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OCC Foreclosure Review RIP – Anyone Care for Cheese With their Whine?

by Martin Andelman in HPN Blog

Jan

If you want to join the crowd whining over the cancellation of the OCC’s Independent Foreclosure Review (“IFR”) Process, go ahead. Last time I checked it’s still at least a quasi-free country in which you have the God given right to whine, I suppose, but why anyone is whining about the cancellation of this New Coke-on-steroids type of idea is frankly way beyond me, almost like some sort of giant delayed reaction.

Next let’s all get all outraged over what caused the credit markets to seize up in 2007.

Watching to the media jump all over the OCC’s abrupt cancellation of the Independent Foreclosure Review, first armed with wild innuendo as they went after the banks for the crime of the settlement, and today, begrudgingly shifting the focus to the OCC, like disappointed children that it’s turning out to just be another major government failure of thought.

Let’s just make sure we understand what we’re all talking about here…

On September 19, 2011, when acting comptroller, John Walsh, announced that the Office of the Comptroller of the Currency (“OCC”) would be conducting an “independent foreclosure review” of something in the neighborhood of 4.5 million loans in order to ascertain whether anything untoward was done in the foreclosure process, most everyone I know just totally guffawed.

The offer to homeowners was simultaneously straightforward and cryptic… they could complete a questionnaire, submit their case for review and if they were in fact deemed to have been “damaged,” why then they be “entitled” to something called “remediation.”

The OCC promised to notify eligible borrowers by the end of 2011, or borrowers could call in and be sent a form needed to apply for the review. And the whole thing was to be over by April 30, 2012. After that, one supposed, you could just wait for your “remediation” to arrive by mail. What could possibly go awry?

My advice to homeowners at the time was basically… If you want to… oh, what the heck, it’s free and maybe they’ll send you something for your torture… I mean troubles, for your troubles, I meant troubles. And then I went back to bed.

Most housing advocates, seemingly in a rush to overstate the most obvious and least fixable aspect of the process, immediately started whining about the use of the word “independent.” They were concerned that the banks would fix the game by sending in a team of foxes to report on how the chickens were doing.

I’m sorry, but I wasn’t concerned with this aspect at all. Why worry about the independence of the companies hired as reviewers being in the bankers’ pockets when the whole show is being conducted under the ever vigilant watchful eye of the OCC itself? An in… “This foreclosure review is being brought to you by the same federal regulators caught entirely by surprise when our nation’s banking system became insolvent over a weekend in 2008.”

If ever there was a federal regulator that made it abundantly clear by exactly whom their bread was buttered, the OCC is it. It’s like they must have the same sort of deal Ed Demarco had, some sort of contract assuring them that they need not concern themselves with what the American people think… like if you called someone from the OCC a “civil servant,” they’d just laugh… and then all your credit cards would get cancelled.

The problem, of course, was that you weren’t going to be able to find companies with the capability to conduct the reviews that didn’t have some prior relationship or potential prospects with the giant financial institutions. In this country we’re down to the BIG 4 accounting firms, right? Which one do you suppose has never worked for Wells Fargo, JPMorgan or Bank of America?

The better question in my mind was a more practical one: What could actually come from the lack of independence among reviewers? Would it really be something that would have an impact on the amounts awarded to borrowers? And how would these “damages” be calculated exactly.

Because that’s the real question, is it not. The one that no one is asking or even mentioning. The 800-pound gorilla in the bank, as it were…

“When you lose a home to foreclosure that was $200,000 underwater after you hadn’t made a mortgage payment in two years, and some sort of procedural errors were involved that caused you to be declined for a loan modification that was a voluntary concession in the first place… how much remediation would that entitle me to in American money?”

~~~

Or, is it more like… “If you’re underwater and seriously delinquent on your loan does that mean that absolutely anything in the foreclosure process goes? Like, can you get physically accosted by a servicer under those circumstances and it’s still cool? Are they allowed to smash into your car while taking pictures of your home without liability? How far underwater do you have to be before notaries are allowed to sign with an ‘X,’ and how many payments behind can you be and still get a check for a little forgery?”

If you really slow it down and think about it, you have to ask yourself the following question: Would Bank of America actually attempt to fix a process so as to deny remediation to homeowners who were legitimately damaged in the foreclosure process? How exactly would the bank’s top executives covertly go about doing something like that? And why would they even try?

Before you answer, stop to consider the scale of the situation here.

The OCC said there would be 4.5 million eligible homeowners. If each homeowner’s file required 10 hours of review, that would be 45 million man-hours. Assuming a seven hour a day job, and 250 working days in a year, that would require just under 26,000 years for one person. If you had 1,000 people trained and ready to go on the reviews, then it would only take 26 years to complete them, and if you had 10,000 trained reviewers on 2.6 years.

Considering there were no trained reviewers to start with, what we had here was just a dumb idea.

My point is that Bank of America’s executives would have to persuade thousands of people to corrupt a process that would go on for several years, and not tell anyone. The chances of that working out are zero point zero. And what would their motivation be… to reduce the amounts the bank would be ordered to pay to borrowers? You’ve got to be kidding, right?

Hey guys, this is the OCC’s foreclosure review process, remember? Is anyone actually thinking that the OCC was potentially going to bankrupt the banks by imposing enormous penalties for violations in the foreclosure process, and then handing out mega-bucks to borrowers that hadn’t made mortgage payments in at least a couple years? We haven’t even been able to get our government to spend ten percent of the amount already allocated for the HAMP program. Heck, I’d be shocked to find out that there was support for sending borrowers identified by the OCC’s review process sympathy cards that just said, “We’re Sorry.”

Paul Kiel of ProPublica wrote a piece last October about how Bank of America was improperly influencing the review process that was based on a series of circumstantial factors that strung together loosely could easily make someone think something nefarious was happening. He also had a couple of Bank of America internal memos, which I read while writing this article and they only verified my thinking that the probability of this happening was nil. (You can read the Bank of America memos HERE and Kiel’s piece HERE.)

As I pointed out above, if it were happening you’d never be able to keep it a secret for very long as there would be thousands of people who would have to be in on the conspiracy. Second, what happens with any individual loan is not terribly important to Bank of America. Large mortgage servicers don’t even do much if any accounting at the loan level, they write down and reserve for losses only at the pool level.

Bank of America’s response to Kiel was that they had assigned personnel to the review process in order to help it move faster, and after I read recently that PWC had billed something like $1.2 billion for services provided as part of the review, I understood why. This review is undoubtedly slated to cost Bank of America billions in the aggregate. I’m positive that the bank would much prefer to write a check for billions to homeowners wronged in the foreclosure process than to PWC and Promontory.

Have you ever seen what the computer screens look like at a bank? CVC, SDL, POS, PAD, MCC, FI, TID, LOF, EBT, AMU, LNR, PAL, ISPM, INT, TXN, AML, S/O, DA, CPS, DSR, EDS, AUM, BA, AMA… I mean, it’s not exactly Windows 2005. When people go to work at a place like Bank of America, there’s serious time devoted to being trained on the bank’s various systems. It’s not like I could hope to find much of anything by simply sitting down at a terminal and clicking around.

So, with consultants billing hundreds per hour, the idea that one just spent $3200 trying to find the NOD associated with a certain foreclosure, Bank of America stepped up to supply 1,750 employees to assist with the review, according to Kiel’s article. He obviously didn’t find that number to be meaningful, but at $4,000 a month in salary and benefit cost, that’s $7 million a month… $84 million a year… to help reviewers find wrongs committed by the bank.

Kiel also points out that the OCC specified the eight tests used to determine whether a homeowner was harmed by a bank and Promontory, the company hired by the OCC to oversee the review process, would be making the final determination on compensation to homeowners based on violations found during the review. Even so, Kiel wants the fix to be in with Bank of America and the Independent Foreclosure Review, even if he has to build a guilt-by-association type case against the bank everyone loves to accuse.

On February 24th, I posted an interview with one of the “independent reviewers,” who had contacted me to tell me what a sham the review process really was. I wasn’t surprised, and it was fun to alter his voice so that in addition to reading my article, others could hear first hand what he had to say. But, he wasn’t saying that Wells Fargo was rigging anything, more than the entire process and program was being run by a trained team of corporate seals. And I had no trouble believing that, how could it not?

So, next the IFR’s April 30th deadline was extended, but not due to unprecedented demand or anything close. Clearly, homeowners were not rushing to submit their facts to the review process, and who could blame them. Applying meant having to relive the experience and who would want to do that in order to find out that remediation for whatever happened to you could be found enclosed in the form of a $50 Gift Certificate to Wal-Mart or Sears. Of course, the OCC could neither confirm nor deny… oh, shut up, shut up.

As of June 25, 2012, 193,630 homeowners had bothered to apply, and 144,817 files had been selected for further study. The OCC, recognizing that the numbers were not exactly approaching the 4.5 million eligible, the agency started advertising that borrowers could win up to $125,000 for foreclosure violations. As reported by the San Francisco Examiner…

The 14 firms, also including Wells Fargo & Co., could be instructed to give lump-sum payments between $500 and $125,000 in each case involving improper practices, the regulators said.

I didn’t know there’d be fabulous cash and prizes. I awaited the promotional tie-ins…

But that’s not all… The OCC says that the first 500 homeowners who were reported by the bank’s internal systems as being suicidal in 2009, will each receive Apple’s fabulous new iPad Minis! Think Independently!

Then, only a month later on July 25, 2012, the Government Accountability Office (“GAO”) conducted its own review of the OCC’s review and found that the reason for the light turnout by homeowners was that the whole thing was just “too complex” for us… the presumably stupid homeowners… to understand. (I had a ball with that story, which you can find HERE.)

Government Failing – A Rich Tradition

I understood the whining over HAMP’s apparent failure. I mean, HAMP was the president’s program, announced with much fanfare, touted as being something along the lines of the man-sitting-tall-in-the-saddle-on-white-horse that had ridden in to town to save the USA. And then instead of that, it turned out to be, “Shut-up and wait in the closet until my husband leaves…. shhhh.”

HAMP as handled by the U.S. Treasury and over a hundred mortgage servicers, was unlike any federal assistance program I had ever seen in action. Not for its ineffectiveness or inabilities… those things come part and parcel with essentially every federal program, and with no one forecasting an outbreak of competence inside the Beltway anytime soon, I’m sure there’s plenty more coming.

No, HAMP, I will admit, took me almost entirely by surprise, not because of its failings, I knew it would fail the day President Obama’s speech delivered in Arizona announced its coming, from the moment I heard the words that are the kiss of death for any housing rescue program… “Responsible homeowners.”

Might as well cancel the program right now, Mr. President. Ball four, take a hike, you’re done.

Want to know why that is the case? Because it definitely is. In fact, I’ve called every single housing program’s impending doom without hesitation based primarily on that characterization and been right every single time. Mostly it works because… well, because there’s no such thing as “responsible” or “irresponsible” homeowners.

All homeowners are “responsible” people. Or, to be more accurate, 99.9 percent of homeowners are responsible people. Some minuscule percentage of any group make up the small tail of the bell curve. The simple fact, and we all should know this, is that buying a home in this country has always been the “responsible” thing to do.

When I was still a bachelor in my late 20s, I rented an apartment that was furnished all the way down to dishes and silverware. The maid came twice a week, and it overlooked the pool, next to which were always a stack of large fluffy towels. I didn’t even want to own a houseplant, and although I had a great job and made good money, I don’t remember any of the girls I was dating at the same time referring to me as being particularly “responsible.”

A few years later I bought a house. I was still single, however, and all I wanted in the downstairs family room was a stereo so we could blast the music while playing our own version of Nerf baseball or shooting darts while doing shots of tequila. The day I bought a fridge and a washer and dryer I remember feeling all tied down. That was it, I thought… now if I move I’ll need a U-Haul.

And yet, now I was being considered a “responsible” individual. Before I knew it, I wanted a dresser in my bedroom, was picking out coffee tables for the living room, and when my grown up dining room table was delivered, I started planning to host that year’s Thanksgiving Dinner, so that no one had to dress up and we could eat pumpkin pie at 10:00 AM. But, I was now officially considered to be “responsible,” although I didn’t like it one bit. It was the house that had done it to me.

So, programs designed for “responsible homeowners” fail because they’re designed to draw a distinction that doesn’t exist… a distinction without a difference, if you will. No one goes out and buys a home they can’t afford on purpose. No one goes out and intentionally buys a car with payments they can’t afford either. As any homeowner will readily tell you, besides the obvious aversion to foreclosure and eviction, mortgage payments are only a part of the cost of homeownership.

You haven’t really lived until you’ve taken a look at the price tag for new drapes and other window treatments, and after your wife starts talking about how much she loves granite countertops or hardwood floors, you won’t even remember your mortgage payment’s amount for months, and next thing you know you’ll be letting her drive.

You can drop ten grand in an hour organizing your garage. You’ll find the guy you’ve been talking to about landscaping speaks much better English than you thought when presenting you with his bill. And you can’t do all that around your new home and leave the kids rooms looking as stark as an empty rental… I mean, what will your friends think when you give them the nickel tour? And don’t forget the patio furniture…

No one goes through all that and more, files a change of address form with the Post Office, enrolls children in new school districts, orders new checks and business cards, in order to end up a year or two later having to tell the family not to tell the person calling that you’re home. And the idea of having to tell your son or daughter that they’ll like the duplex you’ll soon be renting because of the playground that’s only a block away is something every parent on the planet places at the top of their lists of conversations they never want to have.

If someone can’t afford their mortgage payment, it’s because something bad has happened to them. And after 2008, if someone couldn’t make their mortgage payment, we should all know what the “bad” thing was because it’s the same “bad” thing that happened to everyone else… and to every company from Wall Street to Main Street. Believe it or not, the reason someone couldn’t make their mortgage payment in 2009, was fundamentally the same reason General Motors needed to be bailed out by taxpayers for $25 billion that same year. The only difference was that homeowners didn’t get to fly to D.C. in their Gulfstream G550s.

We are, however, a judgmental bunch, as this crisis has shown me, and regardless of the abundant evidence of the economic meltdown not being the fault of homeowners, those losing homes to foreclosure since the crisis began have found themselves treated no differently than any other irresponsible deadbeat borrower in history.

HAMP Fail – Part 2

HAMP’s failure came in two parts. The first was the entirely predictable failure of the program to save more homes. Original estimates claimed HAMP would save 3-4 million homes from foreclosure, but more than four years in, and the program has only saved something close to a million. That may be considered a failure by some standards, but as federal programs go that’s the Olympic Gold Medal winner by far.

The part of the failure that came as a total shock to me was that when you signed on to the HAMP of 2009, not only were you treated like a deadbeat losing a home to foreclosure, but included in the price of admission, you also got the financial services industry equivalent of waterboarding. Actually, I’m quite certain that many homeowners who went through the process of applying for HAMP in 2009 or 2010, would have gladly accepted actual waterboarding in exchange for the version they were forced to endure.

The torture component was a new one on me. I mean, who will ever forget the popular game that was fun for the whole family, endearingly referred to as, “Surprise, You’re Home Sold!”

Honestly, I had never seen anything quite this abusive. Unsuspecting homeowners would head out for a Sunday matinee, only to return home to find two guys peering in their windows and identifying themselves as the investors who bought the home at an auction earlier that day. Surprise, Your Home Sold!

Wow, that is cool! That’s what I call service. Surprise, Your Home Sold! Aren’t you happy? We knew you wanted to dispose of that fire hazard you call a home, so basically we went ahead and took out the trash for you. Gosh thanks, guys… you shouldn’t have. I mean you REALLY REALLY shouldn’t have.

Oh Sure, Now the Media Shows Up at the Party…

The mainstream media is a shameless bunch, that’s for sure. They smelled blood and started typing out stories about the failure of the OCC’s IFR faster than you could say, “billable hours.” To read them all feigning shock and recoiling in horror at the very idea that homeowners would lose their opportunity for a shot at justice was absolutely nauseating.

A few members of Congress also jumped up for an entirely undeserved photo-op. I sure hope the president just stays quiet about all this… just don’t say a damn word, Sir. It simply wouldn’t be prudent, not at this juncture. All I want to hear President Obama talk about now is anything but foreclosures.

You know what would have been nicer… it would have been nicer to see the media out talking about this abomination while it was happening, as I and a few others certainly were. But you in the mainstream media were still fawning over Barack Obama… the smart president… his plan could not fail… swoon.

Well, fine. I guess I’m glad you finally made it… come on in… there’s still plenty of food. But don’t think I don’t realize that you media types that arrived late to this party are part of what allowed all those homeowners to be abused in the first place. You know… back when you didn’t have any idea what the foreclosure crisis was or what it was doing to homeowners.

We all knew this OCC IFR nonsense was nonsense… you lost us at “OCC,” as a matter of fact. Yves Smith over at Naked Capitalism had this one nailed tight from beginning to end. And it makes me ill to think about how much time I wasted actually trying to write detailed explanations of what was involved and being offered… my best efforts so that no one would forego applying on my account.

It’s funny too, when I think about it, because my expectations could not have been lower, and yet somehow, some way… you managed to underwhelm regardless. Luckily, the people saw this even more clearly than I did as being just another Geek Tragedy, and one they’d seen before, so this time few even bothered showing up at the theater. Good for them. That they all ignored you at the OCC… that is their prize.

It’s time to do away with the OCC, it doesn’t matter if we don’t have a replacement ready. Put an ice cream truck in its place for a year… same intellectual firepower, and with the communication skills of a Klondike Bar on a warm day.

Mandelman out.

Where were you in 2009? Trying to solve the problem, and you? Here is just a partial list of my articles from 2009… Just what I wrote on the torture that has become HAMP’s legacy.

Adding Insult to Injury – Homeowners Told to Walk Away from Loan Modifications

The Foreclosure Crisis – Private Sector Solutions vs. Government Cheese

HUD Says Hope-4-Homeowners Modified One Mortgage

Giving Money Back Not Profitable – Federal Reserve Study Proves

Obama’s Campaign Against Mortgage Modifications

What I Now Know About the Foreclosure Crisis and Loan Modifications

I Finally Figured It Out… It’s the Banks

Bank of America Says They Modified 55,000 Mortgages, Whatever that Means

Tired of the Lying – 55,000 Helped by Obama Mortgage Rescue

There’s the Outrage – Riverside Bobby-Traps His Foreclosed Home

Have You Called the Homeowner’s Hope Hotline

Loan Modifications and the Right to Representation