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In a perfect world, state attorneys general and the U.S. Department of Justice would have worked hand in hand with bank regulators to fix foreclosure wrongs. But that's not how the world works.
February 21 -
The Office of the Comptroller of the Currency and the Federal Reserve Board said Wednesday they are extending the deadline for borrowers to request an independent foreclosure review under the consent orders signed by 14 mortgage servicers last April.
February 15 -
A top OCC official faced sharp questions about the ties between mortgage servicers and the consultants that are reviewing their past business practices.
December 13 -
Federal regulators have ordered 14 mortgage services to help borrowers that were harmed by foreclosure errors, but left it up to them to develop common remediation guidelines. The servicers and their consultants met in Washington this week to try and reach a consensus.
November 10 -
More than a day after the announcement of a mammoth national mortgage servicing settlement, the actual terms of the deal still aren't public. That's because a fully authorized, legally binding deal has not been inked yet.
February 10 -
Multiple state and federal officials put the banks on notice that the $25 billion mortgage servicing settlement is just the first step in pursuing civil litigation and criminal prosecutions in connection with misdeeds before, during and after the financial crisis.
February 9
WASHINGTON — Weeks after state and federal officials said they would ensure borrowers still had the right to sue servicers even under the $25 billion mortgage settlement, the Office of the Comptroller of the Currency appears ready to follow suit.
The OCC has been at odds with the Federal Reserve Board for months over whether borrowers should be required to waive their legal rights as a condition of compensation under the independent foreclosure review being conducted by the 14 largest servicers.
But there are indications that mounting pressure from consumer groups and the broad relief of options for homeowners under the $25 billion settlement is causing the OCC to shift its position, people familiar with the review process said.
"I think that the Fed was opposed to releases generally," one person involved in the process said. "Then I think with the advocacy groups also being opposed to releases and with the attorney general settlement not having releases, I think all of those pieces have kind of brought everybody in alignment — everybody except the servicers — that they're just not going to pursue releases."
The consent orders signed by the 14 servicers last April didn't give any assurances about releases or even provide details about the specific ways that borrowers harmed by foreclosure errors should be compensated. But sources said the servicers had long expected that compensation would be coupled with some sort of waiver as a condition of any agreement.
As the servicers and their independent consultants worked to come up with a framework for remediation — a process that was expected to be finished last fall — the issue of whether to include waivers became a sticking point, much as it did in the ongoing negotiations over the $25 billion servicer settlement.
The Fed, which regulates four of the 14 servicers, told consumer groups it does not favor allowing servicers to require borrowers to waive their rights to other legal remedies as a condition of compensation. But the OCC has been open to the idea of narrow releases in certain circumstances.
At a hearing before a Senate Banking subcommittee on Dec. 13, OCC Senior Deputy Comptroller and Chief Counsel Julie Williams testified that "there could be situations depending upon the type of release that ends up being provided where it may be sensible for a servicer to seek a waiver."
"For example, if the remediation that is provided is the homeowner gets the home back, they get expenses paid, and they get some lump-sum payment from a compensation on top of that …that may be a situation where a waiver would be appropriate," Williams said.
The servicers have continued to push for the waivers, and laid out strong cases over the past few months for why there should be releases at least under some circumstances.
A OCC spokesman said last week that no final decision has been made concerning waivers in specific circumstances.
A spokeswoman for the Fed would not comment on the status of the guidance.
But in the latest iteration of the remediation framework that the regulators shared with a handful of national consumer groups and the independent consultants, releases are not included as a condition of compensation, according to the person involved in the process.
"I think that's off the table," the person involved in the process said. "My presumption is that the OCC has come to an agreement with the Fed that it's not going to be something they're going to require."
So what changed? Observer said the OCC has faced increased pressure in recent months — from consumer groups, Congress and state and federal officials — to take a more consumer friendly position.
"Permitting servicers to extract waivers from homeowners is fundamentally at odds with any consumer protection purpose," Alys Cohen, a staff attorney with the National Consumer Law Center, said at a Senate hearing in December.
In a memo issued in January, the NCLC called on the Fed and the OCC to specifically prohibit waivers as part of the compensation process, arguing that waivers could eliminate a borrower's ability to bring unrelated claims in the future that could save their home.
Not long after, state and federal officials announced that after more than a year of negotiations, they had finally come to an agreement to settle so-called robosigning claims for $25 billion. They emphasized that the agreement provided multiple relief options for individual borrowers, including the ability for borrowers to take advantage of both the independent foreclosure review and the settlement process, as well as to file individual lawsuits or join a class action claim.
On Feb. 17, Rep. Barney Frank and several of his Democratic colleagues on the House Financial Services Committee sent a letter to the Fed and the OCC urging them to "determine that legal waivers by borrowers of potential claims against their servicers are not an appropriate part of the review /compensation process."
Industry observers said it has become extremely difficult for any banking agency to publicly support a waiver of further relief against the banks.
"I don't blame them because they'll be criticized," said Ron Glancz, a partner with Venable LLP. "They'll be hauled before a congressional committee, and be publicly rebuked by the AGs that they'll be giving the banks some relief that they otherwise wouldn't have."
"I think there is definitely a view that you don't want to be perceived as anti-consumer if you're a bank regulatory agency now," he added.
To that end, perhaps, the regulators began to allow consumer groups to play a much larger role in the review process over the last two months.
They invited representatives from several groups to meet with the independent consultants last month to discuss their concerns about the process. Earlier this month, the regulators asked two groups to review the latest remediation plan and provide feedback, which was later shared with the independent consultants.
Sources said it is not yet clear how much of that feedback will be incorporated into the final remediation guidance. That guidance is expected to be finalized in early March, meaning the consultants will finally be able to begin recommending compensation for harmed borrowers and closing those files.
Servicers continue to argue that providing compensation without any waiver of future liability is "patently unfair," as one source put it.
They said that borrowers should have the option to accept the compensation and give up their legal rights.
They also draw a distinction between the AG settlement and the regulatory consent orders. Under the settlement, there is a finite amount that servicers will have to pay. In contrast, the consent orders have no cap and the number of borrowers and the amount of compensation could be significantly higher.
Servicers also continue to argue that many of the errors at issue relate to paperwork problems, and that few borrowers were wrongly foreclosed on.
"The remediations are more than fair," another person involved in the process said. The consultants "are bending over backwards to be fair."
But some consumer groups continue to have concerns about the way the reviews are being conducted.
Cohen said in an interview this week that it's not clear the reviews will be comprehensive. Without assurances that every issue has been addressed, it is crucial that borrowers have the freedom to protect themselves in the future, she said.
"Why are they so worried about legal liability if they're saying that nobody was harmed?" Cohen said of the servicers. "Protecting themselves from legal liability is their touchstone and there seems to be a much thinner commitment to accountability."
But industry observers said that by not granting waivers, the door will be open that much wider to future litigation risk, which could hamper efforts to get past the foreclosure mess and turn around the housing market.
"I think the intent was let's set up an elaborate process and bring an end to it, and if you don't have an end to it, it's not going to do what you set out to do," Glancz said.
Andrew Sandler, the chairman of firm Buckley Sandler LLP, agreed.
"Every decision that's made should be focused on achieving closure so that we can again have a vibrant and affordable mortgage market in this country," said Sandler.
The question remains what the servicers will do if they are not allowed to seek waivers. Although observers asked why servicers should participate in the process if they don't get anything out of it, sources close to the process said it doesn't appear they have a choice.
"It is a consent order," the person involved in the process said. "They've agreed to it, so at some level they are bound to continue to adhere to the terms even though the terms continue to evolve."
