WASHINGTON, April 4 A federal government
watchdog faulted U.S. bank regulators for the poor performance
of third-party consultants reviewing more than 4 million home
foreclosures by mortgage servicers in a botched process that was
halted earlier this year.
A report released on Thursday by the U.S. Government
Accountability Office, an independent arm of Congress, said the
Office of the Comptroller of the Currency and the Federal
Reserve issued overly broad instructions to consultants involved
in the project and failed to monitor it for consistency.
The reviews, mandated by regulators in 2011 after widespread
foreclosure shortcuts came to light, aimed to determine if banks
needed to compensate borrowers who lost their homes.
But the reviews proved time-consuming and expensive, costing
banks about $2 billion in fees to consultants such as Deloitte &
Touche and Promontory Financial Group. The cost amounted to
nearly $20,000 per loan file, lawmakers have said.
In the end, regulators scrapped the reviews. Instead, 13
banks agreed to pay $9.3 billion to end the reviews and
compensate foreclosed borrowers.
"Ultimately, the complexity of the foreclosure reviews and
limitations in regulators' guidance and monitoring of the
foreclosure review challenged their ability to achieve the
stated goals," the report stated.
Several lawmakers have slammed regulators over their
handling of the reviews and raised questions about the end of
the reviews and the settlement.
Representative Maxine Waters, the ranking Democrat on the
House Financial Services Committee, requested the GAO study. In
a statement, she called the independent reviews "severely
deficient" and said she planned to introduce legislation to
address the "problem of relying on outside contractors for
Senator Elizabeth Warren and Representative Elijah Cummings,
also Democrats, are seeking documents that could shed more light
on the problems the reviews uncovered and how the $2 billion was
spent. The two requested a meeting with regulatory officials as
they seek further information about the reviews.
The GAO said the third-party consultants hired by the
mortgage servicers were given "ambiguous" guidance from
regulators that was later revised, resulting in delays.
Consultants had said the volume of loan files and the
complexity of the issues, including different state and federal
foreclosure laws, hampered the document reviews.
U.S. officials also lacked clear, objective measures to
assess the extent of borrower harm and communicated poorly about
the process both with borrowers who requested reviews and with
the public, the report said.
Some borrowers who requested reviews at the beginning of the
process waited nearly a year to receive an update, according to
"Regulators risked not achieving the intended goals of
identifying as many harmed borrowers as possible," the report
concluded. Without clear guidance, "the usefulness of the
reports for identifying inconsistencies was limited."