Jeff Horwitz and Kate Berry have an excellent two-part series in American Banker on these “independent” foreclosure reviews. For background, the Office of the Comptroller of the Currency put together these consent orders with 14 banks last year, separate from the foreclosure fraud settlement, and put together this review process. In theory, independent reviewers would look back at past foreclosures, and determine if any fraud occurred. They would make a determination if the foreclosure victims are entitled to any compensation.
Questions were raised almost immediately. The “independent” reviewers were hired by the banks. Whistleblowers explained that the reviewers were hiring flunkies with no legal experience to perform the reviews, and that they were told to ease up on big awards and very narrowly define wrongful conduct. And Pro Publica reported last month that the banks were basically running the review process themselves; they can even appeal the very limited decisions of the reviewers.
Horwitz and Berry advance the story, showing that the reviewers, who if we believe Pro Publica aren’t doing too much reviewing to begin with, are nevertheless making money hand over fist.
Designed to compensate wronged homeowners, the review programs are almost certain to deliver several times more cash to the consultants overseeing them. Bankruptcy filings by ResCap, the former GMAC mortgage servicer slated to be acquired by Ocwen, state that the company will pay consultant PricewaterhouseCoopers $12,500 to review each of 20,000 loans for a total cost of a quarter-billion dollars. Yet ResCap expects to pay only $35 million to $60 million to harmed homeowners.
PwC employees working on the review are billing between $235 and $630 an hour, depending on seniority. The auditing firm declined to respond to emailed questions on the cost and its procedures.
Other servicers appear to be paying foreclosure reviewers similar fees per file, and the OCC has offered no reason not to use ResCap’s filings as a proxy for the costs of its peers. The massive bills being incurred indicate that the banks aren’t calling the shots, industry sources argue — the institutions are simply following orders and footing the tab for a program that has gone off the rails.
“This is Kafkaesque,” says an industry source who requested anonymity to avoid angering the OCC and independent reviewers. “The reviews don’t provide any closure [to borrowers], and their cost is going to be orders of magnitude beyond what banks pay out.”
The reviewers aren’t getting paid those kind of exorbitant sums to find a bunch of errors, needless to say. Horwitz and Berry estimate that the banks are paying $4 to reviewers for every $1 to homeowners.
The sad thing here is that HUD Secretary Shaun Donovan actually highlighted the foreclosure reviews as a way for victims to get further compensation. If by “victims,” Donovan meant companies like PricewaterhouseCoopers and Promontory Financial Group, he was right.
Fortunately, homeowners never put much stock in the reviews. The response rates to the program, through letters sent to foreclosure victims, have been incredibly low. That must be putting downward pressure on the reviewer profit margins!