WASHINGTON, April 11 (Reuters) - Senate Democrats urged regulators to rethink the way they use outside consultants to help fix problems at banks, after such consultants reaped some $2 billion in fees for conducting botched reviews of past home foreclosures.
Bank regulators could directly contract with the consultants rather than leaving hiring decisions and oversight to the banks themselves, Democratic Senator Jack Reed of Rhode Island suggested at a Senate Banking subcommittee hearing on Thursday.
The mortgage servicing units of more than a dozen top banks earlier this year agreed to pay some $9.3 billion to end a case-by-case review of whether they had wrongly seized homes or made mistakes in the foreclosure process.
The Office of the Comptroller of the Currency and the Federal Reserve ended the reviews that began in 2011, which were supposed to find and compensate harmed borrowers, through settlements in January with servicers including units of Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co , and Wells Fargo & Co
By then some $2 billion had already been paid out to consultants whom the banks were expected to hire to conduct the reviews, even though no money had been paid out to eligible borrowers.
“To delegate, the way you did, an essential regulatory function by asking the banks to choose their inspector, it just doesn’t work. It won’t work,” Reed said to a panel of representatives from the Fed and the OCC.
OCC Deputy Chief Counsel Daniel Stipano said the agencies had “greatly underestimated” how difficult and complicated the foreclosure reviews would turn out to be, and is assessing how to deal differently with a similar situation in the future.
“We’re at a beginning stage. We haven’t really reached the point of putting pen to paper,” he said, referring to new standards about who can serve as an independent consultant.
On a separate panel, representatives of the consulting firms that conducted the reviews also said the reviews proved to be an enormous undertaking.
James Flanagan from Pricewaterhouse Coopers disclosed that his firm had been paid $190 million by U.S. Bank, $175 million by Citibank, and $60 million by SunTrust to conduct the reviews.
Representatives of Promontory Financial Group and Deloitte & Touche declined to disclose how much their firms had received on the reviews.
Congressional Democrats have sought additional information from regulators about the details the reviews produced, including which kinds of mistakes each bank made, but the agencies have so far resisted turning over that information.
On Thursday Stipano and Fed Deputy General Counsel Richard Ashton said the regulators were considering releasing some of those details in the future.