Servicing The Mortgage Industry: An Update

By Francine • Nov 25th, 2011 • Category: Pure Content, Subprime, The Big 4 And Consulting, The Firms

I pray I live long enough to see the housing market recover.

On October 28, Congresswoman Maxine Waters and several other congressional members sent a letter to the OCC regarding the “independent” foreclosure review process intended to overhaul their mortgage-servicing processes and controls and to compensate borrowers harmed financially by wrongdoing or negligence.

Congress insisted on more disclosures and assurances of independence and monitoring of conflicts of interests during the “independent” foreclosure review process.

Congresswoman Waters cited my October 6 column for American Banker in their letter when demanding that the OCC manage conflicts of interest in the foreclosure review process as well as make a full disclosure of vendors and their engagement letters with the banks.

On November 22, 2011, the Office of the Comptroller of the Currency (OCC) issued a report on the actions by 12 national bank and federal savings association mortgage servicers to comply with consent orders issued in April 2011 to correct deficient and unsafe or unsound foreclosure practices.

“The report, “Interim Status Report: Foreclosure-Related Consent Orders,” summarizes progress on activities related to the independent foreclosure review announced November 1, 2011, as well as other activities to enhance mortgage servicing operations, strengthen oversight of third-party service providers and activities related to Mortgage Electronic Registration Systems (MERS), improve management information systems, assess and manage risk, and ensure compliance with applicable laws and regulations…

In addition to the interim report, the OCC also released engagement letters that describe how the independent consultants, retained by the servicers, will conduct their file reviews and claims processes to identify borrowers who suffered financial injury as a result of deficiencies identified in the OCC’s consent orders. The letters identify the names of the independent consultants conducting the reviews and include language stipulating that consultants would take direction from the OCC throughout the reviews…”

I’ve been following the subprime crisis that morphed into a credit crisis and eventually the full-blown financial crisis since almost the start of this site in late 2006.

The first blog post on this site to use the word “subprime” was about New Century Financial, a KPMG client, mortgage originator, and one of the first failures of the coming crisis.

In August of 2007, I wrote about the irony of Senator Charles Schumer, one of the accounting industry’s favorite pet politicians, calling on the auditors to gut check the sincerity of the mortgage servicing industry about loan modifications.

Senator Charles Schumer has a lot of nerve. He also has a strong belief that the US public is naive and gullible. At best, it’s comical that Senator Schumer is demanding action on the sub prime crisis from the accounting firms. After all, they pay him to protect their interests, not the other way around. Where did he get the idea that they’re part of the solution? I wouldn’t be surprised to find out that Deborah Harrington wrote the press release.

“U.S. Senator Charles Schumer has asked the big accounting firms what steps they are taking to inform investors holding securitized mortgage assets that they can modify home loans and refinance them, according to a letter obtained by Reuters on Friday.“One of the most promising solutions to the anticipated foreclosure crisis is the voluntary modification by lenders of existing unsustainable subprime loans,” the New York Democrat said in a letter to the heads of Deloitte and Touche USAKPMGErnst & Young and PricewaterhouseCoopers.

A lot of pain, suffering, foreclosures, bailouts, underwater mortgages, and lawsuits and consent decrees later, we see the results of a game of musical chairs where the Big Four audit firms will each make big money fixing the problems and helping the besieged customers of the mortgage servicers they didn’t audit.
In July of 2011, I wrote here about the consent decrees that the regulators imposed on mortgage servicers to make them fix problems and respond to borrowers grievances about foreclosures that had occurred: “Making Mortgage Fraudsters Pay…But Via Private Lawsuits (And Some Attorneys General) Not Law Enforcement.”
In April 2011, the Office of the Comptroller of the Currency (OCC), the Federal Reserve Bank (Fed), and the Office of Thrift Supervision (OTS)  - the IndyMac regulator – ordered fourteen large mortgage servicers to overhaul their mortgage-servicing processes and controls, and to compensate borrowers harmed financially by wrongdoing or negligence.
An article in Thomson Reuters’ News and Insight on May 19 describes the problems some were having with the setup of this Consent Order, specifically the way the “independent” reviews required by the Order were expected to be performed.
U.S. regulators are pinning their hopes on independent consultants picked by large U.S. banks to uncover the true depth of foreclosure misconduct seen at lenders. Regulators are close to signing off on these consultants, which are expected to include Promontory Financial Group, Treliant Risk Advisors and PricewaterhouseCoopers…
The key thing is that the independent consultant needs to recognize that the client is the regulators… and not the bank,” said Joe Evers, a large bank deputy comptroller at the OCC. “They need to be taking direction from us and they need to be meeting our expectations.”…
One issue is who would do the review if not the consulting firms. Regulators say they don’t have the manpower, and so they are looking for firms with the required expertise. Senator Reed suggested the regulators at least hire the firms directly rather than approve the banks’ choices. Evers said regulators decided not to take this approach because it would have raised government contracting issues that could have slowed when the reviews begin. He said the agency also has had success using third party reviews in past enforcement actions.
The problem with this approach and the inherent conflicts of interest should be obvious to all but the most naïve observers.

By October 2011, there was still no word on which firms were doing reviews where and whether the OCC had a handle on the independence issues.

My column on October 6 in American Banker, “Banks Hire Friendlies for ‘Independent’ Foreclosure Reviews,” caught the attention of both the OCC and lawmakers.

I am very proud of my part in getting these disclosures from the OCC, the banks, and the vendors which include the Big Four audit firms. It’s a good start. I’ll be writing more next week in American Banker about these issues and what else the OCC , the banks, and the consultants can do to make the process more transparent and effective for borrowers.

Share

Francine is
Email this author | All posts by Francine

One Response »

  1. [...] like Bank of America, Wells Fargo and JPMorgan Chase. There’s no accountability, transparency or behavioral changes required at the [...]

Leave a Reply