From the homeowner who died fighting a foreclosure based on a typo to the family evicted at gunpoint at 3am, there is no shortage of heartbreaking stories of improper evictions. But while victims of wrongful foreclosures are frequently too small to find justice, the banks perpetuating the crimes against them remain far too big to be held accountable. The most recent entry in the “banks got bailed out, we got sold out” saga is the latest report by the Government Accountability Office on the Independent Foreclosure Review.
In the wake of the foreclosure crisis and the myriad abuses perpetuated by mortgage servicers, the Office of the Comptroller for the Currency (OCC) and the Federal Reserve created the Independent Foreclosure Review. Fourteen servicers owned by banks like Bank of America, Wells Fargo and JPMorgan Chase were ordered to investigate foreclosures between 2009 and 2010 and figure out if these foreclosures were fraudulent. In order to give the semblance of independence, the banks were told to hire third-party consultants to conduct the reviews.
By announcing this supposedly far-ranging “investigation” with much fanfare, the regulators wanted to create the impression that they were getting to the bottom of the practices perpetrated during the foreclosure crisis. However, when reading the fine print, the “Independent” Foreclosure Review merely replicated the worst patterns and practices that caused the financial crisis—with regulators again deferring to banks and allowing them to hire their own investigators.
In January 2012, undoubtedly fearing that the Review would be yet another whitewash of the foreclosure crisis, Representative Maxine Waters and Senator Robert Menendez, together with Representatives Brad Miller and Luis Gutierrez, requested that the Government Accountability Office (GAO) monitor the review. Last week, the GAO issued its second report on the topic, unveiling a slew of deep failings. The report revealed what was long suspected by many observers: that the OCC and the Fed had no interest in actually discovering what went wrong. Here are just four of the many deceptions outlined by the GAO.
Deception #1: Regulators obfuscated abuses by failing to provide a consistent approach.
The GAO report shows that regulators failed to design a single methodology for all consultants to use, instead leaving it up to each consulting firm. Without a clear methodology set by the regulators, consultants had vastly different approaches, reviewed different categories of problems and created data that could not be aggregated. Because of this inconsistency, we have no easy way of knowing if Citigroup’s servicing violations were more or less egregious than Wells Fargo’s. And really, how better for the regulators to obscure the consistent harm banks commit against homeowners than to inject as much chaos as possible into the process of reviewing said harm?
Deception #2: Lack of transparency.
In addition to failing to report problems across all the bank servicers, the OCC and the Fed also refused to disclose specifics about the individual servicers. Earlier this year, Representative Waters sent a letter to the OCC requesting the preliminary results of the foreclosure reviews at the individual servicers and a second letter requesting, among many items, all calls from the consultants to the regulators. To date, the OCC has not provided the requested documents. Senator Elizabeth Warren and Representative Elijah Cummings also requested all updates the individual servicers made to the regulators, but as documented in their recent letter, have also received no response to date. So regulators refused to create a way to show abuses across banks and also refused to give us information about abuses at individual banks.
Deception #3: The OCC misled the public about how many homeowners were harmed.
Earlier this year, the OCC claimed that of all the foreclosure cases reviewed, there were only errors made by the servicers 4.2 percent of the time (a mistake in servicing was considered an “error” if it caused the homeowner financial harm). This number was immediately questioned by the press, with The Wall Street Journal reporting thatthe real error rates were far higher, with Wells Fargo’s error rate at 11 percent. The Journal’s report showed that the OCC could only have arrived at their error rate by gaming the numbers.
The GAO report released last week gives further credibility to the Journal’s claims by essentially reporting that the OCC and the Fed couldn’t have arrived at accurate estimates of the harm caused to borrowers even if they wanted to. The OCC and the Fed allowed the banks’ captured consultants to define what constituted “harm” to the borrower—meaning that not only could findings of harm be minimized, but also that harm rates across the banks could never be aggregated to give a full picture of wrongdoing. Thus, the 4.2 percent error rate the OCC reported was compiled by mashing together incompatible data points, creating a statistic with no basis in reality.
Deception #4: Missing Documents were not considered “errors.”
Also revealed by the report was that the OCC did not define missing documents as an error, though they were “planning” to do so. If you are a homeowner who’s been illegally foreclosed on because your mortgage servicer lost documentation of your payments, you should know the OCC couldn’t be bothered to insist that constituted an error.
Deception #5: Regulators tried to find as few harmed borrowers as possible.
The regulators conveyed that they had two major goals for the Foreclosure Review; first, to “identify as many harmed borrowers as possible.” But a prior report from GAO shows how truly unimportant this goal was, with that report saying that the materials the regulators sent to homeowners were “too complex to be widely understood,” and that the regulators didn’t consult with experienced, on-the-ground advocates to figure out how to ensure the most people possible could have their foreclosures reviewed. In other words, they juiced the process from the get-go, and wanted to find as few harmed borrowers as possible.
Which gets to the second stated goal of the Review: to “restore public confidence in mortgage markets.” This is regulator-speak for reinvigorating the banks’ bottom lines, even if you have to sweep some wrongdoing under the rug in the process. This was the only goal that truly mattered, and the way the OCC and the Fed pursued this goal was to mislead, deny and bury the bodies for the banks.
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Just as the Foreclosure Review was chaotic by design to give cover to the banks, the banks inability to properly service loans was a feature, not a bug: A 2011 study by the Consumer Financial Protection Bureau showed thatbanks profited to the tune of $25 billion by deliberately under-investing in their servicing. This disgusting combination of incompetence and profiteering by the megabanks’ servicers is yet another piece of evidence that the supermarket approach to banking is a complete failure; we don’t see the same levels of abuses and mistakes in servicing at smaller community banks. The megabanks remain not just too big to jail, but entirely too big to manage.
It’s no surprise that the OCC continues to enshrine Too Big To Fail: Former OCC head John Dugan was one of TBTF’s major architects, as reported on by Zach Carter for The Nation in 2009. And John Walsh, the agency’s most recent chief, proclaimed before the Foreclosure Review even began that there were only a small number of wrongful foreclosures. There was much optimism that the appointment of Thomas Curry to run the OCC would help clean up the agency. But in his response to the deceptions of the Foreclosure Review, Curry has been as spectacular a failure as his predecessors.
This is hardly the first time the OCC has been in the spotlight for egregious malfeasance. Prior to the GAO report, we saw the OCC’s failure to properly regulate JPMorgan Chase in the London Whale trading fiasco. But unlike the London Whale case (where the OCC appears guilty of sins of commission and omission) or the HSBC money-laundering nightmare (where they allowed problems to “fester”), in the Independent Foreclosure Review, they have proven themselves to be outright treacherous.
The OCC’s mission is to preserve the “safety and soundness” of the banking system. Much progress could be made toward that goal if the OCC advocated breaking up the banks into manageable chunks, which should help reduce abuses and increase returns for shareholders. Instead, they continue to believe that the ostrich approach to regulation is best: suppress errors, lie about systemic abuses and just pray the music keeps playing. Senators Sherrod Brown and David Vitter have a new bill designed to break up the banks and increase the safety of the banking system. If Curry and the OCC were truly concerned with their mission, instead of burying the banks bodies, perhaps they would support this important step forward.