[Senate Hearing 113-14]
[From the U.S. Government Publishing Office]
S. Hrg. 113-14
HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY AND
TRANSPARENCY IN FORECLOSURE REVIEWS--PART II
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT
of the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE EFFORTS TO ENHANCE TRANSPARENCY, ACCOUNTABILITY, AND
CONSISTENCY IN BOTH THE INDEPENDENT FORECLOSURE REVIEW AND NATIONAL
MORTGAGE SETTLEMENT
__________
APRIL 17, 2013
__________
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 MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon MARK KIRK, Illinois
KAY HAGAN, North Carolina JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota
Charles Yi, Staff Director
Gregg Richard, Republican Staff Director
Dawn Ratliff, Chief Clerk
Kelly Wismer, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
______
Subcommittee on Housing, Transportation, and Community Development
ROBERT MENENDEZ, New Jersey, Chairman
JERRY MORAN, Kansas, Ranking Republican Member
JACK REED, Rhode Island BOB CORKER, Tennessee
CHARLES E. SCHUMER, New York PATRICK J. TOOMEY, Pennsylvania
SHERROD BROWN, Ohio MARK KIRK, Illinois
JEFF MERKLEY, Oregon TOM COBURN, Oklahoma
JOE MANCHIN III, West Virginia DEAN HELLER, Nevada
ELIZABETH WARREN, Massachusetts RICHARD C. SHELBY, Alabama
HEIDI HEITKAMP, North Dakota
Michael Passante, Subcommittee Staff Director
William Ruder, Republican Subcommittee Staff Director
Jason Lallis, Professional Staff Member
(ii)
?
C O N T E N T S
----------
WEDNESDAY, APRIL 17, 2013
Page
Opening statement of Chairman Menendez........................... 1
Opening statements, comments, or prepared statements of:
Senator Moran................................................ 17
WITNESSES
Lawrance L. Evans, Jr., Director, Financial Markets and Community
Investment, Government Accountability Office................... 3
Prepared statement........................................... 23
Joseph A. Smith, Jr., Monitor of the National Mortgage Settlement 4
Prepared statement........................................... 40
David Holland, Executive Vice President, Rust Consulting......... 6
Prepared statement........................................... 43
Responses to written questions of:
Senator Reed............................................. 51
Deborah Goldberg, Special Project Director, National Fair Housing
Alliance....................................................... 7
Prepared statement........................................... 44
(iii)
HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY AND
TRANSPARENCY IN FORECLOSURE REVIEWS--PART II
----------
WEDNESDAY, APRIL 17, 2013
U.S. Senate,
Subcommittee on Housing, Transportation, and Community
Development,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Subcommittee convened at 10:05 a.m., in room SD-538,
Dirksen Senate Office Building, Hon. Robert Menendez, Chairman
of the Subcommittee, presiding.
OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ
Chairman Menendez. Good morning. This hearing of the
Subcommittee on Housing, Transportation, and Community
Development will come to order. Let me thank you all for being
here. I know that Senator Moran, the Ranking Member, will be
here in short order.
Today's hearing is about ``Helping Homeowners Harmed by
Foreclosures and Ensuring Accountability and Transparency in
Foreclosure Reviews.'' This issue is important to every
homeowner, especially those harmed by illegal foreclosure
practices. It is of particular concern to countless New
Jerseyans who have contacted my office, almost all with
heartwrenching stories about their experiences going through
the foreclosure process, stories in many cases of being either
mistreated, neglected, and in some cases insulted and
embarrassed by their mortgage servicers.
In response to illegal foreclosure practices, regulators
and the Nation's five largest servicers announced a National
Mortgage Settlement in February of 2012. As part of the
settlement, servicers are to provide about $25 billion of
relief to homeowners and individuals who were victims of such
illegal practices.
The Federal Reserve Board and the Office of the Comptroller
of the Currency also announced the Independent Foreclosure
Review process with 14 mortgage servicers. The goal of the IFR
was to identify as many harmed borrowers as possible, to treat
similarly situated borrowers across all 14 services in a
consistent manner, and to help restore public confidence in the
mortgage market. But challenges and the complexity of the IFR
prevailed and regulators and 13 of the mortgage servicers
abandoned the IFR process in January of this year and instead
agreed to a new framework that would no longer evaluate each
mortgage for actual harm.
As we attempt to correct these past illegal foreclosures,
we must have transparency, consistency, and accountability.
After being hard hit by the foreclosure crisis and other
economic woes, American homeowners expect and deserve
confidence in the mortgage market, and it is our job to give
them that confidence.
First, we must learn from the mistakes of the past, remain
committed to not repeating them in the future. So I asked the
Government Accountability Office to conduct a study on the IFR,
focusing on challenges to the achievement of the goals of the
reviews, transparency of the process, and lessons that could be
learned moving forward.
It has been nearly 2 years since the Consent Orders were
signed, and in that time, over a billion dollars went to third
party consultants. But affected borrowers received nothing,
even when there was documented evidence of bad practices. There
is certainly plenty of blame to go around, but the American
people will not accept excuses for the failures of our
regulators. They expect our regulators to be up to the task,
fully capable of overcoming the challenges of these
settlements, and effective oversight of our financial system
should be the number one priority.
Over 4.5 million people were potentially impacted by these
illegal foreclosure abuses and they deserve our best efforts
and attention. The time to act is now, and that is why we are
here today, to get to the bottom of some of these important
issues.
So let me, in the absence of any Member at this point to be
here, let me start introducing our panel. Mr. Lawrance Evans is
the Director of Financial Markets and Community Investment at
the Government Accountability Office. He directs a body of work
in the area of banking and financial intermediation, including
leading efforts on the GAO study of the Independent Foreclosure
Review. In his prior role as a Lead eConomist, he managed a
diverse portfolio at GAO which included engagements on TARP,
Dodd-Frank's bank capital provisions, and Sarbanes-Oxley. So we
thank you for your work and we look forward to your testimony.
Mr. Joseph Smith is the Monitor of the National Mortgage
Settlement, which was announced in February of 2012 by 49 State
Attorneys General and the Federal Government to provide $25
billion in relief for distressed borrowers.
Mr. David Holland is the Executive Vice President of Rust
Consulting, Incorporated, a contractor that does outreach to
homeowners for the foreclosure reviews and is administering the
payments for the amended Consent Agreement for the IFR.
And Ms. Deborah Goldberg is the Special Project Director at
the National Fair Housing Alliance, where she advocates before
Congress and Federal regulatory agencies on predatory lending
and sustainable home ownership issues.
So, let me thank you all for appearing today. We look
forward to getting your perspective on the situation and your
view on the approach moving forward. I am going to ask each of
you, in the order that I introduced you, to synthesize your
statement for about 5 minutes or so. Without objection, all of
your entire statements will be entered into the record, and
then we look forward to having a conversation with you.
Mr. Evans.
STATEMENT OF LAWRANCE L. EVANS, JR., DIRECTOR, FINANCIAL
MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY
OFFICE
Mr. Evans. Thank you. Chairman Menendez, I am pleased to be
here this morning to discuss GAO's ongoing assessment of the
Independent Foreclosure Review. My remarks today are based on
our March 2013 report, developed in response to the amended
Consent Orders that replaced the IFR for most servicers with a
broader framework that will provide cash payments to all
eligible borrowers.
The IFR was intended to identify as many harmed borrowers
as possible, to ensure consistent treatment and to help restore
public confidence in the mortgage market. Our report
highlighted issues stemming from insufficient planning,
monitoring, and communication that impeded the regulators'
ability to achieve the stated goals. I will briefly review our
key findings, including lessons learned, which, if leveraged
properly, can lead to better outcomes for the ongoing reviews
and activities under the payment agreements.
First, it is important to note that the IFR was, indeed,
unprecedented, and the size and scope of the operation posed
significant challenges to regulators. There were 4.3 million
eligible borrowers across 14 different servicers, seven
consultants, and ten law firms. The foreclosure files
themselves were sizable and touched on a large number of
complex issues, ranging from State and Federal laws to Loan
Modification Program guidelines. In testimony before the Senate
law week, both OCC and the Federal Reserve noted that they
underestimated the scale, scope, and complexity of the reviews.
Second, while some issues were inevitable, these challenges
were exacerbated by overly broad guidance and limited
monitoring for the consistency and sufficiency of the
consultants' review activities. For example, lack of clarity in
sampling guidance resulted in variations in methodologies used
by consultants which would have limited the ability of
regulators to aggregate the results and pull together a
statistically valid description of the extent of errors in
foreclosure processing. Moreover, the guidance did not include
mechanisms to facilitate oversight of the extent to which
consultants would have identified as many harmed borrowers as
possible or targeted the appropriate high-risk categories.
In general, these issues limited the types of information
regulators could know and report and increased the risk of
inconsistent results for similarly situated borrowers. Overall,
regulators missed opportunities to develop common criteria or
reference documents to help consultants navigate complexities
involving State foreclosure law and loss mitigation activities,
among other issues. In absence of such guidance, consultants
developed their own test questions to determine harm and
potential remediation, again, raising the risk of inconsistent
treatment.
Third, the absence of timely and useful communication at
certain stages of the process undermined public confidence in
the reviews. Although regulators released more information that
is typically associated with Consent Orders, borrowers and the
general public received limited information about the status of
the reviews. Also, some stakeholders perceived informational
gaps that raised concerns about how the reviews were being
executed and the process for determining error and remediation.
Last, several issues emerged as lessons learned for
regulators. Most notably, we observed that advance planning can
enhance project design and better ensure the achievement of
goals. Important here is appropriate consultation with
stakeholders and establishing mechanisms to systematically
monitor progress toward goals. Consultation with organizations
directly responsible for, or familiar with, particular aspects
of the review before initiating the IFR may have allowed
regulators to define the scope of activities more appropriately
and issue more complete guidance. Had regulators incorporated
monitoring mechanisms into the design, they would have been
better equipped to produce reliable and relevant data for
oversight and management. In the absence of systematic
processes to monitor activities, regulators did not have an
early warning mechanism to help identify problem areas.
While the goals of the IFR were hampered, it is possible
that the regulators could have taken steps to address some of
these issues. In fact, regulators took a number of steps during
the process to foster consistency. However, such actions are
second best to up-front planning, as they increase the risk of
further delays, rework, including the retraining of reviewers.
The final lesson learned is that transparency is essential
for public confidence, and advance planning should give
consideration to the types of data required to credibly
communicate useful information to the intended audience.
Unfortunately, the regulators are limited in what they can
report because they did not plan for reporting in the design of
the reviews.
Based on these findings, we offered three recommendations
to the regulators aimed at using lessons learned to improve
outcomes for the ongoing reviews and activities under the
amended Consent Orders. Both OCC and the Federal Reserve were
receptive to all three.
Chairman Menendez and Members of the Subcommittee, this
concludes my prepared statement. I will be happy to answer any
questions you may have.
Chairman Menendez. Thank you.
Mr. Smith.
STATEMENT OF JOSEPH A. SMITH, JR., MONITOR OF THE NATIONAL
MORTGAGE SETTLEMENT
Mr. Smith. Chairman Menendez, Senator Merkley, good
morning. Thank you for inviting me to testify about the
implementation of the National Mortgage Settlement.
In April 2012, the National Mortgage Settlement went into
effect when the United States District Court for the District
of Columbia entered five separate consent judgments that
settled claims of improper mortgage servicing practices against
five major mortgage servicing organizations, Bank of America,
Citi, Chase, the ResCap parties, which are the former GMAC, and
Wells Fargo. Government parties to the settlement included the
Departments of HUD and Justice, Attorneys General from 49
States and the District of Columbia, various State financial
services regulatory agencies, and other releasing parties,
including the CFPB and Treasury.
The settlement can be divided into three parts: Direct
payments to borrowers and States, consumer relief, and
servicing standards. While I have no oversight over the direct
payments, I am responsible for reviewing and certifying the
discharge of the servicers' consumer relief obligations and
monitoring implementation of the servicing standards. I am
subject to oversight by a monitoring committee that is
comprised of representatives of the Departments of HUD and
Justice and representatives of 15 States.
Under the settlement, the servicers have agreed to provide
specific dollar amounts of relief to distressed borrowers
within a 3-year period. In February, the servicers reported
that during 2012, 550,000 borrowers benefited from some type of
consumer relief, totaling $46 billion, which, on average,
represents about $83,000 per borrower. The kinds of consumer
relief for which a servicer can receive credit under the
settlement are set out in detail in the consent judgments, and
the credit varies based on the relief given. For that reason,
the gross dollar amounts of relief the servicers reported far
exceeds the total credited obligations under the settlement.
To date, only the ResCap parties have requested a
determination that they have completed their consumer relief
obligations. In February of this year, after a review of their
performance, I issued a report to the court that they had
satisfied their minimum consumer relief obligations and
partially satisfied their mandatory solicitation obligations
under the settlement.
In addition to consumer relief, the settlement establishes
304 servicing standards, or rules of conduct, to which the
servicers must adhere. Each servicer has been responsible for
compliance with the standards since October of 2012. There are
servicing standards related to document integrity, the loan
modification process, dual tracking, single points of contact,
and other customer service and more general requirements.
Under the settlement, I measure servicer compliance with
the servicing standards through 29 metrics, or tests. The
servicers conduct these tests internally and report the results
to me. Assisted by independent professionals in my employ, I
assess the work of servicers and report my conclusions. If the
Internal Review Groups or I find noncompliance with the
standards, the servicer has to implement a corrective action
plan and, in the case of widespread error, to remediate. If it
cannot or will not correct the potential violations,
injunctions or civil penalties can be sought through the United
States District Court for the District of Columbia.
My independent professionals and I are nearing completion
of our reviews of servicer compliance with the metrics through
year-end 2012 and intend to issue our report on it to the court
and the public next month. Our work will continue over the next
2 years.
To help me better understand the settlement's impact in the
marketplace, my colleagues and I closely review complaints we
receive through my office as well as the complaints elected
officials submit to the banks. I also have met with the
Attorneys General, consumers, and professionals who represent
them in a number of hard-hit States. As a result of what I have
heard from consumers and professionals, I am now working with
the banks to establish additional metrics to address what I
have learned.
In closing, the settlement has been successful in what I
believe is a worthwhile effort, focusing resources on a
specific problem in a targeted, time-limited way that augments
and supports the work of policy makers and Government agencies.
I look forward to continuing my work toward that goal and I
welcome your questions.
Thank you very much, Senators.
Chairman Menendez. Thank you.
Mr. Holland.
STATEMENT OF DAVID HOLLAND, EXECUTIVE VICE PRESIDENT, RUST
CONSULTING
Mr. Holland. Senator, or Chairman Menendez, Senator
Merkley, thank you for the opportunity to appear today on
behalf of Rust Consulting.
Rust Consulting has been engaged by the servicers to
administer certain aspects of the Alternative Resolution
Settlement, as directed by the Office of the Comptroller of the
Currency and the Federal Reserve Board. Previously, Rust was
engaged by the servicers to administer the Consent Orders for
the Independent Mortgage Foreclosure Borrower Outreach Project,
also known as the Independent Foreclosure Review or IFR.
Under the IFR Consent Orders, our responsibilities were to
notify homeowners about the program, to answer their questions,
to review their requests for review forms, and to handle in-
and outbound mail. From November 2011 through December 2012, we
executed three mass mailings to homeowners along with a series
of media notice campaigns. Over the same period and through
January 2013, we received completed requests for review forms
and forwarded them to the servicers.
We were recently engaged by 11 of the 14 original
servicers, along with two additional servicers, to serve as a
paying agent under the Alternative Resolution Settlement. Our
responsibilities under the settlement are to notify homeowners
about the program, answer their questions, and distribute
settlement payments in the form of checks to eligible
homeowners.
Rust mailed postcards on March 18, 2013, informing eligible
homeowners that they were to receive a payment as a result of
the settlement. Also, we received relevant settlement data from
servicers that identified loan classifications for each
individual loan, and subsequently received data from the OCC
and FRB detailing the payment amounts for each loan
classification.
The first wave of checks were mailed on Friday, April 12.
Yesterday, we became aware of check cashing issues that some
payees encountered and we are addressing those issues and will
have solutions in place today and on a go-forward basis. The
majority of the remaining checks will be mailed in three more
waves occurring on April 19, April 26, and May 3.
Rust continues to staff a call center to take incoming
calls from homeowners with questions about the program. We also
updated the IFR Web site to provide new information regarding
the settlement.
At the direction of the servicers, the OCC, and the FRB,
Rust implemented a number of address correction processes in
order to maximize the number of homeowners who receive notice
as part of the IFR. Rust will continue to use address
correction processes under the settlement. In both projects,
the National Change of Address process was used to update
addresses. And as part of the IFR, Rust received
``undeliverable'' notices, ran the corresponding addresses
through a ``skip-trace'' program, and remailed notices to new
addresses. For any of the remailed notices that were returned
as undeliverable a second time, Rust performed another second
type of address search and again remailed notices to new
addresses.
Under the settlement, Rust will receive undeliverable
checks, attempt to find better addresses, and remail checks to
new addresses.
During the IFR process, Rust provided comprehensive daily
statistical reporting to the OCC, the FRB, independent
consultants, and the servicers. Daily meetings were held with a
consortium of the 14 servicers and independent consultants that
covered the current state of project execution, future
deliverables, and next phase planning.
As part of the settlement, Rust provides comprehensive
daily statistical reporting to the OCC, the FRB, and the
servicers. Daily conference calls are held with the servicers
covering project execution. Two times weekly, conference calls
are held with the OCC and the FRB covering project execution
and future deliverables.
Thank you. I would be happy to answer your questions.
Chairman Menendez. Thank you.
Ms. Goldberg.
STATEMENT OF DEBORAH GOLDBERG, SPECIAL PROJECT DIRECTOR,
NATIONAL FAIR HOUSING ALLIANCE
Ms. Goldberg. Thank you, Mr. Chairman. Mr. Chairman and
Senator Merkley, thank you for inviting me here today to
testify, and thank you, too, for your engagement in this issue.
You have brought much needed attention and oversight to the
Independent Foreclosure Review process.
The IFR is the only real Federal effort to identify and
compensate borrowers who were harmed by their mortgage
servicers when their loans became unsustainable and they needed
help to save their homes. While this and other programs seek to
prevent future foreclosures, the IFR stands alone as an effort
to begin to make borrowers whole. This is significant because
of the harm caused by the foreclosure crisis.
While foreclosures have affected virtually every community,
certain communities have suffered more than others. During the
heyday of subprime lending, communities of color were flooded
with unsustainable subprime loans. Borrowers who should have
gotten safer, cheaper prime loans were given subprime loans
because they were more profitable. This happened to borrowers
of color much more often than to white borrowers. Not
surprisingly, these borrowers have suffered much higher rates
of foreclosure and they and their neighbors have lost
tremendous wealth as a result.
We hoped the IFR would begin to set things right, but from
the beginning, it has been plagued with a lack of transparency
and accountability that has undermined its success. It has
failed to identify borrowers who suffered harm and in doing so
to shed light on the nature and extent of the problems in the
mortgage servicing industry. It has not provided adequate
compensation to borrowers, and to date, it has failed to bring
about the kind of servicing reforms that are needed to prevent
future unnecessary foreclosures.
With the announcement of the new settlement in January, the
IFR game has changed. With the rest of my time, I would like to
highlight some concerns with the settlement's $5.7 billion
worth of noncash assistance and some ways in which the
regulators can increase the positive impact of their Consent
Orders.
So this so-called soft dollar side of the IFR agreement is
similar to the structure of the National Mortgage Settlement,
or NMS. Unfortunately, the particulars differ from the NMS in
three key ways that severely deflate the value and limit the
impact of these soft dollars.
First, it fails to make saving homes a priority. It places
loan modifications, which can save homes, on an equal footing
with short sales and deeds-in-lieu, which do not.
Second, it gives the servicers credit based not on the
amount of loan principal they forgive, but on the unpaid
balance of the loan. This creates an incentive to modify loans
with large balances because that is the fastest way for the
servicers to get the most credit. It will likely mean that many
fewer loans are modified than could have been the case.
And third, this approach places borrowers of color and low-
and moderate-income borrowers at a disadvantage because they
tend to live in communities where home values and loan balances
are smaller. Modifying their loans will put the servicers on a
slower road to meeting their soft dollar goals.
We are very disappointed that the settlement was structured
this way and we are concerned that many homes that could have
been saved from foreclosure will be lost. However, there are
two areas in which we believe the regulators can still make a
positive impact in implementation of the IFR Settlement.
The first is the area of transparency. We had asked the
regulators to make public detailed information about who is
getting help as a result of this settlement, both through the
direct cash payments and the noncash assistance. These data
must be broken out by servicer and by census tract so that the
public can see whether the communities that have suffered the
most are getting the assistance they need and deserve. The
timely release of such information will help to hold the
servicers accountable. It is also necessary to begin to rebuild
public confidence in our regulatory system.
The second is the area of oversight. Despite all of the
servicing rules that have been written and all of the scrutiny
to which servicers have been subject, mortgage servicing abuses
remain all too common. They must be brought to an end so that
the millions of homeowners still at risk of foreclosure can get
the help they are supposed to get to save their homes. By
stepping up their oversight and enforcement, the regulators can
help accomplish this goal.
Recently, the regulators have shown some interest in
exploring these recommendations. I am hopeful that they will do
so and that they will put them into action. But as long as
problems persist in the mortgage servicing industry, we need
you in Congress to keep up the pressure and continue your
oversight. There are still some gaps in the servicing rules
that must be closed, such as protections for people with
limited proficiency in English, borrowers with disabilities,
and the widows and heirs of deceased homeowners who cannot get
help from their servicers. We look forward to working with you
and the regulators to address these problems.
Thank you again for the opportunity to testify today. I
look forward to your questions.
Chairman Merkley. Well, thank you all very much, and we
will start with a round of questions.
Mr. Evans, the report by the Government Accountability
Office found the following things. Correct me if I am wrong in
any of them.
Mr. Evans. OK.
Chairman Menendez. The goals of IFR to identify as many
harmed borrowers as possible and ensure similar results for
similar borrowers were not met.
The regulator guidance did not specify key sampling
parameters to consultants for file review, resulting in delays
and difficulty assessing borrower harm.
Limited communication with borrowers and the public
adversely impacted transparency and public confidence.
Regulators considerably see more data, but express concerns
that doing so might disclose private information.
Borrowers face significant gaps in promised review
documentation from regulators and consultants, with some
waiting over a year.
No standard sampling method or process between servicers or
other independent consultants led to reduced reliability of
data.
Regulators stopped the IFR process without having a
sufficient and objective method--a sufficient and objective
method--to determine if the proper number of reviews had been
sampled to uncover borrowers harmed.
Limited regulator monitoring and inconsistencies in
consulting methodology increased the risk of treating borrowers
with similar types of harm differently.
And regulators did not rely on stakeholder consultation
enough, such as housing counselors, community groups with
expertise in loss mitigation and loan modifications.
Is that an accurate synthesis of the GAO report?
Mr. Evans. I think so, in general. There are just a few
technical notes I will make.
Chairman Menendez. OK.
Mr. Evans. The regulators--the rationale that they gave us
for stopping the Independent Foreclosure Review were concerns
about potential outcomes, and they wanted to get money out
quickly to potentially harmed borrowers. So we, in our report,
we say that the achievement of the goals were hindered by a
number of missteps by the regulators.
Chairman Menendez. So let me ask you, and maybe Ms.
Goldberg, one of the main purposes of the review was to have
data to enable you to tell the bank had a particular kind of
file or type of mistake that it was repeating so you could dig
deeper into their other files. Since the OCC and the Federal
Reserve abandoned the review, to what extent will they be able
to further examine whether certain banks committed systematic
errors in their foreclosures based on either preliminary
results or based on information that they gathered through
regular bank examinations or other sources?
Mr. Evans. And I think that is the right question, and I
think there----
Chairman Menendez. I only ask the right questions.
[Laughter.]
Chairman Menendez. I am just kidding.
Mr. Evans. I will----
Chairman Menendez. I think it is an important question,
though.
Mr. Evans. It is, and I think that is a good place for me
to assert that any information based on the IFR at this point
should be deemed incomplete, and the data does not allow us to
render any conclusions about error rates at a particular
servicer or make comparisons across servicers despite what has
been reported in the press. There were different degrees of
completion across the servicers, variations in the type of
files that were reviewed, and also, even if it were complete,
depending on the sampling methods used, it is possible that
this information would still have limits. So it is impossible
to draw any inferences about the data because they are not
representative. So we are limited in terms of what we actually
know.
Now, the regulators could have additional information,
additional judgments that may help them make decisions about
safety and soundness and corrective actions, but at this point,
we have not done that type of work to determine what we know
and whether it is statistically valid.
Chairman Menendez. Is that information that would be
accessible to you if we asked you and charged you to do that?
Mr. Evans. As part of our ongoing review, we will start to
look at those issues. We are more than willing to discuss with
your staff the protocols governing our audit documentation,
including any legal or privacy considerations, such as those
concerning banking information, or any agency determinations
that might be relevant. But we will continue to do this work
for you and have conversations with your staff.
Chairman Menendez. Thank you.
Ms. Goldberg, do you have any comments about this?
Ms. Goldberg. Yes. I would add one thing, which is that one
concern we had all along with the methodology was the potential
problem that the files themselves would not be enough to
understand the problems that borrowers experienced.
So, for example, one of the most common problems that
borrowers encountered was servicers losing their documents and
having to resubmit them over and over and over again, or
borrowers being told the wrong information. You have to stop
making payments before we can consider you for a loan
modification, you know, things along those lines.
And it is not clear that anybody examining just the files
would be able to tease out that kind of information and
understand those kinds of errors. And in order to do that, what
is really necessary is for whoever is doing the review to be
talking, at least in selective cases, to homeowners themselves
or to the advisers who work with them, housing counselors or
attorneys.
That is something that never happened as part of this
process. It would be wonderful if it were to happen as part of
a follow-up review, because I think you are completely right
that getting to the bottom of this and understanding more
clearly what problems actually took place, you know, how
widespread they were, where, what borrowers were affected, is a
really important lesson for us to be able to take away from
this whole crisis in order to prevent it from happening again.
Chairman Menendez. I have a whole host of questions, but
one more before I turn to Senator Merkley.
The OCC and the Federal Reserve determined that $8.5
billion would be enough to cover the harm caused to borrowers,
yet we know from the GAO study that there were numerous issues
with sampling and instructions to the independent consultants.
So how could the OCC and the Federal Reserve possibly determine
that $8.5 billion, which would include $3.6 billion in direct
payments to borrowers, is enough money to help these victims?
Mr. Evans. That question was outside the scope of this
particular study, but it is a question that we will be
considering going forward.
Chairman Menendez. Well, it is a question that we are going
to look to work with you. I know that Congressman Waters also
has joined us in this effort from the House side. I really want
to know that, because if people went through harm, then at the
end of the day, you have to have the resources to address the
harm. And to come to a figure that is defective, from my
perspective, because you do not have the sound science, so to
speak, to make that determination, is, at best, a guess.
Ms. Goldberg, do you have any comment on that?
Ms. Goldberg. I would say it is probably a lowball guess.
Chairman Menendez. OK. Senator Merkley.
Chairman Merkley. Thank you very much, Mr. Chairman, and
thank you all for your testimony.
Mr. Smith, I wanted to start with a feature that was well
publicized of the National Mortgage Settlement which said, in
many cases, banks essentially wrote off the second loan that
they had in the portfolio while not lowering the first loan,
which was the bulk of the challenge for the homeowner. They did
this for families that essentially had a foreclosure, in other
words, did little to help the homeowner. How did this process
of basically acting only for the loan you hold and not for the
one that would affect the core of the family's success come
about? Why was that acceptable?
Mr. Smith. Well, Senator, the question you asked is
important. The structure of the settlement itself was--I got
it--I am administering it the way I found it. And so the
settlement allows for different valuations, credits for
different kinds of second loan forgiveness. The highest credits
would be for performing loans or for loans where there is a--
where it is done in conjunction with a first loan reduction so
that you have more affordability. But the data does not show
that a lot of that has been done to date.
The settlement does permit credit--at ten cents on the
dollar, by the way, not dollar-for-dollar--for expungement of
second liens as a goal in the effort--what the settlement
documents say is to increase the prospects for future home
ownership by the borrower.
It has been brought to my attention and it has been in the
public domain, a discussion about the issue of whether, in
certain circumstances, a second lien release does the borrower
any good. I will say the fact that a loan has been written
down, of course, does not mean it is--the loan itself is still
a legal obligation of the borrower, even after foreclosure in
and of itself, in some States, not all, it would be an
obligation. So it is not clear that it will not always benefit
the borrower.
But I think what the settlement does do is to credit second
lien forgiveness most where they do the most good from the
perspective of the question you just asked and least where it
does the least good, and that is about all I can say to answer
your question.
Chairman Merkley. Thank you.
Mr. Holland, I want to turn to the consultants who worked
on the IFR. We had testimony in front of Sherrod Brown's
subcommittee that the folks, the consultants who worked on it,
had no idea how it was that individual homeowners got placed
into different categories of possible financial harm. It is my
understanding that that decision was actually made by
servicers. How is it that the consultants who were doing the
reviews had no idea of how individual homeowners got into
different categories of financial harm?
Mr. Holland. When you say consultants, are you talking
about the independent consultants?
Chairman Merkley. That is my understanding, yes.
Mr. Holland. I do not have knowledge of how that process,
or how that process came about. We received the categorizations
directly from the servicers and the OCC provided us with the
dollar amounts that corresponded to those categorizations.
Chairman Merkley. How would the servicers who had not been
the ones reviewing the files and had been essentially at the
heart of so many pieces of this function possibly be a
responsible party for putting people into categories of harm?
Mr. Holland. I do not know. I do not have an answer for
that question. I was not involved in that process.
Chairman Merkley. Ms. Goldberg.
Ms. Goldberg. I would like to correct one thing, Senator
Merkley----
Chairman Merkley. Great. Thank you.
Ms. Goldberg. ----which is that when the independent
reviews were stopped, the decision was made not to find harm,
not to worry about finding harm. So the categories, as I
understand it, the categories that borrowers were placed in for
purposes of payments was based on how far along they had gotten
in the loss mitigation process or the foreclosure process with
their servicer.
So the fact that a particular borrower was in a particular
category was not a reflection of whether they were actually
harmed, but just kind of what stage of the process they had
gotten to.
Chairman Merkley. I see.
Ms. Goldberg. But I think your fundamental question is a
very good one. If we know that the servicers made the mistakes
to begin with and we know that their systems were highly
flawed, putting them in the position of slotting people into
different categories seems unwise.
Chairman Merkley. Ms. Goldberg, when this IFR was
announced, we had a hearing to have it explained to us and I
raised the question on how is it that homeowners would feel
confidence that their condition was going to be reviewed when
they had had so many frustrating experiences to date and that
the reviewers were being hired not by an independent strategy,
but by the banks themselves, and that these reviewers were not
third party, that they had clear financial connections to the
banks themselves. I think then the fact that homeowners were
promised a review and did not get the review just kind of, if
you look at it from the street level, it seems like just one
more farce. Is this far off the mark? That is a technical term,
``farce.''
[Laughter.]
Ms. Goldberg. Well, I would say that the feedback that we
hear is a lot of frustration and disappointment and confusion
from borrowers on the street who, I think, do not have
confidence that this process played out in a fair and
evenhanded manner.
Chairman Merkley. I have more questions, but I am over my
time, so I will kick it back to the Chair.
Chairman Menendez. Well, we will go through another round.
Let me ask, Ms. Goldberg, if the settlement provides around
$5.5 billion in other forms of consumer mortgage-related
relief, such as loan modifications and principal reduction--
some people refer to that as soft dollars--so I would like to
hear, to the extent that you know, more about how those soft
dollars are being used to keep borrowers in their homes and how
lenders are being credited under the IFR Settlement for taking
such actions. For example, if a borrower has a $200,000
mortgage and receives $20,000 in mortgage relief, how is that
relief calculated under the IFR Settlement? And are servicers
doing all they can to keep homeowners in their homes?
And I would like to get a sense from Mr. Smith from the
National Mortgage Settlement, how are those soft dollars
calculated for that purpose under your settlement, and could
you explain how each category is credited?
Ms. Goldberg. Thank you, Mr. Chairman. So, this process has
not actually started yet, at least to the best of my belief,
and I am not sure what the launch date will be, but we will
get, hopefully, more information as time goes by.
But in terms of the way it is structured, what we know is
that there are some specified categories of activity for which
the servicers will get dollar-for-dollar credit. So that
includes principal reduction, you know, loan modifications with
principal reduction on first liens and second liens, short
sales, and deeds-in-lieu of foreclosure. So for those four
categories of activity, they will get dollar-for-dollar credit.
So that is a difference from the National Mortgage Settlement,
and Mr. Smith can explain those details much more accurately
than I.
And in addition, another difference from the National
Mortgage Settlement is that rather than getting credit for the
amount--so let us take a loan modification--the amount by which
the principal is reduced, the $20,000 in your example,
servicers will get credit for the full unpaid principal balance
of that loan, or the $200,000 in your example. So the borrower
is still going to owe $180,000, and presumably with a loan
modification will be able to repay that $180,000, and the
$20,000 is really the benefit that they have experienced, but
the servicer is going to get credit for the entire $200,000.
Chairman Menendez. What is the public policy idea behind
that?
Ms. Goldberg. I cannot answer that question. I cannot
answer that question. I think that raises a lot of very serious
concerns, some of which I mentioned in my testimony. And for
us, one of the key ones is that----
Chairman Menendez. If I can get ten times my investment of
write-off, I would like to have that opportunity.
Ms. Goldberg. Right. And it certainly would encourage you,
if you were the servicer, to do the biggest loans--you know,
work on the biggest loans that you can because that is going to
be the fastest route to meeting your goal, whatever that might
be, for your soft dollar credits.
The downside of that is that the communities that we know
experienced the most harm, low- and moderate-income communities
and communities of color, where housing prices are lower and,
therefore, loan balances are lower, it is going to take more of
those loans to get to the same soft dollar goal, and the
chances are too big in our estimation that those loans will be
put aside. That is not where the priority will be focused, and
instead it will be the higher-income, higher-balance loans that
will get the first cut at the help.
Chairman Menendez. That is a real concern. That is a real
concern.
Mr. Smith, how does it work under your----
Mr. Smith. Very well. Under the National Mortgage
Settlement, there are certain categories of relief that are
required to be not less than a certain percentage of total
relief. And I would like to exclude, for a moment, only because
it is somewhat separate, refinancing assistance is also
required in each of the settlements, a specific dollar amount
based on--there is a formula there, but it is essentially a
multiplier based on yearly interest savings, or multiplied by a
multiplier affecting the remaining maturity of the loan.
So that is--the principal forgiveness must comprise 60
percent of the total relief, soft dollar relief, credited
otherwise, and I would like to emphasize credited because this
is important. So, for example--and half of that 60 percent has
to be first lien principal forgiveness.
Now, somewhat to Senator Merkley's point before. If a bank
is a servicer and owner of a loan and forgives--and the loan
has less than a 175 percent loan-to-value--I am going to
simplify this slightly--but it is less than 175 percent LTV,
owned and serviced--let us say $45,000 is written down, $45,000
of credit is given. So the amount of relief and the credited
amount are the same. If, on the other hand, a bank has
originated a loan, is still servicing it, sells it into a
securitization, to get $45,000 of credit, it has to write down
$100,000. In other words, it is 45 cents on the dollar.
So that the thought, again, was--the theory, as I
understand was, there was a concern about servicers getting
credit for loans not owned by them. And so, at the very least,
what the settlement does is to give less credit for that--in
that circumstance. There is a different crediting for more than
175 percent.
Second liens, which have been discussed--forgiveness of a
loan that is less than 90 days past due, or 90 days delinquent,
which is different--delinquent--is 90 cents on the dollar.
Ninety-one to 179 days is 50 cents on the dollar. And as I was
saying before, 180 days or more past due is ten cents on the
dollar.
So, again--but the amounts credited have to be--60 percent
of the credited relief has to be principal forgiveness, and
half of that, at least, has to be first lien principal.
In the case of ResCap, which we just did, actually, it was
more than 50 percent was first lien forgiveness----
Chairman Menendez. Well, that appears to be a far more
equitable process than----
Mr. Smith. And it goes on--and I could go on, but it is
pages. But, I mean, for each category of relief, I do think--
you can argue about the price, you can argue about the number
of cents on the dollar, but I do think the settlement attempts
to give credit that mirrors the benefit to the borrower,
roughly, in a pretty good----
Chairman Menendez. And that should, in my mind, be the
principle.
Ms. Goldberg. And if I could add one thing, Senator, one
other difference is--so Mr. Smith talked about the 60 percent
of the credits under the National Mortgage Settlement have to
be for principal reduction on first lien, right? That is what
you said?
Mr. Smith. Well, on the total. Thirty percent has to be----
Ms. Goldberg. OK. There is no kind of limits like that
under the IFR settlement. So it would be possible for a
servicer to meet their entire goal by doing short sales and
deeds-in-lieu and be within the bounds of the settlement, as it
is written.
Chairman Menendez. And that would not necessarily maximize
the goal of keeping people in their homes.
Ms. Goldberg. It would not.
Chairman Menendez. Senator Merkley.
Chairman Merkley. Thank you very much, Mr. Chairman.
I wanted to continue on this same issue. In your testimony,
Ms. Goldberg, on page ten, you note that on a loan with an
unpaid balance of $500,000, a loan modification that provides
any amount of principal reduction, be that $1,000 or $10,000 or
$100,000, yields $500,000 worth of credit for the servicers. It
is hard for anyone apart from this process to truly believe
that if you do a $1,000 reduction, you get $500,000 credit. Yet
are you saying, absolutely, that is the way it works?
Ms. Goldberg. That is what it says in the settlement. I
have to say, Senator, that when I first read the settlement, I
did not pick that up because it was so hard for me to believe
it could be structured that way, as well. But, in fact, that is
the wording of the settlement.
Chairman Merkley. Mr. Holland, is this accurate, to your
knowledge?
Mr. Holland. I have no knowledge of the way the settlement
was written. In our role, you know, we have the administrative
back-office tasks at hand--mailing, phone calls----
Chairman Merkley. But you have heard this issue. You have
not found anything that contradicts what Ms. Goldberg has said?
Mr. Holland. No. No, I have not.
Chairman Merkley. OK. Well, I would just like to point out
that the roughly $6 billion in soft money that is in the
settlement, at that 500-to-one rate, that is reduced down to
$12 million. Six billion goes to $12 million. That is a vast
difference.
Now, you have pointed out, Ms. Goldberg, that this creates
a pure incentive to do reductions on large loans. Now, I live
in a working class neighborhood, three-bedroom ranch houses.
There are no $500,000 mortgages where I live because there are
no $500,000 houses. So your point in your testimony is that
working class communities, and certainly communities of color,
are essentially--there is an incentive to kind of bypass them.
Why would the Fed and the OCC agree to a structure that allows
a 500-to-one or more--for that matter, it could have been one
dollar under the argument you are making rather than a
thousand--why would they agree to such a fictitious form of
accounting and a structure that incentivizes the bypassing of
working Americans in this whole process?
Ms. Goldberg. I think that is an excellent question,
Senator Merkley. I am afraid I cannot answer it. It would be a
good question to ask them to explain.
Chairman Merkley. Has anyone at the OCC or Fed explained,
given a rational explanation of what they were possibly
thinking?
Ms. Goldberg. At one point, I heard one person say that
they believed that this structure accurately reflected the
value of the assistance that the borrower received. That is the
only explanation that I have heard, and it is not one that I
find credible.
Chairman Merkley. Well, I am not sure how a borrower who
gets $1,000 relief would feel they had gotten $500,000 of
relief.
Ms. Goldberg. That is right.
Chairman Merkley. Well, and it is our working class
neighborhoods that have been hit so hard, and in our
communities of color where folks might have been more recent
homeowners and had less equity, they were not in a case of
losing a share of their equity. They were losing their entire
house, and that brings us to the third point you have raised,
which is that, essentially, there is no emphasis on saving the
family, that a short sale gets the same value as preventing a
foreclosure.
Ms. Goldberg. That is correct.
Chairman Merkley. Why would a settlement intended and
publicized to help the homeowner put the same weight on a
situation where a family loses a home as on a situation when a
family is able to keep their home?
Ms. Goldberg. That is another excellent question to which I
do not have an answer, and it is really because of those flaws,
which we view as being extremely serious and severely
undermining the potential benefit of this settlement, that--it
is a done deal, right. The ink has dried on these settlements
and I do not have this sense that there is any desire on the
part of either the regulators or the servicers to go back and
renegotiate them.
And so for us, that means it is really important to try and
think about the places where something good can be rescued from
this, and we see the two avenues to that being putting detailed
information about who is getting help out there in the public
arena, doing it regularly and in a timely fashion so that all
of us can see who is and is not getting help and----
Chairman Merkley. So you are asking for----
Ms. Goldberg. ----and hope to help to shape that a little
bit.
Chairman Merkley. You are asking for data on a census tract
basis----
Ms. Goldberg. That is right.
Chairman Merkley. ----so this can truly be evaluated, which
is transparency and accountability.
Ms. Goldberg. That is right.
Chairman Merkley. Is that guaranteed now, or does that
require some future decision, and where would that decision-
making power lie?
Ms. Goldberg. So, as I understand it, and I think as is
actually reflected in the settlement itself, the servicers are
required to report on a 45-day schedule to the regulators. I
believe that they are still in the process of deciding which
information that they will ask servicers to collect and report.
And they have told us they are prepared to put some data out
there in the public arena, but we do not know yet exactly what
that will look like or how often that will be made available to
the public, you know, when and how often.
Chairman Merkley. Mr. Chairman, I would be interested in
pursuing this in partnership with you, that we should ask for
such data to be part of this process for at least evaluation,
looking back at what worked and what did not. Thank you.
Chairman Menendez. Thank you. I am in agreement with the
Senator. I will be happy to work with him.
Let me recognize our distinguished Ranking Member, Senator
Moran, for any comments or questions.
STATEMENT OF SENATOR JERRY MORAN
Senator Moran. Mr. Chairman, thank you.
I apologize for my lack of presence this morning. I am also
the Ranking Member on an Appropriations Subcommittee that is
meeting this morning with Secretary Duncan. But I wanted to at
least make an appearance here at our first Subcommittee hearing
and express my desire to be an active and full participant in
this Subcommittee. I look forward to working with you, Mr.
Chairman. Real estate, housing, is such an important component
of the economy, but on a personal level, so important to
individuals and their lives, their families.
And so I am only here for a few moments to make certain
that you and others understand the desire on my part to work
with you, to see that our Subcommittee fulfills its
responsibility in oversight as well as in pursuing legislative
proposals to meet the real estate and housing needs of our
country. I look forward to working with you, Chairman Menendez.
Chairman Menendez. Well, thank you very much, and we look
forward to working with you, as well, and to our robust agenda
that hopefully can continue to spur our housing market and
solidify those who are in their homes, try to keep as many as
possible and continue to make this a cornerstone of our
American success for families. So thank you for coming by
today.
I have another question or two, if I may.
The Foreclosure Review Payment Agreement provides almost
two times the amount of relief to borrowers who requested a
review compared to those who did not. In my previous hearing
and throughout this process, I have expressed concerns about
outreach efforts to our underbanked communities, and without
documentations from these reviews, I believe it is safe to say
we still do not know whether folks in these communities, who
were greatly impacted, were ever aware of their right to
review.
So my question is, are we giving the borrowers who may have
never been contacted, therefore, who never requested a file
review, the short end of the stick by offering them almost half
of the relief as those who did request a review? Did you have
any experience with that, Ms. Goldberg?
Ms. Goldberg. Yes. Thank you, Senator. So I think the GAO
did an excellent job of outlining some of the problems in the
outreach efforts around particularly the request for review
part of the Independent Foreclosure Review, and we certainly
had lots of concerns about communities in which people just
were not aware that this process was going on. And I suspect if
you stopped the average person on the street today, most of
them would never have heard of the Independent Foreclosure
Review.
I think as the result of the GAO's work, late in the game,
the regulators made some very helpful changes in the way that
they were doing outreach, in particular, working much more
closely with community groups who could reach directly into the
communities where response rates had been low and do a better
job of making sure people knew that they had the opportunity to
file a request for review.
And, indeed, in the last, I guess, 6 weeks or so of the
year, right before the final deadline, the number of requests
that came in went up significantly. But even at its high point,
it was only, as I understand it, a little bit over 500,000
folks who filed a request for review out of four-point-some-odd
million. So it is still 11 percent or something like that of
the overall in-scope population who ever filed a request for
review.
And my guess is that a great many people just never knew
that was an option. They certainly, even if they knew it was an
option, they did not know that it would have any impact on the
amount of compensation that they would receive because that
decision was not made until after the deadline passed to file a
request for review.
So I have a grave concern about the level of differential
in payment that is being awarded to people who filed a request
for review and those who did not. As you point out, in many
cases, it is double, and I think there are a lot of people who
never knew this was an option for them who are suffering as a
result.
Chairman Menendez. As do I. If you knew that a review was
likely to result in an increase in the relief that you
received, then, number one, if you knew about the review
process----
Ms. Goldberg. Right.
Chairman Menendez. ----and, second, you knew that as a
metric it would be more likely that you would receive greater
relief, then it would be overwhelming that people would respond
to receive the greater relief.
Ms. Goldberg. You would think so.
Chairman Menendez. So this is a part of transparency that
lacks here, because had that standard been set, we would have
known. Mr. Evans, did you find this in your GAO report?
Mr. Evans. Well, what I can say here is that, in terms of
the recommendations we offered about the borrower outreach, the
regulators did respond by targeting communities based on
various characteristics, and they did increase their outreach
efforts in terms of the print advertisements, the radio and
television spots. And they also did some type of market
analysis to identify areas and ethnic groups----
Chairman Menendez. This is as a result of your----
Mr. Evans. As a result of our recommendations. So that is
someplace we can give the regulators credit, but----
Chairman Menendez. All right. So let me--in the same vein,
let me follow with Mr. Holland and Mr. Smith. I do not want you
to feel out of the conversation, Mr. Holland, so I have a few.
There is a reason you are here.
I understand it is a very large undertaking for your firm,
and certainly the pressure on getting these payments out in a
proficient manner, so I appreciate you coming before the
Committee today. But as you may know, the IFR had many flaws
related to outreach, to materials, to assistance for those who
speak languages other than English as their man language. Can
you provide an update on the efforts that your company is
taking to make sure we do not make the same mistakes this time
around as we did with the IFR?
For example, what channels are available to homeowners who
contact Rust if they have questions or issues that need to be
addressed? What steps or action plans are in place to actively
or effectively communicate with borrowers? If somebody calls
Rust and English is not their dominant language, are there
other language abilities to be dealt with? Give me a sense of
how you are working your job of this.
Mr. Holland. Right. We have a call center and we are taking
calls currently from people who have received the postcard
notice as part of the settlement. And now, our first wave of
checks that went out on Friday. So we do have the phone bank
ready to answer any and all questions that we get from affected
borrowers.
We have on-site Spanish-speaking operators that can assist
Spanish-speaking people. And there is a process by where we can
use a third party to help translate, I believe it is up to 200
languages, if somebody calls and has a language that we are not
supporting live with Spanish or English. And we can get an
operator on the phone that can help them.
In terms of your other question about are we making efforts
to reach out to people, we have had the data, the mailing data
for this group of people going back to the IFR, and it went
through several levels of mailing address correction that we
performed. So when we had the settlement, we started with that
address information and, once again, ran it through the
National Change of Address data base, and we are mailing checks
to the best address that we have currently.
Some of those will be returned as undeliverable and we will
make other attempts to find better address information for
those that are undeliverable. And there is nothing in place
yet, but we have had conversations about taking additional
steps beyond what we have done in terms of address trace. We
could implement an outbound calling program, email blasts.
There are all sorts of things that may be available to us,
nothing set yet, but those discussions are happening.
Chairman Menendez. Those are discussions with the
servicers?
Mr. Holland. With the OCC and the FRB.
Chairman Menendez. With the OCC and the FRB.
Mr. Holland. And to the extent that, you know, even to the
extent that somebody may receive a check and lose it, we will
have information from the bank that shows us which checks are
cleared, which checks are not. The regulators have said they
want to leave the account open for up to 2 years, so that will
give us ample time to even investigate those who do not cash
checks, and then we can reach out to them to make sure that
they received it and they get a chance to cash it.
Chairman Menendez. Mr. Smith, with the National Mortgage
Settlement, it required those five major mortgage servicers to
comply with extensive servicing standards, including requiring
a single point of contact for borrowers, adequate staffing
levels and training, better communication with borrowers,
appropriate standards for executing documents in foreclosure
cases, ending improper fees, ending dual-track foreclosures for
many loans.
Now, there have been some reports that there are abuses
that are still occurring, even for borrowers that are part of
the settlement. Can you provide an update on what you are
seeing and hearing as it relates to these mortgage servicing
standards. How far along have the lenders come in terms of
implementing the new standards, and give us a sense of how that
is moving forward.
Mr. Smith. I will, Senator. Well, the standards were in
place effective October 2nd or 3rd, 2012, so they are all to be
applicable now. A thing that needs to be understood about the
settlement is that my enforcement capacity, as I said in my
written and oral testimony, is based on metrics which are tests
of particular aspects of the standards.
We will issue our first report--we intend to issue a report
on our initial testing of that performance in May. I mean, I
say ``intend'' only because these are--we are doing a very
thorough job, and if I have learned one thing from what I have
heard today, it is do not rush to judgment. We are going to be
sure we do a thorough job before we issue a report to the court
and to the public. But I think I am hopeful that it will get
done by the end of May. This will give us the beginning of
insight based on sampling under the settlement, which, by the
way, will be done under consistent standards that will be
comparable across servicers. So we will be able to compare
performance. And so I am hopeful that will begin to be some
answers for you.
In our work this year, and because I have gone out and
talked to a number of people who represent distressed
borrowers, we believe we need additional metrics, that the
metrics we have are good, but we need to fill in some spaces,
and so I am hopeful within the next month, also, to get some
additional metrics out, including an additional one on--we have
one on single point of contact that will be tested, will be in
our first report. We need more. The metric is OK, but it needs
supplementation. And I think in a couple of other topics, we
will do the same thing.
I think it is--I will tell you about a conversation one of
my colleagues--to answer your question, generally, how they are
doing, one of my colleagues, Josh Stein, had a Skype
conversation with New Jersey advocates and counselors this last
week. And what he heard were two things, and I want to make
sure I will tell you both.
The first was that they are beginning to see an increase in
responsiveness by the servicers over what they had experienced
in the past. Quicker responses. They may not like the
responses, but they are getting it quicker. Less lost
documents. Less static. Not no static, but less. They did not
say they were satisfied. There are still issues of concern and
contention that need to be worked out. We have got a long way
to go.
And so I think the fair thing to say is, I believe we are
better off now than we were a year ago as a result--at least
with regard to the five, as a result of the settlement. But I
am not declaring victory. I think we have got a lot more work.
Chairman Menendez. And just to follow up on your answer,
all the elements that I mentioned that are part of the
settlement, do you have metrics as it relates to all of those
elements?
Mr. Smith. No. I cannot honestly say that. I think the
metrics--I think it is fair to say that the metrics cover a
broad enough representation of what is required under the
settlement to be pretty representative. But the short answer to
your question is there are--I have got it here, actually--113
of the 304 are mapped to particular--of the standards are
mapped to metrics. That leaves a number not mapped. So what we
are doing, Senator, I think it is fair to say, is to give, I
believe, a good insight and a good--we will give a good
representation of where the servicers are. But it is
supplemental to what their primary regulators, what the CFPB
and others need to be doing going forward.
Chairman Menendez. So let me close with one other question
to you, which is in line with some of what we are talking
about. I understand that most of the information that you are
now able to report has been self-reported by the banks. Is that
accurate?
Mr. Smith. Yes.
Chairman Menendez. OK. And while I am somewhat troubled by
that idea, because that has not been a particularly good record
by some of these institutions, can you explain what authority
you have as the monitor to verify the information you receive
from these servicers? How are you able to determine from the
data that your most recent reports will be accurate? And is
there any policy in place that would allow you to verify
information in cases where you felt the self-reporting data
lacked accuracy?
Mr. Smith. Yes. The short answer--first, the self-reporting
is the servicer, that is to say the firm, reports responses to
these metrics, the questions on the metrics test. The servicers
are required by the settlement to establish an Internal Review
Group, which is to be separate from the mortgage servicing and
the mortgage line of business. So it is--I would analogize it
to the independent audit capacity in most organizations, which
is to report separately outside the business operation.
That Independent Review Group will itself assess whether it
agrees. It will test itself and will test whether it agrees
with the servicer's assertion of compliance or if--of
compliance. I then have an accounting firm of my own which
reviews the work papers that the IRG has produced and has the
capacity--and we have done additional tests and we have asked
additional questions and we are going to--we are doing our best
to tease out of all what we have gotten, all the information
you can get to assure that what they are telling us is true.
The one reason I cannot tell you for sure we are going to
report in May is because we having prayer, shall I say, over a
bunch of items now with regard to some of the servicers.
So we will--we are--what we have got is what I would say is
a targeted approach to determining compliance. But we are going
to do our very best to assure that we get everything we can out
of that process and publicly report it so you can review and
see what you think, how you think we did. I mean, I think--I am
under no illusion that what we report will not be widely read
and discussed, and that is good. That is intentional.
Chairman Menendez. Well, I can assure you it will be widely
read by this Committee, so----
Mr. Smith. I am sure it will.
Chairman Menendez. Let me thank you all for your testimony.
It has been very elucidating in many respects. I have real
concerns, as I have expressed early on to the regulators about
this, and unfortunately, my concerns that were expressed going
back some time ended up being, unfortunately, the reality.
It is the intention of this Committee to continue to pursue
all the elements of this as we move forward with the
regulators. I think that Ms. Goldberg's suggestions, making the
best of what we have right now, are important ones and we look
forward to pursuing that, as well. At the end of the day, those
who were harmed should have the appropriate relief. They should
know what that relief can be. They should be able to maximize
that relief, and it seems to me a little perverse that you can
get a lot--that the servicers, the institutions can get a lot
but do a little in comparative ways, much different than the
National Mortgage Settlement process. So those are real
concerns to me as the Chair and I will look forward to
continuing to pursue these. This record will remain open for 2
days for any Members who have questions for the record.
And with the thanks of the Committee, this hearing is
adjourned.
[Whereupon, at 11:12 a.m., the hearing was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow:]
PREPARED STATEMENT OF LAWRENCE L. EVANS, JR.
Director, Financial Markets and Community Investment, Government
Accountability Office
April 17, 2013
PREPARED STATEMENT OF JOSEPH A. SMITH, JR.
Monitor of the National Mortgage Settlement
April 17, 2013
Introduction
Thank you Chairman Menendez, Ranking Member Moran, and Members of
the Subcommittee for inviting me today to testify about implementation
of the National Mortgage Settlement. It is a pleasure to be here with
you to talk about this important issue.
As you know, on April 5, 2012, the National Mortgage Settlement
went into effect when the United States District Court for the District
of Columbia entered five separate consent judgments that settled claims
of alleged improper mortgage servicing practices against five major
mortgage servicing organizations: Bank of America, N.A., CitiMortgage,
Inc., JPMorgan Chase Bank, N.A., Residential Capital LLC and affiliates
(formerly GMAC) and Wells Fargo & Company and Wells Fargo Bank, N.A.
Government parties to the settlement include the U.S. Department of
Housing and Urban Development, the U.S. Department of Justice,
Attorneys General from 49 States and the District of Columbia, various
State financial services regulatory agencies and other releasing
parties, including the Consumer Financial Protection Bureau and the
U.S. Department of Treasury.
The settlement was an unprecedented and collaborative bipartisan
effort by the States and the Federal Government to improve the way
mortgage servicers work with distressed borrowers while also providing
much needed relief to homeowners across the Nation.
The settlement can be divided into three parts: direct payments to
borrowers and States, consumer relief and servicing standards. While I
have no oversight over the direct payments, as the monitor of the
settlement, I am responsible for reviewing and certifying the discharge
of the servicers' consumer relief obligations and overseeing their
implementation of and compliance with the servicing standards.
Organizational Overview
As monitor, I am subject to oversight by a Monitoring Committee
that is comprised of representatives of the U.S. Department of Housing
and Urban Development, the U.S. Department of Justice, and
representatives of 15 States. My office operates under a budget I
prepare annually in consultation with the Monitoring Committee and
servicers and is paid for by the servicers out of their corporate
funds. My budget for fiscal year beginning July 1, 2012, was so
prepared and is in effect. At the end of this fiscal year, I will make
publicly available a report with audited financial statements covering
my operations.
To assist me in enforcing the settlement, I am authorized to employ
a primary professional firm (PPF) agreed to by the servicers. In
selecting the PPF, my goal was to find a firm that not only had the
organizational capacity and subject matter expertise to do the work
well, but also was independent of all five servicers. I conducted a
thorough selection process during which I invited 46 firms to submit a
proposal and reviewed 23 proposals. At the end of this process, I
retained BDO Consulting. BDO has substantial financial services
industry experience, yet has no meaningful conflict with any of the
servicers.
As the PPF, BDO is responsible for ensuring quality control and
making sure that the review of the servicers' implementation of and
compliance with the servicing standards is done in a consistent way.
BDO is also responsible for reviewing and confirming the consumer
relief that the servicers extend to borrowers under the terms of the
settlement and has been performing that work to exacting standards over
the last 6 months.
To assist in the review of servicer implementation of and
compliance with the servicing standards, I also have retained five
separate secondary professional firms (SPFs), including Baker Tilly
Virchow Krause, LLP; BKD, LLP; Crowe Horwath LLP; Grant Thornton LLP;
and McGladrey LLP. Each SPF is assigned to a specific servicer. As with
BDO, each SPF is free of any relationship to its assigned servicer that
would undermine public confidence in its work.
Each servicer also has an internal review group (IRG), or group of
employees and/or independent contractors and consultants that is
responsible for performing reviews of the servicer's compliance with
the settlement and whose members are required to be separate and
independent from the line of business being reviewed. My office and its
associated professional firms have also reviewed the qualifications and
resources of each IRG to ensure it has the capacity and independence to
do a credible job.
In addition to the PPF and SPFs, the settlement authorizes me to
retain attorneys and other professionals to help me carry out my
duties. Accordingly, I have engaged the law firms of Poyner Spruill and
Smith Moore Leatherwood; the forensic accounting firm of Parkside
Associates; the accounting firm Cherry, Bekaert & Holland; and the
communications firm Capstrat. As required by the settlement, each firm
is independent of the servicers.
Though it was not required by the settlement, I have sponsored the
creation of the Office of Mortgage Settlement Oversight (OMSO), a not-
for-profit organization that provides administrative support for my
work, including acceptance and payment of money and the maintenance of
books and records. OMSO enables me to carry out my duties transparently
and independently with administrative oversight from an independent
Board of Directors.
Consumer Relief
Under the settlement, the servicers have agreed to provide specific
dollar amounts of relief to distressed borrowers within a 3-year
period. This relief includes first and second lien modifications, short
sale assistance, deficiency waivers, forbearance for unemployed
borrowers, antiblight activities, benefits for members of the armed
services, and refinancing programs.
Within limits, the servicers have flexibility to apply these
different kinds of relief as they see fit to meet their overall
obligations. The settlement specifies that certain types of relief must
make up a certain percentage of each servicer's commitment. For
example, 60 percent of the total credited relief must come from first
and second lien modifications; of that at least half must be
modifications made on first liens.
Under the consumer relief terms of the settlement, the servicers
are required to make quarterly reports to the States (with copies to
the Monitoring Committee and to me) of relief during that quarter in
each State and in the Nation as a whole. They have done so, in November
of last year and February of this, and the data they provided was the
basis of my progress reports to the public issued in the same months.
The kinds of consumer relief for which a servicer can receive
credit under the settlement are set out in detail in the consent
judgments and the credit varies based on the relief given. For example,
servicers can receive dollar for dollar credit for principal
forgiveness on loans both owned and serviced by the servicer and as
little as five cents on the dollar for certain forbearance activities.
For that reason, the gross dollar amounts of relief the servicers have
delivered to homeowners far exceeds their total credited obligations
under the settlement.
For each amount of relief it has provided to borrowers on or after
March 1, 2012, a servicer will receive credit against the commitments
it made when it entered the settlement. To encourage the servicers to
make substantial progress in the first year of the settlement, it gives
them an additional 25 percent credit for any credited first or second
lien principal reductions or refinancing activities that take place
within the 12 months after March 1, 2012. If a servicer's total
commitment is not fully satisfied within 3 years, it will be required
to pay a penalty of no less than 125 percent of its unmet commitment
amount.
A servicer can choose to seek a determination by me of its
satisfaction of its consumer relief obligations whenever it has
asserted such satisfaction to its IRG, its IRG has confirmed such
satisfaction and such confirmation is reported to me. In November 2012,
the ResCap parties requested a satisfaction review. In February of this
year, after a review of their performance, I issued a report confirming
their satisfaction of their minimum consumer relief obligations and
partial satisfaction of their mandatory solicitation requirements. My
report was filed with the United States District Court for the District
of Columbia and is available for review on my Web site. In February,
each of the other four servicers requested a determination of partial
satisfaction of their consumer relief obligations through December 31,
2012. A review of the assertions of completed consumer relief by the
servicers and the confirmation of completion by their IRGs is in
progress. I will publicly report my determination later this year after
my review is done.
In their latest reports to the States, compiled in my most recent
progress report, the servicers have reported that from March 1, 2012,
to December 31, 2012, 554,389 borrowers benefited from some type of
consumer relief totaling $45.83 billion, which, on average, represents
about $82,668 per borrower. This figure includes both completed relief
and active first lien trial modifications. The amounts reported are
gross dollar figures rather than credited relief under the settlement
and, except for amounts reported by the ResCap parties, have not been
reviewed or scored by the PPF or by me.
Additional information with regard to consumer relief to date under
the settlement is available in my most recent report, titled ``Ongoing
Implementation''.
Servicing Standards
In addition to consumer relief, the settlement establishes 304
servicing standards, or rules of conduct, to which the servicers must
adhere. These servicing standards are intended to redress the practices
in mortgage servicing that led to the claims that resulted in the
settlement. It is important to note that the servicing standards apply
to all loans serviced by the servicers, regardless of the loan's owner.
Each servicer has been responsible for implementation of and compliance
with the standards since October 2, 2012.
There are servicing standards related to document integrity, the
loan modification process, dual tracking, single points of contact,
other customer service requirements, and other more general
requirements.
Under the settlement, I am directed to measure servicer compliance
with the servicing standards through 29 metrics--tests designed to
determine whether one or more of the servicing standards are being
followed. The servicers conduct these tests through their IRGs, who
then report the results to me. Assisted by my PPF and SPFs, I assess
the work of the servicers and report my conclusions. If the IRGs or I
find potential violations--noncompliance with the standards--the
servicer has to implement a corrective action plan and remediate any
identified potential violations. In the case of a widespread error, the
servicer has to search for all potential violations since
implementation of the servicing standard and remediate them. If it
can't or won't correct the potential violations, injunctions or civil
penalties can be sought through the United States District Court for
the District of Columbia.
We have completed our first review of servicer compliance under the
settlement--for the calendar quarter ended on September 30, 2012--and
have nearly completed our second quarterly review. When that review is
complete, I will report to the Court and to the public on how the
servicers have performed. I intend to deliver that report next month.
This process will continue for the next 2 years.
Complaints
To help me better understand the settlement's impact in the
marketplace, my colleagues and I closely review consumer complaints we
receive through my office as well as the complaints elected officials
escalate to the servicers. As part of the settlement's terms, the
servicers are required to provide me with access to all the complaints
submitted to them by Members of Congress, Attorneys General and other
governmental agencies. I also have met with Attorneys General, their
staffs, lawyers who represent borrowers and housing counselors in hard
hit States such as Florida, Nevada, California, Illinois, and Arizona,
and I look forward to doing as much more of this as is possible.
Further, I have recently entered an information sharing relationship
with the Consumer Financial Protection Bureau that has great promise.
Through the complaints and my meetings with Attorneys General
staff, housing counselors and lawyers, I have learned about the issues
that borrowers continue to experience. While I have heard about
progress and success in obtaining consumer relief, problems with the
servicing standards, including single points of contact, dual tracking
and the loan modification process in general are still occurring all
too often. These are the issues that guide my conversations with the
servicers.
The settlement anticipated situations in which there would be
issues surrounding servicing standards not tested by a metric and
allowed me the opportunity to develop three discretionary metrics. As a
result of what I have heard from consumers and professionals, I am now
working with the servicers to establish my discretionary metrics. They
are not yet completed, but they will address what I have learned in the
last year.
Conclusion
In closing, the settlement has been successful in what I believe is
a worthwhile effort: focusing resources on a specific problem in a
targeted, time-limited way that augments and supports the work of
policy makers and governmental agencies. I applaud the bipartisan
leaders who crafted this settlement to address serious issues with
local and national implications. Properly implemented and enforced, the
settlement has the potential to result in a substantial public benefit.
I look forward to continuing my work toward that goal and welcome your
questions.
______
PREPARED STATEMENT OF DAVID HOLLAND
Executive Vice President, Rust Consulting
April 17, 2013
Introduction
My name is David C. Holland. I am an executive vice president based
in Rust Consulting's Minneapolis, Minnesota, office. Rust Consulting,
or ``Rust,'' has been engaged by the servicers to administer certain
aspects of the Alternative Resolution Settlement as directed by the
Office of the Comptroller of the Currency (OCC) and the Federal Reserve
Board (FRB). Previously, Rust was engaged by the servicers to
administer the Consent Orders for the Independent Mortgage Foreclosure
Borrower Outreach project, also known as the Independent Foreclosure
Review (IFR).
Rust provides project management, data management, notification,
contact centers, claims processing, and fund distribution, typically in
support of large, complex, and time-sensitive programs. Rust has
handled more than 4,000 programs in all.
Independent Foreclosure Review
Rust was originally engaged by 14 servicers to serve as the
administrative provider under the IFR Consent Orders. Broadly speaking,
our responsibilities under the Consent Orders were to notify homeowners
about the program, to answer their questions, to receive their Request
for Review forms, and to handle in- and outbound mail. From November
2011 through December 2012, we executed three mass mailings to
homeowners. Over the same period and through January 2013, we received
and forwarded homeowner Requests for Review forms.
Alternative Resolution Settlement
Rust was recently engaged by 11 of the 14 original servicers, along
with two additional servicers, to serve as the Paying Agent under the
Alternative Resolution Settlement (Settlement). Our responsibilities
under the Settlement are to notify homeowners about this program, to
answer their questions, and distribute settlement payments in the form
of checks to eligible homeowners.
1. Rust updated the ending-IFR-program database of homeowner
addresses through the National Change of Address service and
mailed postcards on March 18, 2013, informing homeowners that
they were eligible to receive a payment as a result of the
Settlement.
2. Rust received relevant data from servicers that identified loan
classifications for each individual loan and subsequently
received data from the OCC and FRB detailing the payment
amounts for each loan classification. The first wave of checks,
approximately 1.4 million, were mailed on Friday, April 12. The
majority of the remaining checks will be mailed in three more
waves occurring on April 19, April 26, and May 3.
3. Rust continues to staff a call center to take incoming calls from
homeowners with questions about the program and update the Web
site for the IFR project to provide new information regarding
the Settlement.
Outreach Efforts
At the direction of the servicers, the OCC, and the FRB, Rust
implemented a number of address correction processes to maximize the
number of homeowners who received notice as part of the IFR. Rust will
continue to use address correction processes under the Settlement.
1. In both projects, the NCOA process was used to update addresses.
2. As part of the IFR, Rust received undeliverable notices, ran the
corresponding addresses through a ``skip-trace'' process, and
whenever possible, remailed notices to new addresses.
3. For any of the remailed notices that were returned as
undeliverable, Rust performed another second type of address
search, and again, whenever possible, remailed notices to new
addresses.
4. Under the Settlement, Rust will receive undeliverable checks and
attempt to find better addresses and, whenever possible, remail
the checks to new addresses.
Reporting
During the IFR process, Rust provided comprehensive daily
statistical reporting to the OCC, the FRB, independent consultants, and
the servicers. Daily meetings were held with the consortium of the 14
servicers and independent consultants that covered the current state of
project execution, future deliverables, and next-phase planning.
As part of the Settlement, Rust provides comprehensive daily
statistical reporting to the OCC, the FRB and the servicers. Daily
conference calls are held with the servicers covering project
execution. Two times weekly, conference calls are held with the OCC and
the FRB covering project execution and future deliverables.
______
PREPARED STATEMENT OF DEBORAH GOLDBERG
Special Project Director, National Fair Housing Alliance
April 17, 2013
Chairman Menendez, Ranking Member Moran, and Members of the
Subcommittee, my name is Debby Goldberg, and I am a special project
director with the National Fair Housing Alliance (NFHA). Founded in
1988 and headquartered in Washington, DC, the National Fair Housing
Alliance is a consortium of more than 220 private, nonprofit fair
housing organizations, State and local civil rights agencies, and
individuals from throughout the United States. Through comprehensive
education, advocacy and enforcement programs, NFHA protects and
promotes residential integration and equal access to apartments,
houses, mortgage loans, and insurance policies for all residents of the
Nation.
I want to thank you for the opportunity to testify here today about
the Independent Foreclosure Review (IFR). The IFR was one component of
consent orders that the Office of the Comptroller of the Currency and
the Federal Reserve Board signed 2 years ago with 14 mortgage
servicers, later expanded to 16 companies. Those consent orders were
intended to address widespread failures in those companies' mortgage
servicing and loss mitigation systems, as identified in the
``horizontal review'' that the regulators conducted in the wake of the
so-called robo-signing scandal.
NFHA and many other civil rights and consumer organizations
welcomed the announcement that the regulators had entered into consent
orders with these servicers and supported the dual goal of the orders:
to ensure that the servicers made changes to their staffing, systems
and oversight that would prevent future borrowers from experiencing the
kinds of problems that could lead to unnecessary foreclosures; and to
identify borrowers whose servicers acted improperly in the foreclosure
process and the events leading up to it, and compensate those borrowers
for the financial harm they suffered. We only wish that the
announcement had come much sooner, so that some of the four million or
more homes that have been lost to foreclosure since 2008 might have
been saved. \1\
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\1\ CoreLogic, ``CoreLogic Reports 767,000 Completed Foreclosures
in 2012'', February 1, 2013, available at http://www.corelogic.com/
research/national-foreclosure-report-december-2012. pdf.
---------------------------------------------------------------------------
The Negative Impact of the Foreclosure Crisis on Communities of Color
For NFHA, the 2011 consent orders represented an important
regulatory milestone. Four years earlier, in 2007, we and four other
national civil rights organizations called for a national moratorium on
foreclosures. We did so because we were hearing from our members and
others about the massive level of foreclosure activity occurring in
communities of color all across the country. The situation had reached
crisis proportions and called for a national response. In previous
years, communities of color had been flooded with subprime and other
unsustainable mortgages. African American borrowers were 3 times more
likely, and Latino borrowers were 2.5 times more likely to be placed in
subprime loans than their white counterparts. \2\ Research indicated
that significant numbers of these borrowers had credit that was good
enough to qualify them for safer, less costly prime loans. \3\ Recent
settlements between the U.S. Department of Justice and several major
mortgage lenders illustrate how financial incentives encouraged
mortgage brokers and loan officers to charge higher fees to hundreds of
thousand of African American and Latino borrowers. These incentives
also encouraged lenders to steer tens of thousands of borrowers who
qualified for prime loans into subprime mortgages that were more
profitable for the loan originators, but proved to be disastrous for
the borrowers, their communities and our economy as a whole.
---------------------------------------------------------------------------
\2\ Bocian, Debbie Gruenstein, Wei Li, Carolina Reid, and Roberto
G. Quercia, ``Lost Ground, 2011: Disparities in Mortgage Lending and
Foreclosures'', Center for Responsible Lending, November 2011.
\3\ Brooks, Rick, and Ruth Simon, ``Subprime Debacle Traps Even
Very Creditworthy'', Wall Street Journal, December 3, 2007.
---------------------------------------------------------------------------
While the foreclosure crisis has affected a great many borrowers
and communities, some have been hit harder than others. According to
research by the Center for Responsible Lending (CRL), by early 2011, 25
percent of all African American and Latino homeowners who had mortgages
originated between 2004 and 2008 had either lost their homes to
foreclosure or were seriously delinquent, a rate twice that of white
borrowers. The impact of these foreclosures has been devastating, not
only for the families who have lost their homes, but also for their
neighbors whose lives and communities and property values have all be
affected. CRL' s research indicates that $2 trillion of wealth has been
lost as a result of the foreclosure crisis. Half of that amount, $1
trillion, has been lost by communities of color. \4\ It may be a full
generation or more before this lost wealth is regained, and the
implications of this loss for our country are profound.
---------------------------------------------------------------------------
\4\ Bocian, Debbie Gruenstein, Peter Smith, and Wei Li,
``Collateral Damage: The Spillover Costs of Foreclosures'', Center for
Responsible Lending, October 24, 2012.
---------------------------------------------------------------------------
NFHA's own work shows that the negative impact of foreclosures
lasts far beyond the event itself. We have investigated the practices
of mortgage servicers with respect to maintenance, management and
marketing of the homes they have taken back through foreclosure (i.e.,
their real-estate owned or REO properties). We have found that,
compared to REO homes in white communities, REOs in communities of
color are many times more likely to have multiple problems with respect
to their physical condition, such as leaking roofs, broken windows,
unsecured doors, trash in the yard, poorly maintained yards, and the
like. They are less likely to be marketed effectively, are more likely
to linger on the market longer, and are more likely to be bought by an
investor rather than an owner occupant. \5\ All of creates eyesores and
hazards and depresses property values for the homeowners who remain.
---------------------------------------------------------------------------
\5\ National Fair Housing Alliance, ``The Banks Are Back, Our
Neighborhoods Are Not: Discrimination in the Maintenance and Marketing
of REO Properties'', April 4, 2012.
---------------------------------------------------------------------------
In sum, the foreclosure crisis has had a significant impact on
people and communities of color. For us at NFHA, addressing the sources
of these problems and protecting against their recurrence have been a
high priority, and one that we see as consistent with our civil rights
mission. We were pleased when the OCC and the Federal Reserve announced
their consent orders, and were hopeful that the effort to identify and
compensate aggrieved borrowers would be an important step towards
mitigating some of the damage done by servicers' abuses. We also hoped
that the servicing provisions of the consent orders and the regulators'
increased focus on servicing practices would result in better loss
mitigation so that more borrowers would receive the loan modifications
for which they were eligible and be able to stay in their homes.
Importance of the Independent Foreclosure Review and Consent Orders
The 2011 OCC/FRB consent orders, with their provisions requiring
the servicers to conduct independent foreclosure reviews, were one of
several efforts under way in recent years to address the foreclosure
crisis. In 2009, Making Home Affordable was launched, with its HAMP,
HARP, and Hardest Hit Funds programs. In February, 2012, 49 State
attorneys general and several Federal agencies reached an agreement
with five major mortgage servicers, \6\ the National Mortgage
Settlement (NMS). These efforts are aimed at preventing further
foreclosures, by reforming mortgage servicing practices, standardizing
loan modification terms and conditions, increasing the use of principal
reduction in loan modifications, and making it possible for homeowners
who were current on their mortgages but underwater to refinance into
loans with lower interest rates. What sets the IFR apart from these
other efforts is its emphasis on identifying and compensating borrowers
who were harmed by problems in the way their servicer handled their
mortgages and their requests for assistance when they could no longer
make their payments.
---------------------------------------------------------------------------
\6\ The servicers covered by the National Mortgage Settlement
include Bank of America, Citi, JPMorgan Chase, Wells Fargo, and GMAC/
Ally (see, www.nationalmortgagesettlement.org for further details). All
of these servicers also entered into consent orders with OCC and/or the
Federal Reserve Board in April, 2011 and were subject to the
requirements of the IFR.
---------------------------------------------------------------------------
This approach is particularly important from a civil rights
perspective. As noted above, a disproportionate number of unsustainable
subprime loans were made to African American and Latino borrowers. Many
of these loans became unaffordable and unsustainable, forcing the
borrowers into default, in the earliest waves of foreclosures. By the
time the consent orders were signed, many of these borrowers may have
already lost their homes. However, even if it was too late to help
these borrowers save their homes, it was not too late to find them and
compensate them, at least in part, for the harm they suffered. For this
reason, NFHA has taken a particular interest in the implementation of
the IFR process.
Concerns With the Independent Foreclosure Review
The IFR had two components. One of these was the ``look-back''
process, for which the independent consultants (ICs) that the servicers
were required to hire would review samples of files, and where a
certain level of errors was found, expand those samples to capture all
of the files of borrowers with similar characteristics. The second
component was the Request for Review (RFR) process, which provided an
opportunity for borrowers who believed they had been harmed to request
a review of their particular file, whether or not it was also captured
in one of the samples reviewed by the ICs.
Reviewing the files of 4.4 million borrowers who faced foreclosure
to determine whether their servicers acted properly, whether the
borrowers suffered financial harm, and quantifying that harm is a big,
complex undertaking. For NFHA and the civil rights and consumer
advocates with whom we work, it was important for the reviews to be:
conducted in a timely and transparent manner,
thorough while focusing in on the problems experienced most
frequently by borrowers,
fair and even-handed by capturing the borrower's side of
the story, and
consistent, resulting in comparable outcomes for similarly
situated borrowers with different servicers.
Transparency, consistency, and fairness have all proven problematic
in the IFR process, as is evident in the record compiled by this
Committee through its earlier hearings, and in the two reports
published by the Government Accountability Office (GAO). With respect
to the look-back process, NFHA and other advocates raised several key
concerns.
Our first concern was the lack of transparency due to the
regulators' reluctance to make public the rulebook for this
undertaking. Despite numerous requests, the regulators never released
the guidance they provided the ICs about how to implement the reviews
and how to resolve any issues that arose. This lack of transparency
undermined public confidence in the process and made it difficult to
have confidence that the ICs knew what to look for in the files or how
to interpret what they found (or didn't find). This lack of
transparency also undermined public confidence that the outcomes would
be consistent across servicers.
Further, the process did not allow for input from the borrower
about his or her interactions with the servicer. This was necessary to
identify cases where borrowers were given incorrect inconsistent or
conflicting information by their servicers, and to shed light on the
many instances in which borrowers submitted the documents required to
be considered for a loan modification or other loss mitigation
options--often several times--but servicers claimed never to have
received them. For many borrowers, this had caused significant and
costly delays in the processing of their loan modification
applications. In some cases, the mounting arrearages made them
ineligible for the modification they requested.
The Request for Review (RFR) process also raised many concerns.
Again, the GAO report on the subject lays them out clearly. Many of
these problems stemmed from the failure to provide for the kind of
outreach necessary for the RFR process to be successful. This was a
problem in the consent orders themselves. No resources were allocated
for outreach; no organizations that work closely with borrowers, such
as housing counseling agencies or legal services offices, were
consulted about the best way to reach borrowers or what role they might
play in doing so; no provisions were made for developing effective
outreach materials; and no consideration was given to a reasonable
timetable for such an effort.
A second, more targeted outreach effort was conducted during the
last 6 weeks or so before the final application deadline. This resulted
in a substantial increase in the number of borrowers who filed an RFR,
but in the end only some 11 percent of eligible borrowers made such a
request. Many borrowers may not have been in a position to submit an
RFR, others may have lacked confidence that the outcome would justify
the effort required, and a great many others may simply never have
known that the IFR process existed and they could file a request to
have their file reviewed. These are just a few of the concerns about
the RFR process. Others were detailed in the testimony provided to this
Committee by Alys Cohen, of the National Consumer Law Center, on
December 13, 2011. \7\
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\7\ Cohen, Alys, ``Helping Homeowners Harmed by Foreclosures:
Ensuring Accountability and Transparency in the Foreclosure Reviews'',
Testimony before the United States Senate Subcommittee on Housing,
Transportation, and Community Development of the United States Senate
Committee on Banking, Housing, and Urban Affairs, December 13, 2011.
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Concerns With the January, 2013 IFR Settlement
On January 7, 2013, the regulators announced that they had reached
a settlement with 13 of the IFR servicers, were halting the IFR process
at those companies and replacing it with a combination of direct
payments to borrowers and other forms of mortgage assistance. The
settlement was valued at $9.3 billion, including $3.6 billion in direct
payments to 4.2 million borrowers, and $5.7 billion in other
assistance. The agencies expressed concern about the slow pace of the
IFR process and the substantial cost of the Independent Consultants,
already reported to be $2 billion, and stated their belief that the new
settlement would put more money in the hands of more borrowers more
quickly.
Questions About the Cash Distribution
Borrowers and their advocates certainly shared the regulators'
frustration over the pace and cost of the reviews. Whether the new
settlement provides a more equitable distribution of relief, however,
is a different matter. Last week the regulators released a chart that
details how payments will be allocated among 3.9 million borrowers
(payment details have yet to be released for borrowers whose loans were
serviced by Goldman Sachs and Morgan Stanley). They range from $300 to
$125,000. At the top end of the scale, 2,041 borrowers will receive
$125,000. These are borrowers who were protected under the provisions
of the Servicemembers Civil Relief Act (SCRA), but whose servicers
foreclosed on their homes anyway. Another 98 borrowers who were never
in default but still lost their homes to foreclosure will also receive
$125,000. At the bottom end of the scale, 2,358,441 borrowers whose
servicers brought foreclosure actions against them after approving
their request for a loan modification, whose servicers never reached
out to them to offer assistance, or who fall into an ``other'' category
will receive $300 apiece. None of these borrowers filed an RFR. Their
260,623 counterparts in the same categories who did file an RFR will
receive either $500 or $600.
The chart raises more questions than answers. For example, it is
not clear why responsibility for ``slotting'' borrowers into specific
categories was given to the servicers and why their record systems,
which are known to be seriously flawed, were used as the basis for the
slotting process. Nor is it clear why certain categories of borrowers
were awarded one amount of money and other categories were awarded a
different amount. In the end, no determinations were made about which
borrowers experienced financial harm. With the exception of the SCRA
violations and the borrowers who were never in default, the fact that a
borrower falls into a category higher on the chart is no indication
that he or she actually experienced harm. Similarly, the fact that a
borrower is slotted into a category lower on the chart is no indication
that he or she did not experience harm. Given this, it is not clear why
there are so many different categories of borrowers and awards, or even
any categories at all. And given the likelihood that a great many
borrowers never knew about the IFR at all, let alone that they could
file a request for review, and the fact that no borrowers knew that
doing so would affect the amount of compensation they would receive, it
is not clear why borrowers who filed an RFR were awarded so much more
compensation than their counterparts who did not file such a request.
These questions are confusing and distressing to borrowers, and I
suspect many of the Members of this Committee are hearing from your
constituents with these and other concerns about how this process has
played out.
Advocates have many concerns about the payment process itself. As
with the initial RFR process, no resources were allocated for outreach
to borrowers to let them know about the change in plans and the fact
that checks will be coming their way. Postcards from the payment agent,
Rust Consulting, were mailed to borrowers, but these postcards are
subject to the same critiques that GAO cited in its report on the
previous IFR outreach process. We are already hearing reports that
borrowers are confused about the postcards, believe they may come from
scam artists, or are simply throwing them out as junk mail.
This, in turn, raises concerns about whether, when the IFR checks
are mailed, borrowers will actually open the letters and cash the
checks. It is critical for the regulators to track returned mail and
cashed checks to determine whether the funds are not getting through in
certain geographic areas or to groups of borrowers, particularly those
who may not be proficient in English and may not fully understand the
letter of explanation accompanying the checks. Despite advocates'
recommendation, the regulators did not send postcards or letters in
both English and Spanish, let alone any other languages. If gaps are
identified among those borrowers cashing the checks, the regulators
should take additional steps to ensure that they have the correct
address for borrowers. They should also conduct additional, and where
appropriate language specific, outreach in those communities to ensure
that borrowers actually receive the funds to which they are entitled.
In addition, it is inevitable that some funds will go unclaimed.
The regulators have not announced what will be done with such funds.
After every effort is made to locate those borrowers who did not cash
their checks and encourage them to do so, we recommend that remaining
funds be earmarked to support housing counseling, legal services and
other foreclosure prevention services.
Questions About the Other Forms of Assistance to Borrowers
There are also many questions and concerns about the provisions of
the settlement relating to nonmonetary assistance to borrowers, the so-
called soft dollar side of the settlement. The $5.7 billion worth of
assistance will be provided to borrowers in the form of loan
modifications, short sales, deficiency waivers and the like. The
servicers themselves will determine which borrowers will receive
assistance, how much, and in what form. The structure of this side of
the settlement resembles the structure of the National Mortgage
Settlement (NMS), in that servicers will receive credit towards their
targeted level of borrower assistance for the specified activities.
There are some significant differences between the IFR settlement
and the NMS, however, and many of these are cause for concern because
they undermine the regulators' stated goal for this part of the
settlement, which is to help save people's homes.
Our greatest concern is that, unlike the NMS, the IFR settlement
bases the amount of credit the servicer receives on the unpaid balance
of the loan, rather than the amount of assistance provided to the
borrower. In other words, if a servicer forgives $50,000 worth of
principal on a $500,000 loan, it receives soft dollar credit not for
$50,000 but for $500,000. This severely inflates the amount of credit
the servicer receives, and dramatically reduces the number of borrowers
who are likely to receive assistance through this program.
An equally alarming aspect of this approach is that it creates an
incentive for servicers to focus their efforts on higher-priced homes
with larger unpaid loan balances. On a loan with an unpaid principal
balance of $500,000, a loan modification that provides any amount of
principal reduction--be that $1,000, $10,000, or $100,000--will yield
$500,000 worth of credit for the servicer. A modification that provides
the same amount of principal reduction on a loan with an unpaid
principal balance of $150,000 will only yield $150,000 worth of credit.
This crediting structure encourages servicers to focus their
efforts on large-balance loans. It is likely to disadvantage borrowers
in communities of color, where home prices and therefore loan balances
are systematically lower than those of comparable homes in
predominantly white communities. Thus a process that initially held
promise for remediating some of harm suffered by borrowers in
communities of color may instead leave those borrowers out in the cold.
In another contrast to the NMS, the IFR settlement places loan
modifications which have the real potential to save the borrower's
home--on equal footing with short sales, in which the borrower loses
the home. Both receive dollar for dollar credit under the IFR
settlement. Unlike the NMS, the IFR settlement places no cap on the
amount of credit that servicers can receive for short sales, so if they
choose, servicers can meet their entire soft-dollar goals through short
sales. Nor does the IFR settlement make any provision for resources to
support outreach to borrowers and counseling or legal assistance.
Funding for these efforts, which is strictly left to the discretion of
individual servicers, will come out of the soft-dollar side of the
settlement.
Ways in Which the IFR Settlement Could Still Be Helpful
The results of the 2011 consent orders and the IFR process to date
have been extremely disappointing. They have failed to identify
borrowers who were harmed by the actions or inactions of their
servicers, and the checks that are being sent to borrowers will not
adequately compensate those who were harmed. Nonetheless, the orders
still provide the regulators with two key opportunities to help keep
borrowers in their homes, if they choose to use them. These are through
reforming servicing practices and ensuring that help goes to those
borrowers and communities that have been hardest hit.
Servicing Reforms Needed
Servicing abuses remain widespread, and too often, servicers still
are not providing borrowers with the loan modifications for which they
are eligible. This is a problem that the 2011 consent orders were
intended to fix, although this component of the orders has received
little attention from the regulators, who have been focused on the IFR.
While the regulators report that more than half of the more than 4
million homeowners who were in scope for the IFR process have
subsequently lost their homes to foreclosure, as many as two million
have not. For these and other at-risk homeowners, it is critical that
the regulators step up their focus on loss mitigation and servicing
reforms.
In addition to the servicing reforms spelled out in the consent
orders, the regulators have broad supervisory authority to ensure that
servicers comply with other contractual and programmatic requirements.
If the regulators were to put more emphasis on servicing reforms in
their compliance reviews, borrowers would benefit tremendously. To do
this, they must bring their examination teams up to speed on what
servicers should be doing, and get input from the field about how
servicers are actually performing.
The ongoing servicing problems are illustrated by a survey of
housing counselors in California, released earlier this month by the
California Reinvestment Coalition. \8\ The survey focused on the
provisions of the NMS and the servicers to which it applies, but the
results are indicative of more widespread problems in the industry.
Seventy percent of the counselors who responded to the survey reported
that the single point of contact provided to borrowers by their
servicer to manage and assist in their request for a loan modification
was never, rarely, or only sometimes accessible, consistent or
knowledgeable. More than 60 percent of counselors reported that the
servicers always, often or sometimes pursue foreclosure while the
borrower is still under review for a loan modification. Sixty percent
or more of counselors reported that servicers never or rarely make
decisions about loan modifications within 30 days of receiving a
completed modification, and a majority of counselors reported that
servicers rarely or never acknowledge receipt of applications in a
timely manner or notify borrowers of documents needed to complete their
applications. Counselors also reported problems with servicers giving
borrowers enough time to supply missing documents, losing documents,
and improperly denying loan modifications to borrowers who appear to be
qualified for them.
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\8\ California Reinvestment Coalition, ``Chasm Between Words and
Deeds IX: Bank Violations Hurt Hardest Hit Communities'', April, 2013.
Available at www.calreinvest.org/.
---------------------------------------------------------------------------
Through aggressive use of their authority under the provisions of
the consent orders, as well as their broader supervisory authority, the
OCC and the Federal Reserve could help to bring about much-needed
changes in servicing practices and help homeowners keep their homes.
Advocates have recommended that the regulators take some specific steps
to accomplish this:
1. The regulators should increase their oversight of loss mitigation
practices and the servicers' compliance with contract,
regulatory, and programmatic standards.
2. The regulators should require those servicers covered by the
consent orders to certify that they have properly reviewed
borrowers for loan modifications or other loss mitigation
options before moving forward with any action that results in
the loss of a home.
3. The regulators should establish a separate appeals or complaint
process for IFR borrowers who believe their servicer has acted
improperly, and inform those borrowers of this channel for an
outside review of their case. Foreclosures should be halted
until any such complaints are resolved.
4. In cases where servicers consistently break the rules, the
regulators should impose significant penalties.
These four steps could make a big difference for millions of
homeowners seeking to stay in their homes.
Ensuring That Help Goes to Those Most in Need
While the consent orders and recent settlement agreements provide
the regulators with few tools to ensure that help goes to those most in
need, they do allow for the regulators to collect detailed information
on the actions that servicers take to meet their soft-dollar crediting
targets. Servicers will submit reports to the regulators every 45 days.
The regulators should make this information available to the public at
a granular level to establish some accountability for the servicers.
Advocates have recommended that the regulators collect and disclose
the detailed information by servicer and census tract. The data
collected should include, at a minimum:
the number of borrowers still in their homes,
the number who have applied for loan modifications,
the number of modifications approved for both first and
second liens (linked where possible),
the terms of the modification (interest rate reduction,
principal reduction, change in payment amount, etc.),
the number of modifications denied and the reasons for
denial,
the number and dollar value of short sales, deeds in lieu
of foreclosure, and associated deficiency waivers, and
the dollars allocated for housing counseling services.
It is critical for these data to be reported at the census tract
level. This is the only way to determine whether the allocation of the
IFR' s soft dollar assistance is going to communities most in need. The
lack of such data under the NMS has been a major source of frustration
for civil rights groups, community organizations and counseling/legal
services agencies. Many of these groups report that their clients and
constituents are not receiving offers of assistance under that
settlement, and wonder where the help is going. The OCC and Federal
Reserve have the opportunity to do a better job of tracking the funds,
and we hope Congress will encourage them to do so.
Conclusion
Congress has a crucial role to play in making sure that the Federal
regulatory agencies responsible for policing the Nation's mortgage
market do their jobs. Unfortunately, we are not yet at the point where
either Congress or the public can have confidence that mortgage
servicers are in compliance with their obligations under various
enforcement actions, program guidelines or their contractual with their
investors. The problems are widespread and long-lasting, with millions
of homeowners still at risk of foreclosure, it is important that
servicers correct these problems in order to prevent unnecessary
foreclosures and speed our economic recovery.
Looking ahead, NFHA is concerned about gaps in the existing
servicing standards and those that will go into effect next year. Among
other things, these gaps leave borrowers with disabilities, those with
limited English proficiency, and the widows and heirs of deceased
borrowers without the protections they need to get the help they
deserve from their mortgage servicers. We look forward to working with
you to address these gaps in the servicing standards and to make it
possible for the greatest possible number of vulnerable borrowers to
keep their homes.
Thank you for the opportunity to testify here today, and for your
ongoing oversight of the Independent Foreclosure Review process. I will
be happy to answer any questions you may have.
RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED
FROM DAVID HOLLAND
Q.1. How closely did the OCC and the Federal Reserve monitor
and oversee your participation in and your duties with respect
to the IFR settlement? How often and in what manner?
A.1. The Federal Banking Regulators participated in and
monitored key decisions and elements of the Settlement process.
This included but was not limited to matters of:
Structuring of the Qualified Settlement Fund
Entities and bank accounts.
How settlement funds were deposited.
Coordination of borrower loan classification on
behalf of the Servicers.
Reconciliation of the data loan classifications
between Rust, the Servicers, and the Regulators.
Review and approval of all correspondence.
Review and approval of call center scripting.
Review and approval of Web site content.
Review and approval of letter and check mailing
schedules.
In-person, on-site review of the end-to-end process
the print vendor implemented for print production, and
the quality check steps incorporated throughout the
printing process.
During the early stages of the Settlement, the OCC
was on-site at Rust for the purposes of gathering
information and exploring settlement administrative
options. Subsequently, Rust had weekly planning
sessions with the OCC to discuss the implementation and
production schedules. These planning sessions were
conducted via teleconference, and decisions were
documented in an End-to-End Implementation Plan. The
Rust IFR Payment Agreement Processes were also reviewed
and documented. As we moved closer to the initial check
mailing date, a second weekly meeting was added to
ensure all the necessary items were addressed and
considered leading up to the check mailings.
Once checks were mailed, daily conference calls
were established which included the OCC, FRB, Rust, and
Huntington National Bank. These daily calls reviewed
operational performance, issues logs, check clearing
status and future processes.
Q.2. What procedures did you have in place to ensure checks did
not bounce?
A.2. We believe it is important to first clarify that a
``bounced'' check is intrinsically different than a situation
in which a check-cashing store or other financial institution
declines to cash a check. Huntington Bank has indicated that no
valid checks were returned for insufficient funds (bounced).
However, a small number of checks were not honored at the point
of cashing for reasons detailed in this response.
Rust was responsible for working with OCC and Federal
Reserve to:
Execute advance notification to borrowers.
Establish a schedule for payment waves.
Arrange for servicer deposits of funds at
Huntington National Bank.
Establish and staff toll-free phone numbers for
borrowers to call with questions and for financial
institutions to call to verify checks and funds
availability.
Print and mail checks.
Review Huntington National Bank's prepared reports
for fraud attempts.
Rust also implemented the additional safeguard of
printing a toll-free number on the back of checks to
assist borrowers and financial institutions with check
processing.
At Rust's recommendation, Huntington National Bank of Ohio
was selected by the OCC and Federal Reserve as the financial
institution in which settlement funds would be deposited and
that would process and clear the settlement checks.
Rust sent postcards to the 4.2 million borrowers notifying
them in advance of their eligibility to receive payment under
the agreement.
Funds for payment were deposited with Huntington National
Bank by the 13 servicers at various times on or before April 5,
2013. The first wave of check was mailed on April 12, 2013.
A collaborative decision was made by the regulators,
Huntington Bank and Rust, that checks were to be cleared
through a ``zero balance'' account in Huntington National Bank.
In a ``zero balance account'', checks are paid without holding
excess funds in a checking account. All interest earned on the
funds accrues to the benefit of the fund.
To assist borrowers and to mitigate opportunities for
fraud, Rust Consulting printed a toll-free number on the back
side of each check to allow check-cashing stores and other
financial institutions to call Rust and validate the check.
Through April 25, 2013, more than 44,000 callers to this number
had spoken with a Rust customer service representative. Through
April 24, 2013, we have identified thirty-two (32) fraudulent
checks submitted as settlement payments. Huntington National
Bank, in its role as the issuing bank, initiated an Early
Warning Service for the payments on April 16, 2013, four days
after the first wave of checks were mailed.
Q.3. Have you addressed your flaws in internal controls and
procedures that led to this unfortunate outcome?
A.3. Response:
Huntington National Bank instituted the Early
Warning System on April 16, 2013.
Huntington National Bank removed the zero balance
account structure so that Huntington National Bank
tellers would no longer see a zero balance when
accessing the checking account.
We have determined that when some check stores
called to validate checks, they also asked Rust
Consulting to guarantee that adequate funds were
available, which only a bank representative can do. In
response, we established a process to link callers to
Huntington National Bank for the necessary guarantee.
As of April 25, 2013, almost 1.1 million settlement
checks worth over $1 billion have cleared.
We continue to work with Huntington National Bank
and borrowers to ensure that future payments can be
negotiated without unnecessary delay.
Q.4. In light of this setback, would you agree to have your
fees withheld until all payments are satisfactorily delivered
to their intended recipients? If not, what protections are
currently in your contract that ensure that these sorts of
mistakes do not happen again?
A.4. Response:
While we have been disappointed to learn that a
relatively small number of check recipients encountered
problems when they tried to cash their checks, we are
also very proud of the assistance that we have provided
to thousands of recipients whose checks were validated
via our toll-free number for financial institutions.
We have addressed check-processing issues with
Huntington National Bank, in their role as the check-
issuing institution, and they have assured us that
appropriate banking procedures and market notifications
are now in place to prevent a recurrence of issues
experienced by a relatively small number of borrowers
in the first wave of checks.
Working with the OCC, Rust has developed extensive
processes and procedures to ensure a smooth and error
free plan of administration. We believe to date the
plan has been executed by Rust and the results to date
have been favorable.
We have individual contracts with the 13 servicers.
Our contracts generally focus on defining our
arrangements, scope of work and liability with regard
to errors that result in a financial loss.
We do not believe a delay in payment of Rust
Consulting's fees is warranted.