Lawyers, paralegals, mortgage industry veterans and thousands of other contractors working at banks and auditing firms were hired in January 2012 to review the mortgages of people whose homes were in foreclosure between 2009 and 2010.
The purpose of their “independent” review was to find evidence of errors and misconduct alleged by foreclosed borrowers.
The Independent Foreclosure Review conducted by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve hired Promontory Financial, a consulting firm hired by Bank of America to audit the mortgage loan files.
Review insiders state that the review was flawed from the start because reviewers were regulated by Bank of America and were told by bank managers not to believe what they were seeing.
“We knew what we were looking at but we were told under threat of losing our jobs to not report what we saw,” said one employee who asked that their name not be used for fear of not getting future work.
Based on the Foreclosure Review, four million homeowners who received a foreclosure notice would share $3.5 billion dollars. On January 7 the Comptroller of the Currency and Federal Reserve Board announced that the program was seriously flawed after paying over $2 billion to consultants and elected to pay homeowners between $500 to $125,000 for their lost homes depending on classification.
The average pay out will be $1,000.
“It was doomed from the beginning,” said Sheila Bair, the former chairman of the Federal Deposit Insurance Corp. “It was designed to generate fees for consultants, not to help homeowners.”
Now Senator Elizabeth Warren (D-Mass), Rep. Elijah Cummings (D-Md.) Rep. Carolyn Maloney (D-N.Y) and Rep. Maxine Waters (D-Ca) are demanding that bank regulators explain what went wrong with the foreclosure review.
Questioning bank consultants at an April 11 Senate hearing on foreclosure reviews, Warren determined that the banks, not independent consultants determined the number of victims of their own foreclosure fraud.
Waters, the top Democrat on the House Financial Services Committee, has asked Congress to immediately hold hearings to investigate why the case-by-case review of foreclosed homes has ended “abruptly” and why a cash settlement with the mortgage industry was reached instead.
Warren, Cummings and Waters have urged the OCC and the Federal Reserve to turn over performance reviews by the independent contractors hired to examine loan files, including details of their preliminary results.
In 1998 the four largest United States tobacco companies, reached a 206 billion dollar settlement with the attorney generals of 46 states to settle tobacco-related health care costs. In 2012 attorney generals reached a 26.5 billion dollar settlement against banks for foreclosure abuses against homeowners of which amount 3.3 billion will go towards compensating homeowners for losing their homes. The comparison between the two settlements is startling when the damage done to homeowners is considered to be 565 billion, 945 billion if commercial property is included.