Senate Democrats grilled Julie Williams, the general counsel for the Office of the Comptroller of the Currency (OCC), Tuesday about what the agency is doing to ensure the independence of foreclosure reviews stemming from the federal enforcement actions taken against 14 major servicers in April.
The showdown occurred during a Senate Banking subcommittee hearing titled ‘Helping Homeowners Harmed by Foreclosures: Ensuring Accountability and Transparency in Foreclosure Reviews.’
The Democrats' line of questioning focused sharply on the agreements between servicers and the third-party consultants the servicers have chosen to perform the reviews.
According to Williams, the OCC screened the consultants and their retained counsel prior to approving the servicers' engagement letters to identify situations where either the consultants or the attorneys had previously taken positions on issues that they will be asked to render opinions on as independent reviewers. Several law firms were disqualified during that screening process, Williams said.
Sen. Jack Reed, D-R.I., said that allowing servicers to select their own file reviewers ‘raises questions about the independence of these consultants," he said.
Democrats also criticized the OCC for the notification letters that have been sent to borrowers whose cases are potentially eligible for review. The letters are part of the claims process outreach effort. So far, more than 2 million letters have been sent. Regulators estimate that more than 4 million borrowers may be eligible for review.
Included in those letters are 22 examples of financial harm that borrowers may have suffered as a result of servicer error. According to the Democrats, the examples outlined for borrowers are far from comprehensive.
Alys Cohen, a staff attorney with the National Consumer Law Center (NCLC), agreed. She said the program's outreach process is "flawed at every turn," and she criticized the fact that regulators left one of the most commonly cited reasons for financial injury suffered by borrowers – servicer delay – off its checklist. According to a recent national survey, almost 89% of housing counselors say servicer delay is the biggest barrier to obtaining a loan modification, Cohen said.
‘The orders and the foreclosure reviews provide, at best, little more than window dressing for business as usual, even though business as usual has left us in the worst foreclosure crisis in our nation's history and the worst economic crisis since the Great Depression,’ she said, adding that the process is "opaque" and leaves too much control to servicers. The NCLC is advocating for the Consumer Financial Protection Bureau to take over the reins of the review process, according to Cohen.
She additionally voiced concern that servicers may use borrowers' acceptance of a file review as a chance to strip the borrowers of their legal rights.
Asked about that possibility by Sen. Jeff Merkley, D-Ore., Williams said no decision has been made to allow servicers to use legal waivers. She did not, however, rule out the use of waivers in certain circumstances, such as when a borrower who was found to have been wrongfully foreclosed upon is provided full remediation.