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Servicers reported a significant increase in the number of new loan modification trial plans in the second quarter, due mostly to the $25 billion mortgage settlement, OCC officials say.
September 27 -
Joe Smith, the monitor of the $25 billion mortgage settlement, talks about whether the five largest servicers will be ready when they report on their progress next week.
September 26 -
It's in consultants' best interests to extend the foreclosure review engagements as long as possible without coming up with an estimate for each servicer of its total liability to borrowers.
September 24
A practical, well-executed plan, even one with disappointingly modest goals, will deliver more than an overly ambitious plan, easily subverted, that, in hindsight probably had no hope of ever succeeding.
When a judge approved the state attorneys general settlement with five mortgage servicers on April 5, the consent decrees issued by federal bank regulators mandating foreclosure reviews at 14 servicers – including the five in the multistate settlement – were already a year old.
The settlement focuses primarily on helping distressed borrowers still in their homes. At least $17 billion of the $25 billion in relief advertised is earmarked for principal reductions and loan modifications. Three billion dollars is for refinancing "underwater" homeowners. Only $1.5 billion will go to homeowners hurt by a foreclosure finalized between Jan. 1, 2008 and Dec. 31, 2011.
The banking regulators’ review process covers borrowers subject to a foreclosure action on a primary home between Jan. 1, 2009 and Dec. 31, 2010. A completed foreclosure and loss of property is not required. The 14 mortgage servicers' potential liability to borrowers under the consent decrees is unlimited and, so far, unknown.
The foreclosure reviews are a "look back" at the past. No one hates admitting and paying for mistakes more than banks. The "independent consultants" selected by the banks in November, after more than six months of contract negotiations,
Rest assured the consultants are getting paid, even if borrowers are not. PricewaterhouseCoopers will bill more than $1 billion for four of the 14 ordered reviews, according to my sources. I think banks will spend at least $5 billion in total on consultants just to find out how much they'll owe.
The mortgage settlement monitor left the gate quickly after his appointment, publishing a
The mortgage settlement monitor's interim
The consent decrees, on the other hand, have no financial incentive for the banks to compensate harmed borrowers quickly. Other than having to pay consultants to go through the motions, there's every incentive to stall on payments. I'm pessimistic that borrowers will see any meaningful compensation under these orders.
The two mortgage harm make-good efforts are organized quite differently. The Office of the Comptroller of the Currency and the Federal Reserve balked at the idea of directly hiring consultants to evaluate liability to borrowers. Regulators told me it was too difficult and would take too long to negotiate the contracts, even though almost all of the firms selected already act as approved vendors to the government for audits, consulting and financial crisis related initiatives like TARP. Under the consent orders, therefore, the banks selected their own "independent consultants" and pay them directly. Regulators were supposed to ensure the consultants' independence and strongly monitor their activities. Instead, the OCC and Fed have been hands-off, allowing
Settlement monitor Smith hired his consultants directly, as the settlement agreement required. Two months after Smith started on the job, BDO was selected to be
I'm confident that the AG settlement monitoring activities will, at least, be tightly controlled by Smith, even if not more financially beneficial for harmed borrowers than what was hoped for under the foreclosure reviews. The OCC and Fed have abdicated responsibility for the "free" foreclosure reviews to the banks and their consultants. The borrowers will probably get what they paid for: zip, zero, nada.
There are some overly optimistic parts of Smith's first report. It seems impossible to me that banks can successfully implement system changes needed to comply with 304 actionable servicing standards by Oct. 2. Perhaps that's why Smith designed the monitoring activities to check compliance on an incremental basis rather than all at once. Judging from testimony in some mortgage foreclosure lawsuits, I fear servicer systems and processes are still broken. Banks are betting Smith's monitors won't catch them in the act of conducting business as usual.
Francine McKenna writes the blog