Negotiations Were Largely Based on Projected Costs and Remediation Amounts and the Goals for the Cash Payments Were Generally Met

Regulators considered factors such as projected costs and potential  remediation amounts associated with the file reviews to negotiate the  $3.9 billion total cash payment under the amended consent orders. The final  amount of $3.9 billion was negotiated between regulators and servicers  and was higher than the estimates regulators used to inform negotiations. As of December 2013,  checks had been distributed to approximately 4 million borrowers covered  by the 13 servicers that were part of the January 2013 amended consent  order announcements. Under the cash payment process, borrowers generally received cash  payments of between $300 and $125,000, in line with regulators’ goal of  providing those amounts to borrowers. According to regulators, as part  of their process to determine the cash payment amounts to be paid to  borrowers in each category, they considered the amount that borrowers  would have been paid for errors in that category under the file review  process, among other considerations. Regulators Did Not Establish Specific Objectives for Foreclosure Prevention Actions, and Oversight Is Limited

Regulators did not establish specific objectives for the $6 billion obligation  they negotiated with servicers to provide foreclosure prevention actions. According to most servicers we  spoke with, they would be able to meet the required volume of activities  using their existing foreclosure prevention activities. However, according to Federal Reserve staff, most of the Federal  Reserve examination teams have not conducted their oversight activities  related to the foreclosure prevention principles and regulators’ guidance  for oversight of the principles does not identify actions examination teams  should take to evaluate or test implementation of these principles. Similarly, the guidance requires examination teams to identify the  performance measures servicers use to assess the principle related to  the sustainability of foreclosure prevention actions, but the guidance does  not require examination teams to evaluate how well a servicer’s programs  are providing sustainable actions.foreclosure prevention actions are meaningful—one of the principles— examination teams are to collect data on the servicers’ foreclosure  prevention actions, including the extent to which those actions resulted in  higher or lower monthly payments, but the guidance does not require   Finally, to assess whether servicers’  examination teams to evaluate the data to understand what it indicates  about servicers’ actions. Without these procedures,  regulators may miss opportunities to determine how well servicers’  foreclosure prevention actions provide meaningful relief and help  borrowers retain their homes. File Review and Cash Payment Activities Confirmed Previously Identified Servicing Weaknesses

Although consultants generally did not complete the review of 2009 and  2010 foreclosure-related files through the file review process, consultants,  servicers, and regulators were able to describe some of the servicing  weaknesses they identified based on the work that was completed. CFPB Mortgage Servicing Rules. OCC and Federal Reserve Imminent Foreclosure Standards. Regulators Promoted Transparency about the Status and Results of Cash Payments and Plan to Issue Public Reports

In our March 2013 report, we found that transparency on how files were  reviewed under the foreclosure review was generally lacking and that  borrowers and the general public received limited information about the  progress of reviews.implement a communication strategy to regularly inform borrowers and   We recommended that regulators develop and  the public about the processes, status, and results of the activities under  the amended consent orders and continuing foreclosure reviews. Federal Reserve staff also stated that they  anticipate the final report would include information on the terminated  reviews. Regulators said that borrowers could obtain additional information from  other sources. In addition,  federal internal control standards and our prior work highlight the  importance of providing relevant, reliable, and timely communications,  including providing information about the processes used to realize  results, to increase the transparency of activities to stakeholders—in this  case, borrowers and the public. To better ensure transparency and public confidence in the amended  consent order processes and results, we recommend that the  Comptroller of the Currency and the Chairman of the Board of  Governors of the Federal Reserve System include in their forthcoming  reports or other public documents information on the processes used  to determine cash payment amounts, such as the criteria servicers  use to place borrowers in various payment categories. We also received technical comments from  OCC, the Federal Reserve, and CFPB and incorporated these as  appropriate. Key contributors to this report are listed in appendix V.

Appendix I: Objectives, Scope, and Methodology

The objectives of this report were to assess: (1) the factors regulators  considered in negotiating servicers’ cash payment obligations under the  amended consent orders and the extent to which regulators achieved  their stated goals for the cash payments; (2) the objectives of the  foreclosure prevention actions in the amended consent orders and how  well regulators designed and oversaw the actions to achieve those  objectives; (3) the extent to which regulators are sharing information from  the file review and amended consent order processes; and (4) the extent  to which regulators have promoted transparency of the amended consent  orders and remaining review. To assess the extent to which regulators are leveraging and sharing  information from the file review process, we analyzed consultants’  preliminary findings from the file review process, in particular information  they reported to regulators in exit surveys and during exit interviews with  regulators.
Why GAO Did This Study

In 2011 and 2012, OCC and the Federal Reserve signed consent orders with 16 mortgage servicers that required the servicers to hire consultants to review foreclosure files for errors and remediate harm to borrowers. In 2013, regulators amended the consent orders for all but one servicer, ending the file reviews and requiring servicers to provide $3.9 billion in cash payments to about 4.4 million borrowers and $6 billion in foreclosure prevention actions, such as loan modifications. One servicer continued file review activities. GAO was asked to examine the amended consent order process. This report addresses (1) factors considered during cash payment negotiations between regulators and servicers and regulators' goals for the payments, (2) the objectives of foreclosure prevention actions and how well regulators designed and are overseeing those actions to achieve objectives, and (3) regulators' actions to share information from the file review and amended consent order processes and transparency of the processes. GAO analyzed regulators' negotiation documents, oversight memorandums, and information provided to borrowers and the public about the file review and amended consent orders. GAO also interviewed representatives of regulators, servicers, and consultants.

What GAO Found

To negotiate the $3.9 billion cash payment amount in servicers' amended consent orders, the Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (Federal Reserve) considered information from the incomplete foreclosure review, including factors such as projected costs for completing the file reviews and remediation amounts that would have been paid to borrowers. To evaluate the final cash payment amount, GAO tested regulators' major assumptions and found that the final negotiated amount generally fell within a reasonable range. Regulators generally met their goals for timeliness and amount of the cash payments. By December 2013, cash payments of between $300 and $125,000 had been distributed to most eligible borrowers.
Rather than defining specific objectives for the $6 billion in foreclosure prevention actions regulators negotiated with servicers, regulators identified broad principles, including that actions be meaningful and that borrowers be kept in their homes. To inform the design of the actions, regulators did not analyze available data, such as servicers' recent volume of foreclosure prevention actions, and did not analyze various approaches by which servicers' actions could be credited toward the total of $6 billion. Most servicers GAO spoke with said they anticipated they would be able to meet their obligation using their existing level of foreclosure prevention activity. In their oversight of the principles, OCC and the Federal Reserve are verifying servicers' foreclosure prevention policies, but are not testing policy implementation. Most Federal Reserve examination teams have not begun their verification activities and the extent to which these activities will incorporate additional evaluation or testing of servicers' implementation of the principles is unclear. Regulators' manuals and federal internal control standards note that policy verification includes targeted testing. Without specific procedures, regulators cannot assess implementation of the principles and may miss opportunities to protect borrowers.
Regulators are sharing findings from the file reviews and amended consent order activities among supervisory staff and plan to issue public reports on results, but they have not determined the content of those reports. The file reviews generally confirmed servicing weaknesses identified by regulators in 2010. Regulators are sharing information among examination teams that oversee servicers, and some regulator staff GAO spoke with are taking steps to address weaknesses identified. Regulators also have promoted transparency by releasing publicly information on the status of cash payments. However, these efforts provided limited information on the processes used, such as how decisions about borrower payments were made. Federal internal control standards and GAO's prior work ( GAO-03-102 and GAO-03-669 ) highlight the importance of providing relevant information on the processes used to obtain results. According to regulators, borrowers could obtain information from other sources, such as the payment administrator, but information on how decisions were made is not available from these sources. In the absence of information on the processes, regulators face risks to public confidence in the mortgage market, the restoration of which was one of the goals of the file review process.

What GAO Recommends

OCC and the Federal Reserve should define testing activities to oversee foreclosure prevention principles and include information on processes in public documents. In their comment letters, the regulators agreed to consider the recommendations.