When federal regulators reached their second foreclosure fraud settlement with the nation’s largest lenders in January, lawmakers and housing advocates panned it for letting banks “sweep past abuses under the rug.” Regulators ended the foreclosure review process banks to which banks had been subject to reach the $8.5 billion settlement, allowing them to pay far fewer costs than fair lending advocates say they would have had the reviews continued.
Now, government watchdogs are also criticizing the review process and federal regulators. In a report issued this week, the Government Accountability Office said the Federal Reserve and the Office of the Comptroller of the Currency, the two regulatory agencies that oversaw the review process, gave lenders “too much leeway” in the reviews, The Hill reports:
The Office of the Comptroller of the Currency (OCC) and the Federal Reserve gave mortgage servicers and their consultants too much leeway in reviewing their mortgage loans, resulting in a complex and widely varied process that made it difficult to oversee as a whole, according to a draft GAO report obtained by The Hill. [...]
While the report explicitly does not weigh that specific decision, the GAO did find that the review process was complex and bogged down by a host of factors. Millions of mortgages were up for review, and the process ended up involving dozens of institutions, including 14 servicers, 14 third-party consultants from 7 different firms (some with subcontractors), and more than 10 law firms.
The GAO report does not criticize the settlement itself, but the implication is that the complicated review process led to a hastened settlement instead of comprehensive reviews to find out how many homeowners were wronged by foreclosure abuses. Rep. Maxine Waters (D-CA), who opposed the decision to halt reviews, said the report “confirms what I had long suspected – that the OCC’s oversight of the supposedly-independent consultants hired by the servicers was severely deficient,” and added that the process was “deeply flawed.”
This isn’t the first foreclosure settlement to be widely criticized by housing advocates. A little more than a year ago, the federal government and state attorneys general reached a settlement with big banks over foreclosure abuses that included robosigning and other fraudulent practices, but that settlement has also come up short in helping affected homeowners. Instead, big banks have gamed many of the settlement’s requirements, while there is little accounting for whether they are spending money to help homeowners in ways they were supposed to.