Editor: David Reiss
Brooklyn Law School

May 19, 2014

Foreclosure Review

By David Reiss

The US Government Accountability Office issued a report, Foreclosure Review:  Regulators Could Strengthen Oversight and Improve Transparency of the Process. GAO did this study because it was asked to examine the amended consent order process relating to foreclosures. This process was pretty controversial. By way of background,

In 2011 and 2012, OCC and the Federal Reserve signed consent orders with 16 mortgage servicers that required the servicers to hire consultants to review foreclosure files for errors and remediate harm to borrowers. In 2013, regulators amended the consent orders for all but one servicer, ending the file reviews and requiring servicers to provide $3.9 billion in cash payments to about 4.4 million borrowers and $6 billion in foreclosure prevention actions, such as loan modifications. One servicer continued file review activities. (no page number)

GAO concluded that

One of the goals that motivated the original file review process was a desire to restore public confidence in the mortgage market. In addition, federal internal control standards and our prior work highlight the importance of providing relevant, reliable, and timely communications, including providing information about the processes used to realize results, to increase the transparency of activities to stakeholders — in this case, borrowers and the public. Without making information about the processes used to categorize borrowers available to the public, such as through forthcoming public reports, regulators may miss a final opportunity to address questions and concerns about the categorization process and increase confidence in the results. (66)

GAO also found that in “the absence of specific expectations for evaluating and testing servicers’ actions to meet the foreclosure prevention principles, regulators risk not having enough information to determine whether servicers are implementing the principles and protecting borrowers.” (66)

So we are left with an ongoing crisis in confidence for the public and homeowners in particular. We are also left with regulators who are at risk of not being able to properly regulate financial institutions. With much of the news we are receiving these days, it feels as if we have let our financial crisis go to waste. No foreclosure reform, no housing finance reform, no real leadership to create a housing finance system for the 21st Century.

During the Great Depression, the federal government created the Federal Home Loan Bank System, the Federal Housing Administration, the Home Owners’ Loan Corporation. We have created a black hole — Fannie and Freddie are in that limbo known as conservatorship. The President must take a lead on housing finance reform. Otherwise, my money is on another bailout in the not so distant future.

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