third mailings to
borrowers where the initial mailing was returned undeliverable
are nearing completion. Through March 4, 113,894 Requests for
Review have been received. On February 15, the OCC and the
Federal Reserve jointly announced that the deadline for
borrowers to submit a request for review to the Independent
Foreclosure Review process had been extended from April 30,
2012 to July 31, 2012. The 3-month extension will provide more
time to increase awareness of how eligible people may request a
review and to encourage the broadest participation possible.
The national print media campaign will also be extended to
further increase and expand public awareness of the Independent
Foreclosure Review process.
Q.45. Shouldn't people be able to go to a Web site to get the
form they need rather than relying on mailings alone?
A.45. We are pleased to report that on March 2, 2012, the
IndependentForeclosureReview.com Web site was enhanced to allow
for the intake of Request for Review forms online. Online
submission of claim forms through the Web site further
facilitates and provides additional access for homeowners to
Request for Review forms online.
Q.46. Can the Web site be immediately redesigned to look more
official, but also easier for borrowers to understand? It is
currently so primitively done that it looks like a scam.
A.46. Changes to the text of the site have been made to
reference the OCC and the Federal Reserve in order to provide
additional credibility and assurance to site visitors that
www.IndependentForeclosureReview.com is a legitimate site and
program.
Q.47. How will the borrowers who lost their homes to
foreclosure or who have relocated be contacted? Can you commit
to consulting with a wide variety of homeowner advocates
including housing counselors and attorneys to gather any
homeowner contact information from them?
A.47. Outreach actions to contact and promote an informed
awareness among in-scope borrowers have included direct mail
supported by a mass media (print) campaign and public service
announcements promoted by the OCC. The direct mail campaign
started with the borrower's current active address or last
known active address. All addresses on file were run through a
national change of address database to identify a more current
address. Several servicers also processed borrower addresses
through a third-party consumer database using information from
sources such as credit bureaus, public records/registrations,
utilities, phone number databases etc., to determine the most
likely current addresses. Returned mail for servicers who did
not ``pre-trace'' borrower addresses was subject to the above
tracing process. Any returned mail from the next contact
attempt was processed using human judgmental decisioning to
determine most likely current addresses. We attribute the
relatively low numbers of returned mail to the level of efforts
made to pre-trace and post-trace borrower addresses. This
address tracing process is further supplemented by the print
media advertising campaign and OCC-promoted public service
announcements to help reach borrowers who may not have received
the direct mailing. The OCC is regularly meeting with various
housing counselors and advocates to explore additional methods
to reach relocated borrowers and increase customer awareness of
the Independent Foreclosure Review program.
As described in previous answers, the OCC is encouraging
servicers to provide resources to housing counselors to help
make borrowers aware of the opportunity to take advantage of
the Independent Foreclosure Review and, where needed, to assist
those borrowers during the process.
Q.48. What provisions are being made for outreach, materials
(including required forms), and assistance to be provided in
languages other than English? I've heard concerns that the way
the outreach is being conducted may violate the Fair Housing
Act. How will you ensure that all outreach materials comply
with Limited English Proficiency Executive Order 13166?
A.48. There are multiple efforts currently underway to make
outreach and information about the Independent Foreclosure
Review available in languages other than English. The RUST
toll-free call center has translation services available in
over 240 languages, and the operators can also translate
documents for borrowers over the phone. Spanish language
translations of the Frequently Asked Questions and a Spanish
language guide on how to complete the form are now available on
the IndependentForeclosureReview.com Web site. The OCC will be
monitoring the volume of calls coming into the RUST call center
from borrowers who request translation services and will use
this data to determine if other similar translations are
necessary to serve other non-English speaking populations.
Q.49. The Spanish messages on the mailed claim forms and
proposed print ads give unclear directions. Do call centers
have representatives who are capable of taking calls in
Spanish? Will Spanish-speaking borrowers be required to obtain
their own independent interpreters in order to navigate the
process?
A.49. The call center does have Spanish translators available
at all times. Spanish-speaking borrowers and any other non-
English speaking borrowers will not be required to obtain their
own translators; statements to that effect contained in the
draft of the advertisement and on the Web site have been
removed.
Q.50. Will Rust provide a 1-800 number for translation of forms
and other guidelines?
A.50. Yes. Borrowers can request a free translation over the
phone of forms and other letters they receive by calling the
main RUST 1-800 number available to all borrowers.
Q.51. Will outreach and print ads be done through Spanish-
language media in select markets?
A.51. The OCC worked with servicers to expand their media plan
to include Spanish-language placements in key markets. In
addition, the OCC public service advertisements were produced
in Spanish and distributed to hundreds of small Spanish
language publications and radio stations throughout the country
for their use.
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RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM JULIE L.
WILLIAMS
Q.1. As part the foreclosure review process, what is the extent
of the Department of Justice's (DOJ) involvement with respect
to in scope borrowers who are covered by the Servicemembers
Civil Relief Act (SCRA)? Will the OCC provide the DOJ with
every opportunity and the ability to determine (a) whether a
servicer has engaged in a pattern or practice of violating the
SCRA and (b) whether a servicer has engaged in a violation of
the SCRA that raises an issue of significant public importance?
If not, please explain why not.
A.1. The OCC has been working closely with the Department of
Justice (DOJ) to ensure that borrowers covered under both of
our respective enforcement actions are treated similarly, and
we are committed to sharing the results of the SCRA foreclosure
reviews with the DOJ for all servicers under OCC orders or
orders under our jurisdiction. Not only has the DOJ been
provided with every opportunity and the ability to determine
whether a servicer has engaged in a pattern or practice of
violating the SCRA or engaging in an SCRA violation of
significant public importance, but OCC staff at all levels have
been in regular, sometimes daily, contact with their DOJ
counterparts to ensure that we are taking consistent approaches
to common issues. We have found the DOJ to be extremely helpful
to us, especially with regard to interpretive issues,
discussions of remediation of violations, and in resolving
issues with the Defense Manpower Data Center database. We
greatly appreciate the assistance they are providing us and
value highly our working relationship with them.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MERKLEY FROM JULIE L.
WILLIAMS
Q.1. Given the difficulties of reaching all eligible
homeowners, will the OCC consider extending the deadline for
applications beyond April of 2012?
A.1. On February 15, 2012, the OCC and the Federal Reserve
announced an extension of the deadline for individuals to
request a review under the Independent Foreclosure Review. The
new deadline is July 31, 2012, and provides an additional 3
months for borrowers to request a review. The deadline
extension provides more time to increase awareness of how
eligible borrowers may request a review through this process,
and to encourage the broadest participation possible.
Q.2. Is it correct that homeowners will be evaluated only for
those ``boxes'' they check even if they were to mistakenly
check the wrong box?
A.2. The purpose of the background questions is to assist
borrowers in communicating how they believe they were
financially harmed. The independent consultants will focus
their review on these areas to ensure that the borrowers'
specific concerns are evaluated. To the extent borrower
descriptions are incomplete, inadequate or vague, independent
consultants will treat such claims as a ``generalized''
complaint subject to a full scope review. In addition, we have
instructed independent consultants that all servicer errors
identified during the file review that resulted in financial
injury must be remediated as appropriate.
Q.3. Homeowners applying for a loan modification can be
financially harmed simply due to servicer delays in processing
their application. Will such delays be considered to constitute
``financial harm?''
A.3. The OCC and the Federal Reserve are in the process of
finalizing the financial remediation framework. As part of
that, we have considered how to incorporate into the framework
financial injury resulting from servicer delays in processing
borrower applications for loan modifications in cases where
there was a requirement to process a completed application
within a specified timeframe (i.e., under HAMP) that was not
met. We expect to be able to release this remediation framework
in March.
Q.4. One of the consultants who testified on December 13
suggested that cases where a homeowner lost his or her home
through a process that included robo-signing of affidavits
would not necessarily have suffered any financial harm. Will
the remediation construct being developed by the OCC recognize
financial injury when a homeowner is thrown out of his or her
home due to the illegal robo-signing of affidavits?
A.4. The remediation framework being developed by the OCC and
the Federal Reserve is designed to remediate direct financial
injury suffered as a result of errors, omissions or
misrepresentations by the servicers. If the independent
consultant determines that there was direct financial injury
suffered as a result of robo-signing of affidavits, then,
pursuant to plans that must be approved by the OCC, the
servicer will be required to remediate such harm. However, the
act of robo-signing alone does not in and of itself constitute
direct financial injury that is compensable under the
Independent Foreclosure Review.
Q.5. The remediation construct that will direct the consultants
will play a pivotal role in determining the amount of
compensation homeowners will receive. How soon will you be able
to share a copy of that document with our office?
A.5. The OCC expects the remediation framework will be
completed in March. We plan to make it publicly available at
that time.
Q.6. Will homeowners be provided access to the remediation
framework?
A.6. See answer above.
Q.7. Would the OCC allow a homeowner to lose their home during
the time they are waiting for a review and determination of
their case?
A.7. The OCC has issued guidance to the independent consultants
and servicers to try to prevent any borrower who is receiving
an independent foreclosure review from losing their home
without their file first receiving an independent review or a
pre-foreclosure sale review. All borrower requests and other
files selected for an independent foreclosure review will be
monitored on at least a weekly basis to determine if a
foreclosure sale is scheduled. The independent consultants will
prioritize their review of these requests and files according
to the scheduled foreclosure sales date. Additionally,
servicers, subject to independent consultant testing and
validation, will be required to promptly review all borrower
requests for an independent foreclosure review and borrower
submitted documentation, to determine if a scheduled
foreclosure sale should be postponed, suspended or canceled.
Servicers, after being notified of a borrower request for
review, also must promptly determine whether the borrower is
currently in an approved active loss mitigation program or is
being actively considered for a HAMP or other modification or
loss mitigation program and whether further foreclosure
proceedings and/or scheduled foreclosure sales should be
postponed, suspended or canceled as required by the applicable
program standards. We encourage borrowers who believe they have
a basis to submit a request for review and are facing
foreclosure to submit their requests as soon as possible and to
also continue with their foreclosure prevention efforts
directly with the servicer, since submission of the request for
review form just prior to foreclosure sale may not allow for
sufficient time for the above checks to be completed.
Q.8. What provisions will OCC make for direct interactions
between the homeowner and the reviewer of their application?
A.8. The independent consultants will review all information
submitted by the borrower as well as information provided by
the servicer as included in the borrower's file. Independent
consultants may exercise their judgment, consistent with the
terms of their engagement, in deciding whether additional
information is needed from a borrower to conduct their review.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM JULIE L.
WILLIAMS
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. See response to question 3 below.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. See response to question 3 below.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. Each of the foregoing questions raise very important
issues about the standards and infrastructure supporting
housing finance in the United States. A modern, efficient
system that supports home ownership opportunities, responsible
lender behavior, and healthy mortgage markets would include
elements of clear, predictable and consistent national
standards and utilization of 21st century technology to enable
efficient operation of the mortgage finance system. We welcome
the opportunity to be part of this dialogue.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER FROM JULIE L.
WILLIAMS
Q.1. Even with some signs of increased demand, it seems like
the mortgage market in 2012 could be a lot like 2011, and
housing prices may even decline according to some projections.
Seventeen percent of FHA's portfolio is delinquent and over 10
million homes nationwide are underwater. S&P thinks it will
take almost a year to work through the excess inventory of
houses. Considering the state of the housing market, does the
OCC believe that a refinance program for non-GSE owned homes
could be beneficial to homeowners, lenders, and housing market
recovery? Should such a refinance program, or the current HARP
program be applicable to homeowners with over 20 percent
equity?
A.1. The OCC has not taken a position of any on the various
refinancing ideas that have been suggested for non-GSE backed
mortgages.
Q.2. My staff is still receiving consistent complaints about
the quality of customer service by servicers, which directly
affects the rate of foreclosures. The OCC has completed an
Interagency Review of Foreclosure Policies and Practices and
has participated in efforts toward implementing national
servicing standards. How do you measure the progress made in
the last few years toward effective servicing? Can you give us
a status report on the implementation of national servicing
standards? Can regulators affect the quality and capability
level of servicing professionals that are hired? How should I
characterize servicing oversight and improvements to my
constituents?
A.2. This is an area where mortgage servicers need to continue
to improve the quality of customer service. The OCC and the
Federal Reserve Consent Orders require a number of crucial
steps. The National Mortgage Settlement imposes detailed
requirements on the five largest servicers, and the OCC and
other Federal agencies have undertaken to develop more
comprehensive uniform mortgage servicing standards that will
apply not just to federally regulated banks and thrifts, but to
all mortgage servicers. This latter effort is in early stages
and is strongly supported by the OCC. There is much work still
to be done but important new standards are already being
applied to the largest federally regulated servicers as a
result of the OCC and the Federal Reserve Consent Orders.
Q.3. Based on reports from my State staff, there are three
specific issues I want to address in the context of progress
toward improved servicing standards. First, difficulty
obtaining permanent modifications: Folks will complete their 3-
month trial modification, and then be rejected for a permanent
modification. And according to housing counselors, all of these
loss mitigation decisions take too long. Can you characterize
what percent of homeowners nationally have typically qualified
for HAMP or proprietary modifications and then are rejected for
permanent modifications? Does the OCC see any feasible changes
in the eligibility for permanent modifications that would
maintain success rates in permanent modifications but allow
greater eligibility?
A.3. The OCC does not have data on the number of borrowers
qualified for a HAMP or proprietary modification program that
ultimately receive or are rejected for permanent modifications.
The Making Home Affordable (MHA) program administered by the
Treasury Department could have applicable information on HAMP
modifications. The OCC believes that the eligibility criteria
currently used for HAMP reasonably balances borrower
qualification requirements with investor expectations for a
positive, comparative net present value return and an
acceptable post-modification success rate. Proprietary programs
currently in effect to supplement HAMP provide greater
flexibility for borrower eligibility, but at the expense of
lesser post-modification success.
Q.4. Second, short sales: If my constituents need to leave
their home, a short sale may be their best option. I hear a lot
of reports that homeowners are having trouble getting short
sales approved, they go through multiple rounds of negotiations
for an underwater home and are lucky if they can get approval.
Can you discuss the OCC's regulatory concerns with short sales,
and how we can make short sales a more viable option for
homeowners? Shouldn't the mortgage owners want a new borrower
in the home who can better afford the payments? Are there
options for credit reporting following short sales that lenders
can use to minimize credit damage to homeowners?
A.4. The OCC endorses short sales as a viable loss mitigation
alternative for many troubled borrowers, and OCC mortgage
metrics data obtained from nine of the national banks under the
Consent Orders shows that short sales have steadily increased
over the past 2 years, from 30,766 transactions in the third
quarter of 2010 to 57,479 transactions in third quarter 2011.
Unfortunately, while short sales continue to increase,
accomplishing a successful short sale at times can be a very
complicated process, especially when the servicer does not
service or own both the senior lien mortgage and the junior
lien loan(s), or when there is a third-party investor or
another institution that provides private mortgage insurance
for the loan(s). To affect a successful short sale, there
generally must be a purchase offer that results in a positive
net present value return (vs. a foreclosure) to the third-party
loan investor or mortgage insurance provider. The offer must
come from a qualified purchaser with either cash or available
financing to accomplish the purchase. In addition, investors
may not allow servicers the significant time often necessary to
negotiate a short sale when those timeframes conflict with
established foreclosure processing timeframes. And, junior lien
holders on the property must also be receptive to the
transaction and willing to release their liens. Short sales
cannot always be accomplished because these criteria cannot be
met.
The OCC believes that credit reporting must accurately
reflect the facts and circumstances around how a borrower has
performed under a credit arrangement. Reliable credit bureau
information is the foundation for the vast majority of consumer
credit that exists today, allowing lenders to make informed
credit decisions and offer credit to the broadest borrower
population possible. Credit reporting should be an objective
process that allows lenders to make informed decisions based on
a borrower's demonstrated creditworthiness. How lenders use the
information is part of the underwriting process when
considering new or additional credit. Reporting that does not
accurately portray the facts and circumstances of a credit
arrangement weakens the usefulness of the information and would
be a concern.
Q.5. Third, dual-track processes are still happening:
Homeowners are still receiving foreclosure notices and auction
date notices while they are working toward modifications.
Internal communications seems to be a problem within the large
lender and servicer organizations. What must be done internally
in lender and servicer organizations to end the dual track, and
what abilities do the banking regulators have to cause
expedited improvement here?
A.5. This is an area actively under review by the OCC. The
OCC's Consent Orders require servicers to implement procedures
under approved action plans to ensure that no further
foreclosure or legal action predicate to a foreclosure occur
when the borrower's loan has been approved for a trial or
permanent modification, unless the borrower is in default on
the terms of the trial or permanent modification. We are
currently assessing each servicer's progress in completing
required changes in this and other areas. Moreover, it was also
contemplated under the orders that servicers will be required
to revise action plans to comply with any higher standards that
might be required by developing national servicing standards,
other negotiated settlements or contractual agreements,
including those subject to the National Mortgage Settlement, or
in some respects, new requirements imposed by the GSEs. The OCC
also expects the servicers to comply with other applicable
dual-track standards required under the Making Home Affordable
program, as well as applicable GSE and investor standards. With
respect to the latter two, however, it is important to
recognize that contractual requirements and requirements may
determine servicer actions and timing in processing
foreclosures.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM ALYS
COHEN
Q.1. You voiced several concerns regarding the outreach
process, including complexity, inability to access forms, and
many others. What specific suggestions for improvement can you
offer the OCC, servicers, and consultants to implement?
A.1. Any marketing changes that are made will only be useful if
the reviews themselves are both thorough and fair. With regard
to outreach, key changes to be made include: sending a letter
to homeowners that is understandable and that properly
highlights the scope of harm covered by the reviews;
advertising must be done in order to reach affected populations
including communities of color; materials and assistance must
be done with language access needs met; and the deadline for
submission of claims should be extended to allow for
improvement to the outreach process. Everything about the
outreach process, including letters, should be made public in
order to ensure accountability. Finally, homeowners and the
public need to know that the review process will be thorough
and fair and provide adequate compensation without
inappropriate waivers of legal rights; without these
assurances, homeowners are unlikely to and should not trust the
process. Glossy outreach without substance is merely another
name for fraud.
Q.2. The foreclosure review application requests that
applicants check boxes for the types of harm (from a very
narrow list) which correlate with the harm they have suffered.
However, their application will only be reviewed for the types
of harm checked. If the homeowner submits the form and checks
no boxes, they will be reviewed for all of the types of harm
listed, which is still limited. What solutions do you
suggestion for this issue?
A.2. Every claim submitted by a homeowner should receive a full
review for all types of harm based on the servicer's file, the
claim and necessary follow up, including consumer interviews
where applicable. Homeowners often are not in a position to
know whether they were overcharged or were otherwise denied
proper loss mitigation. While it has been suggested that
homeowners should be told that reviews are dictated by what the
consumer identifies, this disclosure is unlikely to be
understandable to most consumers and thus would not be an
adequate protection against a faulty review. Moreover, such a
disclosure does not change the fact that homeowners will not be
able to identify all of the harms they have suffered.
Q.3. You mentioned in your testimony two types of harm not
listed in the OCC's list of 22 examples. Are there any other
types of harm that should be considered as well that are not
covered by the OCC's examples?
A.3. The consent orders and the documents connected with the
foreclosure reviews fail to cover all foreseeable economic
damage in the definition of financial injury and omit common
examples of significant financial harm to consumers. The OCC's
narrow definition of financial harm is at conflict with long
settled and well-established rules about available damages and
undermines homeowners' rights. It will leave many homeowners
uncompensated for harm they have suffered at the servicers'
hands.
Among the harms that should be considered are the
following:
LServicer delays in processing and approving a
modification cost homeowners thousands of dollars in
additional interest and fees that is then rolled into
the principal balance.
LBeing improperly placed into a non-HAMP
modification is costly for homeowners. The interest
rate may reset sooner, may not be reduced as low, legal
rights may be waived, additional costs may be
capitalized, the waterfall may extend the term before
lowering the interest rate (costing average homeowners
tens of thousands of dollars), or the terms may be less
advantageous in other ways. Homeowners in proprietary
modifications lose the benefit of the HAMP borrower
incentive payments and face a higher risk of a
subsequent foreclosure.\1\ The increased risk of
redefault is a quantifiable economic harm, but it does
not appear compensable under the OCC metric.
---------------------------------------------------------------------------
\1\ See Office of the Comptroller of the Currency, OCC Mortgage
Metrics Report: Disclosure of National Bank and Federal Thrift Mortgage
Loan Data, Second Quarter 2011, 40 (June 2009).
LThe cost of credit and insurance are driven by
credit scores: a wrongful foreclosure can easily cost a
homeowner thousands of dollars annually just on these
---------------------------------------------------------------------------
two fronts.
LEmployers and landlords also both rely on credit
scores; a wrongful foreclosure can result in lost jobs
and difficulty locating alternative housing.
LHomeowners spend time and money trying to unravel
wrongful foreclosures: the need to send notarized
documents by overnight mail repeatedly to the servicer
by itself can result in hundreds of dollars of out-of-
pocket expenses. Homeowners should be compensated for
all time and out-of-pocket expenses incurred in
correcting the servicer's malfeasance.
LChildren who suffer dislocation due to foreclosure
may lose educational opportunities and experience poor
health. Families should be compensated for these
economic harms.
LFamilies are often torn apart by a foreclosure;
compensation should be offered for all the
psychological and social damage done by a wrongful
foreclosure.
LAny waiver demanded by the servicer must be offset
by full compensation for all legally cognizable harm
and limited to a waiver of claims related to the scope
of the waiver. Otherwise, homeowners will be further
injured by servicers without redress.
Q.4. You stated in testimony that the servicers' general
counsel's offices appeared to have been involved in drafting
the engagement letters for the third-party consultants, and
expressed concern about whether that was being done to create
attorney-client privilege. Can you elaborate on that?
A.4. In many cases, the ``project leads'' of the foreclosure
reviews are the servicers' own general counsel office and in
all cases the engagement letters that have been released reveal
that the servicer's general counsel's office is the point of
contact for the review.\2\ The following excerpt from the
recent article highlighting these issues elaborates on this:
---------------------------------------------------------------------------
\2\ See Francine McKenna, OCC Foreclosure Review Disclosures Still
Disappoint, Am. Banker, Dec. 6, 2011, available at http://
www.americanbanker.com/bankthink/OCC-foreclosure-review-disclosures-
still-disappoint-waters-1044628-1.html?zkPrintable=true.
One tricky area for the consultants and legal counsel is
attorney-client privilege. The engagement letters include
boilerplate language that emphasizes the OCC is the primary
director of the engagement at each servicer. However, the level
---------------------------------------------------------------------------
of emphasis of this fine point in the final versions varies.
Some of the engagement letters invoke attorney-client privilege
and attorney work product privilege over the whole process and
confidential treatment of engagement letter itself. It appears
all the servicers used their general counsel's office to engage
the consultants and outside counsel and some name their general
counsel as project lead. Some servicers engaged additional
outside legal counsel for the review directly rather than
through the primary consultant.\3\
---------------------------------------------------------------------------
\3\ Id.
Whether or not this creates problems regarding access for
public officials, it certainly appears to be an effort to keep
the process and outcomes of these reviews out of the public
eye. Moreover, it makes clear that, despite boilerplate
language to the contrary, the consultants are working for the
servicers. The use of attorney-client privilege by the
servicers could prevent homeowners and the public at large from
ever knowing the scope or results of the reviews. Servicers
could invoke attorney-client privilege to prevent homeowners
from presenting to courts evidence of the servicers'
wrongdoing, if that evidence was in any way touched on during
the foreclosure review. This leaves homeowners in a catch-22:
compensation they receive from the foreclosure review process
is uncertain and likely coupled with a waiver of all legal
claims, but attempts to vindicate their rights outside of the
foreclosure review process are likely to be met by stonewalling
on the part of the servicer.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM ALYS COHEN
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. Real estate investments have always been subject to State
law. In the years leading up to the crash, investigations and
enforcement actions by State officials did not deter investment
in real-estate secured loans. Instead, investors have relied on
representations and warranties by originators and servicers as
to compliance with applicable State laws. If investors are
scared off now, it is because originators and servicers have
failed to make good on those representations and warranties to
investors.
Additionally, investors suffer significant losses when
homes are foreclosed on. These losses far exceed the losses
when loans are modified. Unsurprisingly then, many investors
have expressed an interest in seeing the same result as sought
by the 50 State AGs: greater efficiency in the processing of
loan modifications and increased numbers of loan modifications,
including principal reductions.
Servicers' failure to meet their legal and fiduciary
obligations to investors and homeowners is a leading cause of
the current crisis. Servicers must be held accountable in order
to restore confidence in our real estate and investment
markets. State and Federal enforcement actions are one key
mechanism for changing abusive behavior. Establishment of
strong, minimum national servicing standards will provide
clarity to industry while ensuring fairness and efficiency to
homeowners and the market.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. Strong minimum standards--with room for parties or states
to require more as dictated by their circumstances--are
essential to establishing an efficient and fair mortgage
servicing market. While such standards could be developed in a
uniform PSA, investors, homeowners, and regulators have
struggled to hold servicers to the standards in existing PSAs.
The accountability mechanisms in PSAs typically allow servicers
to evade or delay meaningful compliance. Moreover, the
provision of minimal national servicing standards by law or
regulation would be less intrusive of the free marketplace, by
allowing contracting parties to design their PSAs to suit their
individual circumstances. The provision of national servicing
standards might result in greater uniformity in some PSA
standards, but would be more targeted, less invasive, and more
enforceable. While a set of minimum PSA provisions may be
advisable for a variety of reasons, the Government has not
typically dictated the provisions of private contracts, but
provided ground rules for competition.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. The key issue regarding registration of mortgages is
whether legal compliance and transparency are satisfied. The
current MERS system provides neither and therefore creates huge
roadblocks for homeowners defending foreclosures. Homeowners
know neither the identity of the party seeking to foreclose on
them nor whether the legal requirements regarding transfers of
ownership, a pre-requisite to a foreclosure, have been
satisfied. Any electronic registration system must be
implemented in a manner that preserves the approach required
under law and affords full transparency to homeowners and the
American public rather than being used as a means to circumvent
it.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN MENENDEZ FROM DAVID
C. HOLLAND
Q.1. If consultants are only reviewing borrowers for the items
they check on the letter, then why aren't borrowers informed of
that important fact in the letter?
A.1. Based on Rust's role in this process--specifically, as the
firm which printed and mailed letters, but not the authors of
their content--I do not believe I am the appropriate person to
answer this question.
Q.2. What information obtained from borrowers will the
consultants or Rust share with the servicers? This has Fair
Debt Collection Practice Act implications, and there should be
clear and public guidelines on this. Homeowners are more likely
to trust the process if their personal information is not
shared with the servicer (counselors have already had
homeowners contact them who said that the potential use of
information by the servicer is one reason why they don't want
to return the form).
A.2. Rust follows a process with respect to handling and
sharing of data which was agreed to by the Independent
Consultants; Servicers; OCC; and the FRB. This process is to
make all information sent to Rust available to both the
appropriate servicer and its Independent Consultant.
Q.3. Testimony indicated that only 5 percent of mailings have
been returned undeliverable, and that seems like a surprising
statistic considering how many people who are foreclosed on
move multiple times afterward. What explains that low rate of
returns? Is it possible the letters are still sitting in unused
mailboxes without being returned as undeliverable? Is there any
in-person outreach being done to reach borrowers?
A.3. Rust, based on standard notification processes and agreed-
upon processes for this engagement, conducted a number of steps
prior to mailing with the intention of maximizing delivery
rates. For example, when possible, we ran addresses through the
National Change of Address service and, performed ``skip-
tracing.'' Further, the last-known addresses were relatively
recent, only going back to approximately 2009; in the context
of our business, this is relatively recent information.
It is noteworthy that it takes time for undeliverable mail
to be returned; having continued to drop new mailings and
knowing that mail will continue to be returned as it works its
way through the U.S. Postal Service, the rates will change.
Current statistics (as of Jan. 10, 2012) are that 414,317 total
Notices have been returned as undeliverable (as compared to
4,339,191 Notices mailed), for approximately 9.5 percent.
With respect to whether letters could be unopened in unused
mailboxes, we cannot comment with any authority: we can only
confirm what is not received (based upon it coming back as
undeliverable), not what is received, or (if received) what may
be opened, read, etc.
Q.4. What has the borrower response rate been so far among the
borrowers who have been contacted? What percentage have already
returned their completed forms?
A.4. As of Jan. 10, 2012, 61,890 complaint forms have been
received, as compared to 4,339,191 Notices having been mailed
to borrowers, for approximately 1.4 percent. Notices were
mailed in waves from Nov. 1, 2011, through Dec. 30, 2011. The
complaint filing deadline is April 30, 2012.
Q.5. Shouldn't people be able to go to a Web site to get the
form they need rather than relying on mailings alone?
A.5. In this respect, Rust is carrying out the program as
agreed upon by the consortium. Their agreement in this case was
to mail out bar-coded forms tied to specific database records
as opposed to generic, Web-generated forms.
Q.6. Can the Web site be immediately redesigned to look more
official, but also easier for borrowers to understand? It is
currently so primitively done that it looks like a scam.
A.6. The Web site was created to match the design as requested
by the consortium. We can make changes as requested.
Q.7. How will the borrowers who lost their homes to foreclosure
or who have relocated be contacted? Can you commit to
consulting with a wide variety of homeowner advocates including
housing counselors and attorneys to gather any homeowner
contact information from them?
A.7. Rust will carry out efforts according to the agreement of
the consortium to contact borrowers, including working with
whatever groups are identified as appropriate. As is typical in
this type of effort (such as with class action settlements or
other outreach programs), a media notice program is intended to
reach borrowers currently unreachable by mail for whatever
reason. The schedule for the media notice program, currently
scheduled to begin in mid-January and aimed toward national and
regional audiences in English and Spanish, is attached.
Q.8. What provisions are being made for outreach, materials
(including required forms), and assistance to be provided in
languages other than English? I've heard concerns that the way
the outreach is being conducted may violate the Fair Housing
Act. How will you ensure that all outreach materials comply
with Limited English Proficiency Executive Order 166?
A.8. In this respect, Rust is carrying out the program as
agreed upon by the consortium.
Q.9. The Spanish messages on the mailed claim forms and
proposed print ads give unclear directions. Do call centers
have representatives who are capable of taking calls in
Spanish? Will Spanish-speaking borrowers be required to obtain
their own independent interpreters in order to navigate the
process?
A.9. Yes, our contact center includes Spanish-speaking customer
service representatives (CSRs) who can respond to callers'
questions to the same level of detail as our English-language
CSRs, as all representatives follow approved, scripted
questions and answers.
Q.10. Will Rust provide a 1-800 number for translation of forms
and other guidelines?
A.10. Rust will facilitate whatever the consortium decides with
respect to this. We have coordinated with the servicers to
offer translation services via the existing toll-free number.
If no CSR on staff can field questions in the language being
requested, we will engage a third-party translator via a three-
way call to resolve the call.
Q.11. Will outreach and print ads be done through Spanish-
language media in select markets?
A.11. Yes, please see the attached media schedule for specific
publications.
Q.12. Will you and the entire working group of independent
consultants commit to having a regular series of ongoing
meetings with a broad cross-section of housing counselors and
legal advocates who are assisting borrowers prior to making
major decisions about how these reviews will be conducted? For
example, housing counselors may have forwarding information for
the millions of borrowers who have moved, so why aren't they
being consulted to get that info rather than just run skip
traces? Why is their deep store of knowledge of problems that
most borrowers have had not informing the review process? The
OCC has stated in a post-hearing letter to me that they
encourage you to engage in such communications as long as they
do not reveal bank-specific information.
A.12. Rust will commit to participating in whatever meetings
are identified as useful to the administration of this project,
as agreed upon by the consortium.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM DAVID C.
HOLLAND
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. I do not believe that Rust Consulting, as the firm engaged
to administer certain aspects of the Consent Orders for the
Independent Mortgage Foreclosure Borrower Outreach project, or
that I, as the executive vice president overseeing Rust's work
in these engagements, are qualified to respond to this
question. Rust's role is that of managing the already agreed-
upon project, including data management, notification, contact
centers, mail processing, etc.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. Please see the response to the first question, above.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. Please see the response to the first question, above.
------
RESPONSE TO WRITTEN QUESTION OF CHAIRMAN MENENDEZ FROM PAUL
LEONARD
Q.1. As Senator Merkley suggested during the hearing, will
banks voluntarily submit to a foreclosure review process in
which homeowners or groups representing homeowners get to
choose the third-party reviewers who will decide the outcomes?
How will servicers learn from the results of this review?
How will they correct any patterns of mistakes they made so
that they don't continue to make those mistakes in dealing with
foreclosures going forward?
A.1. Mr. Chairman, as discussed during the hearing, the
Independent Foreclosure Review (IFR) process is part of the
consent orders signed by 14 major mortgage servicers and their
Federal regulators. The IFR process is being closely monitored
by the Office of the Comptroller (OCC) and the Federal Reserve
Board. As part of the IFR, the consultants performing the
independent reviews will make all recommendations on financial
remediation or other remedies for homeowners who they have
determined experienced financial injury resulting from errors
by their mortgage servicer. The OCC required that engagement
letters for the independent consultants contain specific
language stipulating that consultants would take direction from
the OCC and prohibited servicers from overseeing, directing or
supervising any of the reviews. The servicers participating in
the Independent Foreclosure Review are complying with all
aspects of the review and will comply with the recommendations
of the independent consultants. That process is underway.
The Independent Foreclosure Review contains two components
for determining if homeowners were harmed by servicer errors.
The first is the ``look-back'' review. The independent
consultants are conducting a valid statistical sampling of
borrower accounts, including a review of 100 percent of
borrowers with certain characteristics--such as those who may
have been eligible for protection under SCRA. The second is the
outreach effort to more than four million borrowers to enable
them to request a review if they believe they experienced
financial harm as a result of servicer errors,
misrepresentations or other deficiencies in the foreclosure
process. The process and results of both of these components is
being overseen by the Federal regulators.
In addition, servicers have been making changes to
strengthen their servicing practices and systems, based on
their internal efforts and on requirements from their
regulators. These changes include: hiring additional servicing
staff and increasing staff training; improving management
information systems; establishing a single point of contact for
at-risk borrowers; and procedures on the ``dual track'' issue
to ensure there are safeguards in the loan modification and
foreclosure processes. The servicers participating in the
Independent Foreclosure Review have made and are continuing to
make changes to strengthen their mortgage servicing systems.
------
RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM PAUL LEONARD
Q.1. According to economist Mark Zandi, we could put a floor on
housing prices by facilitating an additional 600,000 loan
modifications above and beyond those that would otherwise occur
with HAMP and other loan modification programs. Is this
something that the Housing Policy Council and its members could
strive for?
A.1. The members of the Housing Policy Council and other
mortgage servicers continue to work hard to provide loan
modifications and other home ownership preservation solutions
for at-risk homeowners whenever possible. The latest industry
data on loan modifications reported by the Hope Now Alliance
shows that servicers completed 969,000 loan modifications in
the first 11 months of 2011 and more than five million loan
modifications since 2007. Hope Now data indicates that loan
modifications continue to exceed foreclosure sales in a very
difficult economic environment. Loan modifications are guided
in large part by investor requirements. Lender/servicers can do
additional types of modifications for loans they hold on their
own books, but major expansion of loan modifications beyond
those governed by HAMP and GSE guidelines would require
additional guidance by the GSEs, which are currently the
largest owner/investors of mortgages.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM PAUL
LEONARD
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. It is true that more certainty regarding mortgage
litigation and regulation at both the Federal and State level
would allow investors to price the risk for investing in
mortgages. In addition to investor reluctance, another serious
problem is an ``issuer strike''--issuers of MBS are reluctant
to reenter the market. Issuers are facing the implementation of
a variety of new regulations such as the Qualified Residential
Mortgage (QRM) regulation, many of which have yet to be
finalized. This is generating both uncertainty and compliance
challenges for issuers. Private issuers also find it difficult
to compete with the GSEs, given the current pricing structure
for the securities they issue. The Housing Policy Council
supports efforts to begin the process to reform the secondary
mortgage market and ultimately replace the GSEs with a system
that is based primarily on private capital and a clear, defined
role for a Government guarantee that is defined and protects
the taxpayers, while allowing consumers to have access to sound
products like the 30-year fixed-rate mortgage.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. Standardization is a hallmark of GSE securitizations.
However, one of the strengths of the private label market is
the ability of that market to develop unique pools of
mortgages. As this market restarts, we believe the participants
should have some flexibility in designing alternative terms and
structures. Possibly some general ``principles'' would be
useful rather than a mandatory PSA. Uniform loss mitigation
efforts should also be developed in way that enables them to be
implemented by all types of servicers--small, medium and large.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. The Housing Policy Council does not have a formal position
on additional legislative action on the registration of
mortgages at this time, but some factors that must be kept in
mind include privacy concerns for individuals in the
registration of mortgages, as well as an evaluation of the role
and performance of MERS. The Housing Policy Council looks
forward to working with Senator Corker on steps to insure the
proper functioning of the secondary mortgage market in the
future.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN MENENDEZ FROM ANTHONY
B. SANDERS
Q.1. Your testimony stated that you have no reason to believe
that the third-party consultants will shape their findings to
favor the banks. Isn't it at least plausible that it's a
conflict of interest for the servicer to choose its own
reviewer when that reviewer has taken or is still taking
millions of dollars in contracts from that same servicer? I
think most neutral observers would say that doesn't pass the
sniff test. It's essentially like a defendant being allowed to
choose their own jury where the defendant knows the jury and
has done business with or still has business with that jury.
A.1. While it seemingly doesn't pass the sniff test, one must
remember that every watchdog group (both governmental and
private sector) is watching the servicers (and third-party
consultants) like hawks. Not only are there layer after layer
of investigation units at Treasury, OCC, HUD, The Fed, FDIC,
etc., watching the servicers, you have private sector watchdog
groups and attorneys looking to pounce on any perceivable wrong
(even if it is just a difference of opinion). So there are
enough eyes on the servicers already.
Q.2. You cite statistics on the potential cost of the reviews,
but don't those costs depend heavily on the borrower response
rates? If only 1 percent of borrowers respond, how much would
costs be? And what is your source for the statistic about the
cost of each review?
A.2. To be sure, the cost of foreclosure review ultimately
depends on the number of borrowers that respond. Having said
that, each of the lenders and servicers in question have
expended fixed costs in the effort to ramp up for the
foreclosure review. So even if no borrowers respond, the
foreclosure review is still quite costly. My source of the
information was from phone interviews with several servicing
companies.
Q.3. Recent estimates from the Consumer Financial Protection
Bureau suggest that mortgage servicers may have ``saved'' more
than $20 billion through under-investment in proper servicing
during the crisis. Do you have any estimate of the amount of
money ``saved'' by servicers, to date, by failing to properly
service residential mortgages?
A.3. I do not have any insights into whether servicers under-
invested in proper servicing during the crisis. But I will say
that defaults were so low prior to 2007 that servicers had
slimmed-down staff. The gearing-up for the avalanche of
defaults and foreclosures did result in more servicing
infrastructure, which will have to be downsized again as
defaults begin to decline. So, the CFPB is suggesting that they
knew the optimal size of investment in mortgage servicing which
is a silly proposition. Remember, the biggest mortgage buyers
and insurance companies in the United States are Fannie Mae and
Freddie Mac and they weren't concerned until after housing
prices declined 40 percent. Hindsight is always 20/20.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM ANTHONY B.
SANDERS
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. I share these concerns and others. Not only are the
lawsuits scaring away investors, but the constant drone of
additional bureaus enforcement units is very frightening.
Particularly since the AGs and Obama administration ignore the
root causes of the housing and credit bubble (the Clinton
administration's National Homeownership Strategy (see http://
confoundedinterest.wordpress.com/2012/01/26/krugmans-
misleading-tale-of-two-bubbles-a-closer-look-at-the-data/) but
rather investigate and punish any bank that went along with the
NHS. The rest of the world is looking at us with great
confusion and fear since Government intervention in housing and
financial markets is escalating at both the State and Federal
levels.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. I think that developing a standardized PSA to govern loss
mitigation is a good idea since it would clarify rules in
general, particularly for investors. But since loan
modifications are very specific to the borrower, I must warn
that broad-based rules governing who should receive loan
modifications would ultimately back fire (see HAMP for a model
of how NOT to encourage loan modifications). The real solution
is to back away from Government stimulus of the housing market
and not create further bubbles (see previous answer). Clinton's
``Who let the dogs out'' solution to unleash Fannie Mae and
Freddie Mac turned out to be dreadful policy.
Also, remember that Fannie Mae and Freddie Mac developed
the Uniform Mortgage Contract. That did not prevent Fannie Mae
and Freddie Mac from rolling the dice on mortgages. My point is
that you can try to regulate markets, but they often have a
mind of their own.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. To be sure, a national registration process for mortgage
ownership would be a good step forward. However, as long as the
Federal Government continues to subsidize mortgage borrowing
and the Federal Reserve attempts to stimulate the housing
market through low interest rates, these problems of a housing
bubble and burst will surface again. But have a national
registration system updates the system to the 21st century. The
problem is that housing policy is still stuck in the FDR years.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN MENENDEZ FROM ANN M.
KENYON
Q.1. What procedures are being established for both the
foreclosure reviews and the remediation process to ensure
uniformity so that borrowers get the same treatment no matter
which servicers or consultant they have?
A.1. As discussed in my testimony, we are subject to the
monitoring, oversight, and direction of the OCC. Our procedures
for conducting the independent review have been approved by the
OCC, and, as I indicated in my response to Senator Merkley
during the hearing, the OCC currently is considering the
remediation construct for use by the independent consultants in
conducting the review. Additionally, Ms. Williams stated in her
testimony and in response to Senator Merkley that the OCC is
working to ensure that this remediation construct is consistent
across servicers. Finally, as stated in my testimony, we and
other independent consultants ``have been and are meeting with
the OCC regularly to keep OCC officials apprised of the details
of our approach and progress.''
Q.2. Is it true that the results of the reviews will be shared
with banks for comment prior to release, but not with
homeowners, who will have no opportunity to comment prior to
release? I would urge you to give homeowners equal opportunity
to comment prior to release. It is bad enough that there are
deep concerns about the true independence of the reviewers
without even further biasing the process by allowing only one
side to comment on and influence the outcomes?
A.2. Pursuant to the Consent Order, Deloitte & Touche LLP
(``Deloitte'') will draft a report containing the results of
the independent review and, pursuant to the engagement letter
approved by the OCC, submit it to the servicer for its comment.
Deloitte, however, as independent consultant, has the final
responsibility for the report's content. Consistent with the
results of the independent review, Deloitte will exercise its
own professional judgment and conclude as to what extent to
accept or reject any suggested comments received from the
servicer. As we are committed to transparency, should our
findings and the servicer's views differ, such differences will
be disclosed in the report.
Q.3. What steps will the consultants take to ensure that a
foreclosure does not happen while a review is underway? How
will the consultants know when a foreclosure sale is imminent
such that they should halt the foreclosure and/or provide a
faster review?
A.3. As Ms. Williams stated in her testimony, the OCC will
``provide direction on minimum criteria'' for review of files
subject to imminent foreclosure. We will conduct ``prioritized
review[s]'' of those files consistent with those instructions,
and the servicer also will review those files concurrently with
us.
Q.4. I was very disturbed by the testimony indicating that if
the consultants wish to contact or speak directly with
borrowers, they are expected to contact the servicer first. How
is it even remotely appropriate for the consultants, who are
supposed to maintain independence at all times, to have to
notify or get permission from the banks to contact borrowers?
Will the OCC change its directives so that consultants do not
have to either notify or get the permission of the banks to
directly contact borrowers? For consultants to evaluate
homeowner claims fairly requires open and direct communication
between the consultants and homeowners and their advocates and
should never be deterred by the servicer as an intermediary
between them.
A.4. We are not required to receive permission from the
servicer to direct the servicer to request any additional
necessary information from a borrower. As Mr. Alt indicated
during questioning, and as I agreed, should any additional
borrower information be necessary during the review process, we
have the power to ``direct the servicer to request that
information from the homeowner, or former homeowner.''
Q.5. Is there a protocol requiring the consultants to reach out
to homeowner advocates when there is evidence in the file that
they were involved? Is there a protocol about how the reviewers
will respond to inquiries from parties authorized on behalf of
borrowers? If there are protocols, please describe them. If
there are not protocols, I respectfully ask that you establish
them.
A.5. As discussed in response to Question 4, above, we will
direct the servicer to contact homeowners should any additional
information regarding their file be required during the course
of the review. Inquiries and complaints received from borrowers
or their advocates as part of the Borrower Outreach Program are
processed by the third-party Claim Intake Firm, Rust
Consulting, and any documentation received by Rust, regardless
of source, is forwarded to us. Finally, we are mindful of our
instructions from the OCC (which you reference in Question 10
below) with respect to third-party communications about our
work. To that end, we participated in a meeting with all the
independent consultants and representatives from selected
advocacy groups, facilitated by the OCC and the Federal Reserve
Board, on January 5, 2012. It is my view that all participants
found the meeting helpful.
Q.6. Can you commit to contacting homeowners or their advocates
if pertinent information is missing? It is tremendously
important that the reviews not be conducted on ``submitted
documents'' alone, since we know that servicers have lost
paperwork and servicer files may not be complete, and that
homeowners who don't have a counselor or attorney to guide them
through the process don't really know what proof they need to
send in.
A.6. As discussed in response to Questions 4 and 5, above, we
are not required to conduct the independent review on the basis
of ```submitted documents alone.'' In some instances, our
procedures were specifically crafted to take into account
assertions of missing paperwork. For the Borrower Outreach
Program, we will direct servicers to contact homeowners should
additional information regarding their file be required during
the course of the review of their complaint.
Additionally, in an effort to make the process easier,
there is no requirement for the borrower to submit any
documentation. We would welcome any and all documentation the
borrower would like to send, but their request for a review
will be addressed as long as the eligibility requirements
mandated in the Consent Order are met. Also, please note that
question 13 on the form allows for comments to be written in,
so borrowers are not restricted to answering the questions
posed in questions 1-12.
Q.7. What experience requirements are mandated by the OCC for
foreclosure file reviewers? How long is the mandatory training
program for them? This strikes me as something that can't be
learned in a 2- or 3-week training program, but would take
years of experience. It seems to me that you really need
lawyers reviewing these files on such complicated legal
questions, but given some of the questionable job ads that have
appeared, I question the qualifications of some of those being
hired to do these reviews and make decisions that will have
profound impacts on the lives of struggling families.
A.7. As I indicated in response to the Chairman's question at
the hearing, Deloitte has not hired externally for this
independent review. Within our Firm, we generally identified
people with ``prior mortgage banking experience, experience in
controls and procedures work,'' and ``familiarity with
financial institutions and processes as well as . . . dealing
with financial assets.'' The foreclosure file reviewers in our
teams will undergo 3 weeks of rigorous training regarding our
procedures approved by the OCC, and their work will be reviewed
by managers and senior managers. The reviews also will be
subject to our own internal quality control procedures, and the
entire process will be overseen by a team of partners. Also, as
outlined in our engagement letter, we are guided in our work by
Independent Counsel, on whom we rely for the sufficiency of all
matters requiring legal interpretation.
Q.8. If consultants are only reviewing borrowers for the items
they check on the letter, then why aren't borrowers informed of
that important fact in the letter?
A.8. As Mr. Leonard and Mr. Alt indicated at the hearing, the
form sent to borrowers as part of the outreach program reflects
a collaborative process between the servicers, independent
consultants, and the regulators. The form was submitted to the
OCC and Federal Reserve and approved by them. Further, as
indicated in Ms. Williams' testimony, there is a portion of the
form letter sent to borrowers as part of the outreach program
``where a borrower can tell their story.'' According to Ms.
Williams, 78 percent of the claim forms submitted by the time
of the hearing utilized this ``other'' category. In her words,
the review ``process . . . contemplate[s] that there is the
opportunity and the need for the independent consultants to
consider the facts that are before them and take those into
account.''
Finally, as described in our engagement letter, we are not
reviewing submitted complaints for those items only noted on
the form. Complaints that are eligible for review but contain
limited or inconsistent information will be given a full review
for all items covered by Article VII of the OCC Consent Order.
Q.9. What information obtained from borrowers will the
consultants or Rust share with the servicers? This has Fair
Debt Collection Practice Act implications, and there should be
clear and public guidelines on this. Homeowners are more likely
to trust the process if their personal information is not
shared with the servicer (counselors have already had
homeowners contact them who said that the potential use of
information by the servicer is one reason why they don't want
to return the form).
A.9. Consistent with the terms of the Consent Order with the
OCC and as approved by the OCC, our engagement contemplates
that all outreach efforts and claim intake efforts will be
handled by the third-party Claim Intake Firm, Rust Consulting.
Rust and the servicer are expected to forward all complaints to
us, along with relevant documents and findings related to the
complaint
Q.10. Will you and the entire working group of independent
consultants commit to having a regular series of ongoing
meetings with a broad cross-section of housing counselors and
legal advocates who are assisting borrowers prior to making
major decisions about how these reviews will be conducted? For
example, housing counselors may have forwarding information for
the millions of borrowers who have moved, so why aren't they
being consulted to get that info rather than just run skip
traces? Why is their deep store of knowledge of problems that
most borrowers have had not informing the review process? The
OCC has stated in a post-hearing letter to me that they
encourage you to engage in such communications as long as they
do not reveal bank-specific information.
A.10. We are in receipt of guidance from the OCC with respect
to such communications. As a public accounting firm, we have
professional standards with which we must adhere, and those
have previously been provided to Members of the Subcommittee's
staff. Nevertheless, we are mindful that there are many parties
interested in our results and have worked, and will continue to
work, toward facilitating open communication. To that end, as
indicated in our response to Question 5, we participated in a
meeting with all the other independent consultants and
representatives of selected housing/legal advocates,
facilitated by the OCC and the Federal Reserve Board, on
January 5, 2012.
Q.11. Can you swear that any other work or conflicts of
interest between Deloitte and JP Morgan Chase will not affect
the foreclosure reviews in any way? What disciplinary steps
will you take against your employees if you find that they are
performing the reviews in a way that benefits the banks instead
of the public interest as directed by the regulators? What
steps will you take to directly communicate that possibility of
discipline to all your employees?
A.11. As I indicated in my response to the Chairman's question
at the hearing, Deloitte has in place a specific process
designed to address conflicts of interest with respect to this
engagement or indeed with any matters in this subject area.
Based on this process, nothing has come to my attention that,
in my judgment, would impair our ability to objectively serve
on the engagement. Again, as I stated in the hearing, we are
extremely ``mindful of our mandate to maintain independence in
this review,'' and will take corrective measures to the extent
we believe in our judgment that any of our employees are not
performing the review appropriately. To this end, any member of
the engagement who is determined to be performing his or her
work inappropriately as you describe will be removed from the
engagement, the work re-performed, and the situation
communicated to the regulators. In addition, since the hearing,
the written testimony of Ms. Cohen as well as my own has become
mandatory reading and incorporated into our training process.
------
RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM ANN M.
KENYON
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. As I described in my testimony offered at the December 13,
2011 hearing, our mandate, pursuant to the Consent Order with
the OCC, is to conduct ``an independent review of certain
residential foreclosure actions regarding individual borrowers
with respect to [the servicer's] mortgage servicing
portfolio.'' As the scope of my work is thus limited, I do not
have an opinion regarding investors' responses to numerous
State and Federal regulations.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. As indicated in my response to Question 1 above, our
mandate is limited to conducting an independent review of
certain foreclosures in 2009 and 2010. Pursuant to the Consent
Order, the independent review will consider, among other
things, whether ``various loss mitigation programs were handled
appropriately.'' Should our review determine that borrowers
suffered financial harm due to deficiencies in loss mitigation
programs, we will recommend possible remediation activity.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. As indicated in my response to Question 2, above, it is
beyond the scope of our work to offer recommendations regarding
current or future legislation relating to the regulation of
mortgage foreclosure practices or the mortgage service
industry.
------
RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN MENENDEZ FROM KONRAD
ALT
Q.1. What procedures are being established for both the
foreclosure reviews and the remediation process to ensure
uniformity so that borrowers get the same treatment no matter
which servicers or consultant they have?
A.1. Consistent treatment of similarly situated borrowers,
without regard to which servicer was involved in the
foreclosure or which independent consultant conducts the
review, is important to the success of these foreclosure
reviews. With this objective in mind, the independent
consultants and the agencies have worked hard to develop and
support consistent procedures, including in regard to the
solicitation and intake of complaints, the definition of
financial injury, and the determination of appropriate
remediation.
The nature of the process is such that independent
consultants can often identify needs for consistency, escalate
those needs to the agencies, and discuss potential solutions
with them. But the independent consultants have neither the
authority to establish uniform or substantively equivalent
procedures, nor--because each consultant has detailed
understanding only of its own procedures--the ability to
validate that the procedures in use in different reviews are in
fact uniform or substantively equivalent. As independent
consultants, therefore, we seek to promote consistency
primarily by adhering closely to the guidance we receive from
the agencies and by escalating to the agencies whatever
opportunities we can identify to strengthen that guidance or
bring uniformity to other key areas through the development and
publication of additional guidance.
Q.2. Is it true that the results of the reviews will be shared
with banks for comment prior to release, but not with
homeowners, who will have no opportunity to comment prior to
release? I would urge you to give homeowners equal opportunity
to comment prior to release. It is bad enough that there are
deep concerns about the true independence of the reviewers
without even further biasing the process by allowing only one
side to comment on and influence the outcomes.
A.2. My colleagues and I agree that maintaining our
independence is vitally important to the success of these
reviews. In that regard, our engagement letters make clear that
we alone are responsible for the final determinations we reach
with regard to each file we review. We make the servicers we
work with aware of those determinations but we do not invite
servicers to comment on them.
While we have not designed our process to give servicers an
opportunity to comment on our final determinations, servicers
can often gain an understanding of our preliminary views as a
by-product of our fact-finding process. Our ability to reach
unbiased conclusions depends entirely on gaining a complete
understanding of the facts pertaining to each file we review.
We gain that understanding partly by reviewing the file
materials provided to us, and partly by following up with the
servicer when those materials suggest that we may be missing
other relevant documents or data.
All of these activities are transparent to and closely
monitored by the regulators and intended to ensure that we
reach final determinations based on a complete factual
understanding. We would view any ``lobbying'' by the servicers
we work with as an effort to interfere with our independence
that would require escalation to the agencies. We believe the
servicers understand our view in this regard.
Q.3. What steps will the consultants take to ensure that a
foreclosure does not happen while a review is underway? How
will the consultants know when a foreclosure sale is imminent
such that they should halt the foreclosure and/or provide a
faster review?
A.3. We recognize how important it is to identify and correct
errors in the foreclosure process in time to prevent wrongful
foreclosures from occurring. We have established dedicated
review teams, guided by more urgent timelines, to ensure that
we promptly review every file we receive in which the borrower
faces an imminent foreclosure sale. If we identify a harmful
error in the course of our review, we promptly notify the
servicer. After consideration of our findings, the decision
whether to suspend a sale date rests with the servicer.
In addition, we have worked with the agencies and the
servicers to develop consistent procedures for identifying and
prioritizing files for review where foreclosure is imminent,
for the use of all independent consultants and servicers. We
understand that the agencies are finalizing these procedures,
and anticipate that they will be published as guidance to the
independent consultants in the near future.
Q.4. I was very disturbed by the testimony indicating that if
the consultants wish to contact or speak directly with
borrowers, they are expected to contact the servicer first. How
is it even remotely appropriate for the consultants, who are
supposed to maintain independence at all times, to have to
notify or get permission from the banks to contact borrowers?
Will the OCC change its directives so that consultants do not
have to either notify or get the permission of the banks to
directly contact borrowers? For consultants to evaluate
homeowner claims fairly requires open and direct communication
between the consultants and homeowners and their advocates and
should never be deterred by the servicer as an intermediary
between them.
A.4. My testimony should not have left the impression that we
must go through the servicers we work with in order to contact
borrowers. We understand ourselves to be free to contact
borrowers directly.
The judgment we have thus far made not to reach out to
borrowers directly is not immutable, and we continue to discuss
with other independent consultants and with the agencies
whether, how, and under what circumstances independent
consultants should engage with borrowers directly. Should those
discussions yield an OCC determination that the independent
consultants should assume responsibility for contacting
borrowers directly, we would abide by that determination to the
best of our professional ability.
Q.5. Is there a protocol requiring the consultants to reach out
to homeowner advocates when there is evidence in the file that
they were involved? Is there a protocol about how the reviewers
will respond to inquiries from parties authorized on behalf of
borrowers? If there are protocols, please describe them. If
there are not protocols, I respectfully ask that you establish
them.
A.5. No such protocols exist, and, as you know from my
testimony before the Subcommittee, I share the view that they
are potentially beneficial. While a decision to establish
protocols binding on all of the independent consultants would
need to come from the agencies, the independent consultants
have begun to discuss this question, among others, with a
number of advocacy groups and with the agencies. I expect these
discussions to continue, and can promise that my colleagues and
I will participate in them actively, in the hope that we can
identify a constructive mechanism to supplement our own
knowledge of the files within the scope of our review with
information and expertise in the possession of advocates who
may have additional knowledge.
Q.6. Can you commit to contacting homeowners or their advocates
if pertinent information is missing? It is tremendously
important that the reviews not be conducted on ``submitted
documents'' alone, since we know that servicers have lost
paperwork and servicer files may not be complete, and that
homeowners who don't have a counselor or attorney to guide them
through the process don't really know what proof they need to
send in.
A.6. In the first instance, it is the servicer's responsibility
to provide us with the information necessary to complete our
review. When notations or other information in the file make
clear that the servicer has not met this responsibility--i.e.,
that something important is missing--our first step is to
direct the servicer to complete the file by providing whatever
is missing. To meet that burden and satisfy our informational
requirements, the servicer may need to reach out to any of
several parties. These parties commonly include the local
counsel engaged by the servicer to handle the foreclosure, but
can potentially include borrowers or their advocates as well.
Unfortunately, it may not always be clear from the contents
of the file that information is missing. For example, a file
could seem complete even though it is in fact missing key
documents that are in possession of the borrower or the
borrower's advocate. Because it appears complete, however, such
a file is unlikely to lead an independent consultant to seek
additional information from anybody. While the borrower, in the
course of requesting an independent review, can elect to
provide us with supporting documentation, this possibility only
partially mitigates the problem. The borrower could reasonably
but incorrectly assume that the file under review includes
documents that are, in fact, absent and unknown to the
independent consultant.
In principle, we could address this issue by adopting the
practice of reaching out to the borrower or the borrower's
advocate routinely, on every file. In practice, however, this
approach could create its own set of issues. In particular,
because the number of files under review is very large, and
because many borrowers have proven difficult to reach,
requiring such outreach on every file could delay or preclude
altogether the independent consultant's review of many files.
In addition, the independent consultant may not be able to tell
from the file whether an advocate worked with the borrower.
Despite these challenges, we are anxious to avoid drawing
incorrect conclusions from incomplete files. We will continue
to explore this problem with other independent consultants, the
agencies, and borrower advocates in the hope of identifying
good practical solutions. Should those discussions yield
regulatory direction to change our current practices in this
area, we will of course comply.
Q.7. What experience requirements are mandated by the OCC for
foreclosure file reviewers? How long is the mandatory training
program for them? This strikes me as something that can't be
learned in a 2- or 3-week training program, but would take
years of experience. It seems to me that you really need
lawyers reviewing these files on such complicated legal
questions, but given some of the questionable job ads that have
appeared, I question the qualifications of some of those being
hired to do these reviews and make decisions that will have
profound impacts on the lives of struggling families.
A.7. The OCC has not mandated experience requirements for
foreclosure reviewers in general. Instead, the agency required
each project team to propose, as part of its draft engagement
letters, how it would staff these engagements. The agency
considered these proposals in the course of evaluating,
commenting on, and, ultimately, approving our engagement
letters for execution. This process yielded a variety of
directions specific to individual engagements. Our executed
engagement letters, accordingly, incorporate the results of
this dialogue and describe the types of individuals we look for
and the training we provide.
As I indicated in my testimony, these reviews require many
types of expertise and levels of experience, and we have built
our teams accordingly. No single job description is
representative of the population of people we have hired to
perform these reviews.
We agree that legal expertise is essential to the
successful conduct of these reviews, but many of the
determinations we need to make are not legal in nature and do
not require assistance of counsel. For example, in most cases,
we do not need a lawyer to determine whether a foreclosure sale
occurred after the date of a bankruptcy filing, or whether an
income computation was accurate, or whether a borrower was or
was not on active duty as of a particular date. With the
support of appropriate information systems and with oversight
and quality control by experienced supervisors, we have found
that appropriately selected and trained professionals can make
determinations such as these reliably, without the benefit of
legal education.
Even though many of the determinations we need to make are
not legal in nature, my testimony should not have left the
impression that we are performing these reviews without the
benefit of legal expertise or resources. On the contrary, our
teams include many lawyers and, in addition, each of our teams
has retained independent counsel for any and all necessary
legal interpretations. In addition, our teams include numerous
subject matter experts, and we maintain strong quality control
and quality assurance processes, staffed with highly
experienced and dedicated personnel, to ensure that we adhere
to the processes we have established and maintain a high
standard of quality in our work.
Q.8. If consultants are only reviewing borrowers for the items
they check on the letter, then why aren't borrowers informed of
that important fact in the letter?
A.8. It is not the case that consultants will only review items
checked by the borrowers. The form provides borrowers with an
opportunity to convey, in the borrower's own words, the
borrower's own view of what went wrong in the foreclosure
process. Many of the borrowers who have responded thus far are
taking advantage of this opportunity. We read their comments
closely and use them, in addition to whatever boxes the
borrower may have checked, to guide our review of the file. In
addition, borrowers who submit a ``generalized'' complaint will
receive a thorough file review. We deem complaints
``generalized'' under a variety of circumstances. For example,
a complaint may be generalized because the borrower checked
multiple items, checked no items at all, or provided written
commentary conveying the belief that the entire foreclosure
process was flawed.
More generally, the letter and associated form were
designed to help guide independent consultants to the issues of
greatest concern to the borrowers. The specific questions seek
to direct the borrowers to the subject areas within the scope
of the independent review, as set forth in the consent orders.
In designing the letter and form, the hope was that, by zeroing
in on issues of concern to the borrower, independent
consultants would be able to identify and evaluate the most
likely servicer errors more quickly, thereby facilitating
prompt remediation to the borrower.
Q.9. What information obtained from borrowers will the
consultants or Rust share with the servicers? This has Fair
Debt Collection Practice Act implications, and there should be
clear and public guidelines on this. Homeowners are more likely
to trust the process if their personal information is not
shared with the servicer (counselors have already had
homeowners contact them who said that the potential use of
information by the servicer is one reason why they don't want
to return the form).
A.9. Currently, all information submitted by borrowers to Rust
is shared with the servicers. This sharing is necessary to
enable servicers to collect and assemble the file materials
essential to the independent consultant's review, but it is not
intended to support servicers in their ongoing or future
collection activities. We endorse the view that clear and
public guidelines in this area are desirable, and have both
discussed the issue with the OCC and elevated it for discussion
among the servicer consortium.
Q.10. Will you and the entire working group of independent
consultants commit to having a regular series of ongoing
meetings with a broad cross-section of housing counselors and
legal advocates who are assisting borrowers prior to making
major decisions about how these reviews will be conducted? For
example, housing counselors may have forwarding information for
the millions of borrowers who have moved, so why aren't they
being consulted to get that info rather than just run skip
traces? Why is their deep store of knowledge of problems that
most borrowers have had not informing the review process? The
OCC has stated in a post-hearing letter to me that they
encourage you to engage in such communications as long as they
do not reveal bank-specific information.
A.10. On January 5, I helped to organize and attended an
initial meeting between a group of independent consultants and
representatives of a number of advocacy groups, including the
National Fair Housing Alliance, the National Consumer Law
Center, Consumer Action, the Center for New York City
Neighborhoods, the National Association of Consumer Advocates,
and the Center for Responsible Lending. Representatives of both
the OCC and the Federal Reserve Board of Governors also
attended this meeting, for which the OCC graciously provided
space at its offices in Washington, D.C. The National Fair
Housing Alliance worked with other advocacy groups to organize
an agenda and helped to lead the meeting.
My colleagues and I found this meeting useful and
constructive. We agree that groups such as these have
information and insights from which independent consultants can
benefit. We welcome their contributions to this effort. We
expect that there will be follow-up meetings, and we will
gladly join them. While we cannot make commitments on behalf of
other independent consultants, we will do what we can to make
sure that other independent consultants are invited to such
meetings.
Q.11. Can you swear that any other work or conflicts of
interest between Promontory and Bank of America, PNC, and Wells
Fargo will not affect the foreclosure reviews in any way? What
disciplinary steps will you take against your employees if you
find that they are performing the reviews in a way that
benefits the banks instead of the public interest as directed
by the regulators? What steps will you take to directly
communicate that possibility of discipline to all your
employees?
A.11. My colleagues and I are doing and will continue to do
everything we can to perform these reviews in an independent
and unbiased manner. We will find financial injury, or not,
according to the facts presented by each file. We will be firm
in our conclusions without regard to past, present or future
work with Bank of America, PNC or Wells Fargo.
All employees hired for the foreclosure review receive
mandatory training that clearly communicates the role of the
independent consultant and the nature of the job, specifically
including the objective of these reviews: to find borrowers who
have suffered financial injury, so that they can receive
appropriate remediation. We include a summary of the consent
order in our analyst handbook, which we require all project
staff to read prior to beginning review work. We frequently
remind project staff to err on the side of the borrower in
making any close call, and reinforce in our staff meetings the
importance of maintaining independence and performing to the
best of our individual and collective abilities.
Our firm is committed to the highest standards of
professionalism, which certainly include avoiding conflicts of
interest and maintaining appropriate independence. We reinforce
our standards, and the seriousness of our commitment to them,
in numerous ways, including through our willingness to take
disciplinary action, up to and including termination, when
employees or contractors fail to meet our standards. We would
strongly counsel and, if necessary, terminate any employee or
contractor engaged in this review whose performance manifested
an obvious pro-servicer bias, conflict of interest, lack of
independence, or other violation of our standards. We will
continue to reinforce our standards, and the potential
consequences for those who fall short of them, in communicating
with our employees and contractors, specifically including the
workforce we have engaged to conduct the independent
foreclosure reviews.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER FROM KONRAD ALT
Q.1. Are we permanently scaring off investors by telling them
that when they buy an American mortgage security they have to
deal with not only Federal regulations but 50 State AGs? I talk
to countless investors who are telling me they are ``on
strike,'' so to speak, and they will stay on strike until they
have clarity over the rules for foreclosures and loss
mitigation. Basically we are scaring away investors with these
lawsuits, which seems to me to be a problem given that all of
the evidence thus far suggests that these were homeowners who
were not paying their mortgages. Would anyone care to address
this risk? Do any of you share these concerns?
A.1. These are important questions, but they are outside the
scope of our firm's recent work as an independent consultant,
and beyond my personal expertise. Unfortunately, therefore, I
am unable to provide an informed or expert response.
Q.2. Do we need a uniform PSA to govern loss mitigation? I have
a bill that directs the FHFA to work with industry participants
to craft a PSA that would give investors and homeowners clarity
on the rules of the road for loan modifications and loss
mitigation. Do you all think this is a worthwhile idea?
A.2. The idea of a uniform PSA is certainly intriguing, but
here, too, I feel that our recent experience as an independent
consultant affords me no particular claim to insight or
expertise.
Q.3. Do we need to codify into law, and regulate with clarity,
proper registration of mortgages? Our bill calls for a new
platform to serve as the source of electronic registration for
mortgage ownership, which would be regulated by FHFA and
overseen by the Congress. Would this be a helpful step in
ensuring we have 21st century infrastructure to go along with a
21st century capital markets regime?
A.3. Undeniably, problems with mortgage registration rank high
among the issues confronting the mortgage sector. As a general
matter, my colleagues and I support efforts to modernize our
mortgage registration system. We know, moreover, that the
Federal banking agencies have already initiated such efforts,
using their examination and enforcement resources.
Unfortunately, we are not aware of the progress achieved
through those efforts to date, and therefore do not have a view
as to whether additional efforts, such as Federal legislation,
would serve a constructive purpose at this time.
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Additional Material Supplied for the Record
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