How not to search for damages done

Bank reviews

Sound banking practices
According to former Fed Chairman Alan Greenspan, bank examiners are good at promoting sound banking practices but bad at discovering fraud; they are not even supposed to look for fraud. So, according to Greenspan, fraud is explicitly not against sound banking practices.
While the bank examiners are busy promoting sound banking practices, there are many things they are missing. To learn about abuse, you have to trust whistleblowers. Former BoA employees have testified about lies to homeowners, about fraudulently denying loan modifications, about staff getting bonuses for pushing people into foreclosure. About regularly destroying documents. About squeezing as much as possible out of struggling borrowers before foreclosing on them. And nothing happens.

They shouldn't pay for all the damage they caused
Even the Office of the Comptroller of the Currency (OCC) agrees that the banks should pay. At least a token fee; OCC insists they should pay nothing remotely like the damage they've done. And only to those directly hurt, nothing to third party victims. With a total cost for the current crisis of 10 million American jobs, with an estimated $21 trillion loss in GDP, a full refund is hardly realistic; you could confiscate all the big banks, and still what you got would be far from the real cost.

Banks and OCC select reviewers
To compensate ill-treated borrowers, 10 mortgage servicers entered an $8.5 billion settlement with the OCC and the Fed. Borrowers could request an independent investigation paid by the servicers. Those found to have suffered wrongful foreclosures should receive sizable awards, with smaller payments for other forms of abuse. However, there were restrictions. The borrower should have a pending or completed foreclosure sale from 2009 or 2010. The investigators should be selected by the servicers and the OCC.

Of 10,000 reviewed cases, 0 are found faulty
Reports from whistleblowers give a picture of mortgage reviews that from the beginning are doomed to fail. One reviewer found errors that should be forwarded for further control but was told to "quit digging so deep". Foreclosure victims were not told that if they did not provide specific dates on their forms, their complaints would be ignored. Compound questions were used, with only one permitted answer; a no to the second question was applied also to the first, even if that should be a yes. And many of those hired to make the reviews just didn't know what they were doing. Maybe it is not very surprising that out of 10,000 cases, the reviewers from Promontory Financial Group found only 4 worth further review. On closer examination, these 4 were also found to be without problem.
BoA reviewed 102,000 cases and nothing was amiss. The bank was forced to do it again and found an error rate of maybe more than 5%. The OCC gave the error rate of 4.2% for the whole review. This can be contrasted with a review made by the HUD inspector general. For only four out of 36 affidavits, the bank could document the amounts of debt; of those four with documentation, three were inaccurate. Depending on if you trust OCC or the HUD IG, the error rate is 4.2% or 97.2%.
When the Treasury's Inspector General asked OCC, he was told that there was nothing amiss. When he read OCC documents, he found nothing amiss. When he checked how the OCC conducted its investigations, ... well, he didn't. He trusted OCC and his conclusion was that OCC was safe and sound.

Widely varying times for one review
There was no consensus about how to implement the reviews. The times varied widely, because of wanting knowledge or because of wanting instructions. Consultants initially estimated that each loan should take about eight hours; the time charged could be up to 20 hours. One firm deployed by OCC used three hours; according to some mortgage experts one hour should be quite enough.
To make sure the reviewers did not miss anything, they got test questions to answer. One review type had approximately 2,600 questions with more than 4,000 discrete steps; another had 16,000 questions. One full review could take up to 50 hours. And with all these questions, for almost two years OCC and the Fed could not decide if missing documents should count as harm.

Local audits find lots of errors
With OCC and the Fed and their appointed reviewers failing so dismally, a Massachusetts register of deeds had no problem finding errors: In one audit, 16% of assignments of mortgage were found to be valid, 75% invalid and 9% questionable. Of the invalid assignments, 27% were fraudulent, 35% robo-signed and 10% against the Massachusetts Mortgage Fraud Statute. Only 60% of current mortgage owners could be identified.
In a few months and with far fewer resources, the San Francisco City Assessor accomplished what the Federal government and the state Attorneys General could not do in nearly a year and a half: in one audit, 84% of the files investigated had what looked like clear violations of law.

Hires own counsel for "independent" review
With the banks and with bank-friendly OCC deciding what reviewers to use, you can't expect much help to abused borrowers. PricewaterhouseCoopers, Promontory and Treliant Risk Advisors are all, besides making foreclosure reviews, directly serving banks in other ways. To get an "independent" review, GMAC hired a law firm that was also their national counsel.
The banks are choosing reviewers, they are paying the bills, they are potential future clients. Considering this, and above all considering reports of how the reviews are made, it is difficult to know if you should laugh or cry when OCC claims that the consultants "are not subject to the servicers' direction and control".

An account from one reviewer
One reviewer gives a very damning description of how he was told to work. First of all, he was surprised that his instructors were from the banks and the lenders, not from OCC or the selected reviewer Promontory. Then, when they should get some hands-on education, they were told that there was no material ready but they would be paid anyhow. They began in January; in June, 40 out of 750 were actually reviewing files.
The reviewers were supposed to be independent of the bank but all findings were controlled by the bank; any argument could result in termination. When the examiners followed test scripts, they often found violations of foreclosure laws; one test script originally had 2200 questions but the questions about the law were removed and 550 questions were left. At a group meeting, the reviewers were told that if the borrower did not specify what law or statute that was violated, any violation they found should be disregarded; the complaint form didn't mention that the borrower had to be specific about the law, there were just general questions about what happened.
The borrower could send in his paperwork 2, 3, 4, 5, 6 or more times and the bank would "lose" it, then foreclose. Even if the paperwork still was somewhere in the system, the bank said this was no harm because the borrower didn't send in the paperwork.

© Anders Floderus