The Office of the Comptroller of the Currency (OCC) abruptly announced on Jan. 7 that it was ending the Independent Foreclosure Review of the mortgage servicing practices of 11 of the largest mortgage servicing companies in favor of an $8.5 billion settlement.
In November 2011, as a result of enforcement actions by the OCC, the Office of Thrift Supervision and the board of governors of the Federal Reserve System, the Independent Foreclosure Review (IFR) was launched to investigate abuses by mortgage servicers in the processing of mortgage foreclosures. The IFR, a product of April 2011 consent orders entered into with 14 major mortgage servicers and two "service providers," was separate from the National Foreclosure Settlement between mortgage servicers and 49 state attorneys general.
The purpose of the reviews was to correct "unsafe and unsound" servicer practices, and to compensate homeowners injured by errors and abuses by the servicers in the foreclosure process between Jan. 1, 2009, and Dec. 31, 2010. Servicers subject to the enforcement actions include Ally Bank/GMAC, Aurora Bank, Bank of America, Citibank, EverBank, HSBC, JPMorgan Chase, MetLife Bank, OneWest, PNC, Sovereign Bank, SunTrust, U.S. Bank and Wells Fargo. Together these companies service 68 percent of all mortgages in the United States, according to Comptroller of the Currency Thomas J. Curry.
As originally implemented, each subject servicer was required to retain an outside consulting firm to review the files of homeowners who were in the foreclosure process during the relevant period. At the same time, a process was created for homeowners who believed that they were financially injured by foreclosure errors and abuses to affirmatively request a review of their file. Homeowners who were determined to have suffered monetary harm as a result of violations by servicers would be eligible for various degrees of compensation, depending on the nature of the violation and extent of harm. The deadline for requesting a review was Dec. 31, 2012. Errors and abuses triggering remediation included improper denials of loan modifications, foreclosure on homeowners with trial or permanent loan modifications pending or in place, assessment of improper fees or charges, improper processing or application of payments, inadequate documentation of ownership of the mortgage and note, and failure to comply with state and federal law in the course of foreclosure proceedings, among many others. According to the OCC, over 500,000 homeowners submitted requests for review.
The IFR soon came under intense criticism from consumer advocates, the media, other regulators, government agencies and elected officials. Critics charged that the review process was not truly independent. Servicers were required to select and retain the firms that would be conducting their respective reviews. In some cases the chosen firms had prior relationships with the servicer, and in many if not all cases the consulting firms had a vested interest in obtaining future business from the large mortgage servicers, raising doubts about their ability to conduct a truly objective, independent review of the servicers’ practices. Leaked documents and accounts from employees conducting the reviews indicated that in at least some cases servicers were in fact reviewing their own files, or overruling the findings of the outside consultants. Consumer advocates criticized the effectiveness of the outreach to affected mortgagors, overly narrow definitions of compensable harms and the adequacy of the proposed remediation. The ability of homeowners (or, in many cases, ex-homeowners) to assess whether their mortgage payments were properly processed and applied, or whether they were charged improper fees and charges — information requested by the request for review form — without the aid of a qualified housing counselor or attorney is dubious. Homeowners’ advocates raised concerns that servicers would use information provided against borrowers in litigation or debt collection activity, and the consumer bar worried that servicers would require waivers of claims for homeowners to receive what may, in many cases, amount to very modest payouts under the plan.
And then there was the cost. A November 2012 review by American Banker estimated that the consulting firms would receive $4 for every $1 of compensation paid to injured homeowners. By the end of November 2012, servicers had spent approximately $2 billion conducting the reviews, but not one borrower had yet been compensated. According to Curry, who addressed the matter in a February 13 Washington, D.C., speech to Women in Housing and Finance, it was this delay in providing relief to homeowners that led him and the Federal Reserve to "change direction."
So, where does this leave eligible homeowners and their advocates? According to the official IFR web page, the IFR is terminated as to 11 servicers — Aurora, Bank of America, Citibank, JPMorgan Chase, HSBC, MetLife, PNC, Sovereign, SunTrust, U.S. Bank and Wells Fargo — "and their affiliates or acquired loan servicing companies." The reviews will continue for Ally, EverBank and OneWest. No new requests for review are being accepted, and the web page states that "no further action is required for eligible borrowers to receive payment." Eligible borrowers are those homeowners in the foreclosure process in 2009 or 2010 whose mortgages were serviced by one of the subject servicers, estimated to total 4.4 million borrowers. The January agreement provides for an estimated $3.4 billion in cash payments and an additional $5.4 billion in "other assistance, such as loan modifications and forgiveness of deficiency judgments."
According to the IFR website, all eligible homeowners will be considered for relief, regardless of whether they submitted a request for relief. Homeowners will supposedly be contacted by the end of March with information regarding cash payments, the amount of which will be determined by the OCC and FRB. The website claims that borrowers will not be required to release claims against their servicers in exchange for payments, but homeowners and their advocates would be wise to scrutinize any associated documentation for possible waivers or releases. Importantly, the IFR "will not affect, stop, or delay" the foreclosure process or sheriff’s sales, and homeowners facing foreclosure must continue whatever efforts they may be making, in order to save their homes.
Additional details on the settlement, including servicer affiliates and OCC contact information, are available at http://goo.gl/PONPZ. •