[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 *
---------------------------------------------------------------------------
     *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\
---------------------------------------------------------------------------
    \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.
---------------------------------------------------------------------------
    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.
---------------------------------------------------------------------------
    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


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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.
                                ------                                


  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.
                                ------                                


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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