Tag Archives: IFR

Independent Foreclosure Review: Case Closed?

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The Federal Reserve Board issued its Independent Foreclosure Review. By way of background,

Between April 2011 and April 2012, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (“Federal Reserve”), and the Office of Thrift Supervision (OTS) issued formal enforcement actions against 16 mortgage servicing companies to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing identified by examiners during reviews conducted from November 2010 to January 2011. Beginning in January 2013, 15 of the mortgage servicing companies subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing reached agreements with the OCC and the Federal Reserve (collectively, the “regulators”) to provide approximately $3.9 billion in direct cash payments to borrowers and approximately $6.1 billion in other foreclosure prevention assistance, such as loan modifications and the forgiveness of deficiency judgments. For participating servicers, fulfillment of these agreements satisfies the foreclosure file review requirements of the enforcement actions issued by the OCC, the Federal Reserve, and the OTS in 2011 and 2012. (1)

The government’s actions regarding the Independent Foreclosure Review have been its controversial, with some believing that it was completed too hastily. I am less interested in that debate than in FRB’s sense of the the servicing sector going forward.

The report states that “the initial supervisory review of the servicer and holding company action plans has shown that the banking organizations under Consent Orders have implemented significant corrective actions with regard to their mortgage servicing and foreclosure processes, but that some additional actions need to be taken.” (24) Overall, the report reflects an optimism that endemic servicer problems are a thing of the past.

A drumbeat of reports and cases seems to be at odds with that assessment, although there is obviously a significant lag between the occurrence of  problems and the report of them in official sources. As a close observer of the mortgage industry, however, I am not yet convinced that regulators have their hands around the problems in the servicer industry. Careful monitoring remains the order of the day.

Premature End to Foreclosure Review

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Congressman Cummings (D), the ranking minority member of the House Committee on Oversight and Government Reform, has sent a letter to Congressman Issa, the Chairman of the Committee, regarding the Independent Foreclosure Review. It opens,

I am writing to request that the Committee hold a hearing on widespread foreclosure abuses and illegal activities engaged in by mortgage servicing companies.  I request that the hearing also examine why the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency (OCC) appear to have prematurely ended the Independent Foreclosure Review (IFR) and entered into a major settlement agreement with most of the servicers just as the full extent of their harm was beginning to be revealed. (1)

It goes on to assert that “some mortgage servicing companies engaged in widespread and systemic foreclosure abuses, including charging improper and excessive fees, failing to process loan modifications in accordance with federal guidelines, and violating automatic stays after borrowers filed for bankruptcy.” (2) It concludes that it “remains unclear why the regulators terminated the IFR prematurely, how regulators determined the compensation amounts servicers were required to pay under the settlement, and how regulators could  claim that borrowers who were harmed by these servicers would benefit more from the settlement . . . than by allowing the IFR to be completed.” (2)

The letter raises a number of important concerns, but I will focus on just one — “how did the regulators arrive at the compensation amounts in the settlement?” (9) This particular settlement was for billions of dollars from BoA, PNC, JPMorgan and Citibank. This is an extraordinarily large sum, but the public is left with no sense of whether this sum is proportional to the harm done. I have raised this concern with other billion dollar settlements. As the federal government moves forward with these large settlements, it should carefully consider their expressive function — does the penalty fit the wrongdoing?  And if so, how was that calculated? People want to know.