Premature End to Foreclosure Review

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.

Not That I’m Complaining, But

Ian Ayres, Jeff Lingwall and Sonia Steinway have posted Skeletons in the Database: An Early Analysis of the CFPB’s Consumer Complaints on SSRN. It is interesting both for the details it documents, but also for what it represents.  Details first:

Analyzing a new data set of 110,000 consumer complaints lodged with the Consumer Financial Protection Bureau, we find that

(i) Bank of America, Citibank, and PNC Bank were significantly less timely in responding to consumer complaints than the average financial institution;

(ii) consumers of some of the largest financial services providers, including Wells Fargo, Amex, and Bank of America, were significantly more likely than average to dispute the company‘s response to their initial complaints; and

(iii) among companies that provide mortgages, OneWest Bank, HSBC, Nationstar Mortgage, and Bank of America all received more mortgage complaints relative to mortgages sold than other banks. (1)

The financial services industry has complained that the CFPB complaint system would unfairly expose companies to unverified complaints. But this kind of comparative look at financial services companies shows the great value of the CFPB’s approach. As the authors’ note, this dataset is a treasure trove for researchers and should result in helpful information for consumers and regulators alike.  Sunlight is the best disinfectant!