Financial regulators have failed to define specific, measurable objectives by which they can hold the nation’s largest banks accountable for a $6 billion foreclosure prevention effort agreed to last year, a government watchdog warned Tuesday.
In a newly released Foreclosure Review report, the Government Accountability Office also said financial regulators had done an adequate job in monitoring payments made as part of an agreement with banks in 2013 that promised $3.9 billion to be split by an estimated 4.4 million affected homeowners.
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But the Federal Reserve and the Office of the Comptroller of the Currency failed to properly execute a larger portion of the agreement, the GAO said, one where banks collectively must spend $6 billion on foreclosure-prevention efforts to help homeowners at risk of losing their homes.
The $3.9 billion in payments were compensation for abuses in 2009 and 2010 by mortgage servicers tied to the big banks. Federal regulators had ordered internal reviews of foreclosures after allegations surfaced that servicers, who serve as mortgage-payment collectors, had regularly falsified court documents in order to speed foreclosures on delinquent borrowers.
By early 2013, regulators felt a review mandated by a consent order was taking too long to get relief to affected homeowners. Instead, they amended the earlier consent order to mandate $3.9 billion in cash payments, about 32 percent of which went to homeowners in California and Florida alone, according to the GAO.
And while regulators have effectively managed the payments ranging from $300 to $125,000 to affected homeowners, the Fed and the OCC both continue to fall short in foreclosure-prevention efforts, the GAO concluded in its lengthy report Tuesday.
“Regulators did not establish specific objectives for the $6 billion obligation they negotiated with servicers to provide foreclosure prevention actions,” the report said, noting that regulators only communicated broadly that the actions be “meaningful.”
In a break from regulatory norms, the Fed and the OCC “did not follow their typical practices to inform supervisory actions, which include analysis of information,” the report said.
Federal Reserve staffers acknowledged that special examination teams have not conducted oversight activities as it relates to the foreclosure-prevention efforts, the GAO said, “and regulators’ guidance for oversight of the principles does not identify actions examination teams should take to evaluate or test implementation of these principles.”
The OCC regulates nationally chartered banks and federal savings associations, called thrifts. The Federal Reserve regulates insured state-chartered banks that belong to the Federal Reserve System, as well as holding companies for banks and thrifts.
The Fed, the report added, viewed the $6 billion commitment from 15 big banks for foreclosure prevention efforts as additional remediation for the problem of shoddy practices by servicers. The GAO report quoted former Fed Chairman Ben Bernanke pledging to Congress that foreclosure prevention would provide relief to existing homeowners. The report quoted a speech in which Comptroller Thomas Curry said the prevention efforts “would result in meaningful relief to borrowers still struggling to keep their homes.”
Yet to date there are no measurable specifics to gauge whether the $6 billion is actually providing the relief to existing homeowners who are struggling with payments, the GAO determined.
Eight of the 15 banks in the consent order have chosen to provide direct foreclosure prevention help to borrowers, the GAO said, while seven more chose to make cash payments to groups that provide borrowers information or to housing-counseling agencies.
The GAO also criticized the Fed and the OCC for failing to provide detailed information about what criteria was used to place which borrowers in a specific payment category, and in the case of existing homeowners what sort of relief they are getting. The regulators have only been transparent on the status of activities, but have provided precious little detail to borrowers or the public, the GAO concluded.
“We will take GAO’s recommendation into consideration as we finalize our reporting and other communication strategies,” Tonda Price, the acting director of the Fed’s division of consumer and community affairs, responded in a letter to the GAO. She said specific criteria to measure foreclosure prevention efforts will be in place this year.
Comptroller Curry was equally noncommittal, noting in a letter that “we will consider including additional detail regarding the categorization of borrowers.”
The 15 financial institutions involved in the amended consent order are: Ally (GMAC); Aurora; Bank of America; Citibank; EverBank; Goldman Sachs; HSBC; JPMorgan Chase; MetLife; Morgan Stanley; PNC; Sovereign; SunTrust; U.S. Bank; and Wells Fargo. A 16th bank, OneWest, opted to stick with the original consent order and it has reviewed more than 28,000 foreclosures with multiples of that still awaiting review, according to footnotes in the GAO report.