by Paul Kiel, ProPublica
The idea behind the Independent Foreclosure Review seems simple. During the peak of the foreclosure crisis, the banks broke laws and made errors that hurt homeowners. In response, the government mandated they compensate the victims.
But there is growing evidence some banks are playing a major role in identifying the victims of their own abuses, raising the question of whether the review is compromised by conflicts of interest.
Last week we reported that Bank of America, according to bank employees and internal memos and emails, is performing much of the work itself. Now, a ProPublica examination of contracts that outline what work the banks would do on the review shows that America’s four largest banks all planned to participate heavily in evaluating whether homeowners were harmed. Three of the four banks would even help set how much compensation victimized homeowners would receive.
The four banks — Wells Fargo, Citibank, JPMorgan Chase, and Bank of America — together account for about three quarters of the 4.4 million homeowners eligible for the program.
The review was designed to work like this: Each bank or mortgage servicer would hire an “independent consultant” to evaluate that bank’s foreclosure cases, identify who was harmed and determine how much compensation each victim deserved. The maximum cash compensation a homeowner can receive through the review is $125,000. No money has been awarded yet.
However, the secrecy of the program makes it impossible to know for sure how it’s actually being conducted. After being pushed by Congress and borrower advocates, bank regulators publicly posted the contracts between each bank and the consultant each hired last year to provide the “independent” review of foreclosure cases. It’s these contracts that show that the banks planned to perform much of the work themselves.
Yet the main regulator for the biggest banks, the Office of the Comptroller of the Currency (OCC), said the contracts don’t accurately describe how the reviews work now. “Much has changed,” OCC spokesman Bryan Hubbard told ProPublica.
The OCC did confirm that some banks’ mortgage servicing divisions are coming up with “self-identified findings of harm/no harm” and presenting them to the independent consultants. But the OCC would not specify which banks are doing this.
Moreover, said Hubbard, any such finding by the banks “does not influence the consultant.”
Advocates disagree. “It’s hard to imagine that it doesn’t influence the outcome,” said Alys Cohen of the National Consumer Law Center. “The consultant is supposed to act like an arbiter between the mortgage servicer and the homeowner — except the consultant is not only paid by the servicer, the servicer can put their finger on the scale. Meanwhile, the homeowner is totally in the dark once they send in their application.”
What the Contracts Say
Like Bank of America, the other three big banks hired their “independent consultants” last year. Their contracts all describe a similar process for handling homeowner claims: After a homeowner submits a form detailing the bank’s ostensible errors or abuses, the bank itself would perform a review of the case to determine if the homeowner was victimized by the bank’s own practices. The bank would then pass on its findings to the consultant, which would make the final decision of how much compensation, if any, the homeowner would receive. The program launched in November of 2011, a couple of months after the contracts were signed.
Two companies — Promontory Financial Group and PricewaterhouseCoopers (PwC) — won half of the contracts awarded so far: Promontory is handling the reviews for three banks, PwC for four.