On the basis of their findings, the regulators  issued the April 2011 consent orders against these servicers that required   In  the servicers to conduct the foreclosure review, among other things.January 2013, OCC and the Federal Reserve reached agreements with  11 of the 14 mortgage servicing companies subject to the April 2011  consent orders to discontinue the foreclosure reviews and to provide  approximately $3.4 billion in direct payments to eligible borrowers. In addition,  under the amended consent orders, the servicers also will provide  approximately $5.4 billion in foreclosure prevention assistance to  borrowers, such as loan modifications. Consultants for the servicers that  did not reach agreements with the regulators continue their foreclosure  review activities. Complexities of the Foreclosure Review Process and Limitations in Regulators’ Guidance and Monitoring May Have Hindered Achievement of Goals

Complexity of the file reviews, overly broad guidance, and limited  monitoring for consistency may have impeded the ability of OCC and the  Federal Reserve to achieve the goals of the foreclosure review. Finally, the regulators’ sampling approach did not include key oversight  mechanisms to facilitate assessment of whether consultants’ reviews  were sufficient to realize the goal of identifying as many harmed  borrowers as possible, except in those cases where there were few or no  errors. In the absence of objective measures to compare review  methods among consultants or assess sampling, regulators did not have  an early warning mechanism to help identify problem areas that may have  hindered achievement of the foreclosure review goals. Limited Communication Hindered Transparency for Individual Borrowers and the General Public

OCC and the Federal Reserve acknowledged the importance of  transparency in the foreclosure review process and publicly released  more information than is typically disclosed in connection with a consent  order. For example, regulators released redacted engagement letters  between servicers and third-party consultants and the remediation  framework for consultants to use that provided examples of situations in  which compensation or other remediation is required for financial injury  due to servicer errors, misrepresentations, or other deficiencies. However, the absence of useful and timely communications at certain  stages of the process—for the general public as well as individual  borrowers—hindered transparency and public confidence in the  processes and results. Some stakeholders perceived gaps in key information about how the file  reviews were being conducted. Borrowers received a letter acknowledging their request was  received, but some did not receive updates until almost a year after the  outreach program was first launched, when they received a letter  informing them of the continuing nature of the review. In letters to OCC  and the Federal Reserve, consumer groups indicated that these  borrowers were frustrated by the lack of information on their particular file  review. Regulators have acknowledged  the importance of transparency, but after announcing the agreements that  led to the amended consent orders, they had not yet determined what  information to convey beyond that which was included in their press  releases and public websites and whether additional information would be  provided to borrowers who submitted a request-for-review. Prior to the  announcement of the agreements that led to the amended consent orders  and ended the foreclosure review for most servicers, OCC staff told us  they had planned to release a final report on the results of the foreclosure  review, and Federal Reserve staff indicated they expect to publish  additional relevant information related to the foreclosure review and the  agreements. The Foreclosure Review Experience Could Offer Lessons for the Amended Consent Order Activities and Continuing Reviews

The foreclosure review revealed three key lessons related to planning,  monitoring, and communication that could help inform regulators’  implementation of the amended consent orders and the continuing  foreclosure reviews. Based on the foreclosure  review experience, we found that (1) designing project features during the  process’s initial stages influences the efficiency of file reviews, (2)  monitoring progress helps ensure achievement of goals, and (3)  promoting transparency enhances public confidence. Our prior work shows that assessing and using lessons learned from  previous experiences can provide a powerful method of ensuring that  beneficial information is factored into the planning and work processes of  future activities. GAO’s internal control standards state that agencies should take steps to  comprehensively identify and analyze program operations to determine if  risks exist to achieving goals—such as risks to the regulators’ goal of  providing similar results for similarly situated borrowers. Finally, lessons from the foreclosure review activities conducted to date  suggest that developing and implementing an effective communication  strategy that includes public reporting goals could enhance the  transparency of the activities under the amended consent orders. Regulators announced the agreements that led to the amended consent  orders without a clear communication strategy. In the absence of a clear  communication strategy to direct external communications, including  public reporting and direct communication with individual borrowers,  regulators face risks to transparency and public confidence similar to  those experienced in the foreclosure review process. In our March 2013 report, we recommended that OCC and the Federal  Reserve improve oversight of sampling and identify and apply lessons  from the foreclosure review process, such as enhancing planning and  monitoring activities, to better ensure that the goals of the foreclosure  review and amended consent orders are realized.
Why GAO Did This Study

This testimony discusses the Independent Foreclosure Review process. In April 2011, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (Federal Reserve), and the Office of Thrift Supervision (OTS) issued consent orders against 14 mortgage servicers. These orders required the servicers to engage third-party consultants to review servicers' loan files to identify borrowers who had suffered financial harm due to errors, misrepresentations, or other deficiencies in foreclosure processing and recommend remediation for the harms these borrowers suffered. Roughly 4.3 million borrowers who were in some stage of foreclosure in 2009 and 2010 were eligible for the foreclosure review. As of December 2012, consultants had more than 800,000 loans slated for review. In January 2013, the regulators announced agreements that led to amended consent orders with 11 of the 14 servicers to discontinue foreclosure reviews and replace the reviews with a compensation framework that does not rely on determinations of whether borrowers suffered financial harm. The remaining 3 servicers, covering 450,000 borrowers (10 percent), are continuing with the foreclosure review work.
The remarks are based on our March 2013 report on the implementation of the foreclosure review and lessons learned that can be applied to the activities required by the amended consent orders and ongoing foreclosure reviews. The statement addresses (1) challenges to the achievement of the goals of the foreclosure review, (2) the extent of transparency in the foreclosure review process, and (3) lessons that could be useful for the activities under the amended consent orders and continuing reviews. As noted in our report, we were in the process of reviewing other aspects of the foreclosure review when OCC and the Federal Reserve announced the agreements. Neither our report nor this statement assesses the regulators' rationale for accepting the agreements nor any trade-offs involved in the regulators' choice to amend the consent orders with the servicers.

What GAO Found

GAO found the following:
Regulators' ability to achieve the goals of the foreclosure review was affected by the complexity of the reviews, as well as by overly broad regulator-issued guidance and limited monitoring for the consistency and sufficiency of consultants' review activities. For example, regulators' statistical sampling approach did not include mechanisms to allow the regulators to monitor consultants' progress toward finding as many harmed borrowers as possible. Our prior work has identified practices, such as assessing progress toward goals and designing monitoring during the planning stage of a project, as effective management practices. In addition, the Office of Management and Budget (OMB) has found that in planning data analysis activities, such as sampling, agencies should take necessary steps to ensure that they have collected the appropriate data from which to draw conclusions. Without using objective measures to compare review methods or assess sampling among consultants, regulators' ability to monitor progress toward achievement of foreclosure review goals was hindered.
Although regulators publicly released more information on the foreclosure review process than is typically disclosed in connection with a consent order, the absence of timely and useful communication to the general public and individual borrowers at certain stages of the process impacted transparency and public confidence. To promote transparency, OCC and the Federal Reserve released redacted engagement letters between servicers and consultants, among other documents. However, some stakeholders felt there were gaps in the publicly released information, including the lack of detailed information on how the reviews were to be carried out. In addition, although borrowers who requested reviews under the foreclosure review process received an acknowledgement letter, some borrowers did not receive updates on their request for almost a year after the program was launched.
The foreclosure review experience revealed lessons related to planning, monitoring, and communication that could help inform regulators' implementation of the amended consent orders and the remaining foreclosure reviews. In our prior work, we found that assessing lessons learned from previous experiences, such as through discussions with key participants and stakeholders, and applying these lessons can help strengthen future activities. Without assessing and applying relevant lessons learned, regulators might not address similar challenges in activities under the amended consent orders or in the continuing reviews. In particular, regulators announced the agreements that led to the amended consent orders without a clear communication strategy, including determining what information to provide to borrowers. GAO's internal control standards and our work related to best practices indicate that an effective communication strategy and timely reporting can enhance transparency and public confidence. Absent a clear strategy to guide regular communications with individual borrowers and the general public, regulators face risks to transparency and public confidence similar to those experienced in the foreclosure review.
Based on our findings, we recommended that OCC and the Federal Reserve improve oversight of sampling and consistency in the continuing reviews; apply lessons in planning and monitoring, as appropriate, to the activities of the amended consent orders and continuing reviews; and implement a communication strategy to keep stakeholders informed. The regulators agreed to take steps to implement these recommendations.