GAO Slams OCC, Fed Outreach Efforts to Troubled Borrowers

By Kevin Wack

JUL 5, 2012 1:15pm ET

WASHINGTON – Federal banking regulators repeatedly fell short in their efforts to alert foreclosed homeowners that they may be eligible for monetary relief, according to a new report from a government watchdog agency.

The report, released Thursday, found that the outreach letters sent to homeowners were too complex to be understood by most people who received them.

It also criticized regulators for failing to provide homeowners with specific information about the amount of money that could be available to them, for making insufficient efforts to reach people who speak languages other than English and Spanish, and for failing to do more to distinguish the letters from mailers advertising mortgage scams.

“Because communication materials were not tested and were written at a high reading level, some eligible borrowers might have had difficulty understanding them,” stated the report from the Government Accountability Office. “To the extent the accessibility of the communication materials affects certain groups’ likelihood of responding, they may not have had a fair opportunity to request a foreclosure review.”

The report was directed at the Federal Reserve Board and the Office of the Comptroller of the Currency, the two agencies that are overseeing the foreclosure review process.

Last month the two agencies announced that payments to homeowners will range from $1,000 for cases where banks failed to provide homeowners with a timely notification about a government mortgage modification program to $125,000 in cases where borrowers wrongly lost their homes and will not be able to get them back.

At the same time, the agencies extended the deadline for homeowners to apply for relief by two months, until Sept. 30.

In its report on the agencies’ outreach efforts, the GAO made three specific recommendations for improvements.

First, it called on the agencies to make the application form that homeowners can access at indepdendentforeclosurereview.com more readable. The report found that the website is written at an eleventh-grade reading level, while nearly half of the adult population in the United States reads at or below an eighth-grade level.

Second, the report called on the agencies to require the mortgage servicers that are part of the foreclosure review process to include a range of potential monetary awards in their communications with homeowners.

And finally, the GAO report stated that the servicers should be required to analyze the responses they are receiving based on Zip codes, metropolitan areas, and various borrower characteristics to determine whether the outreach efforts are failing to reach certain groups.

“If such action cannot be taken prior to the deadline for requests for review, regulators should consider expanding the look-back review to better ensure coverage for underrepresented groups,” the report stated.

In its response to the report, the OCC noted that 193,630 people have submitted review forms, and also that a separate process of reviewing foreclosures is happening independent of the responses from homeowners. The agency also stated that it is in the process of addressing the GAO’s recommendations.

For its part, the Fed defended its outreach efforts to date, while saying that it will instruct servicers to take “reasonable steps” to improve their outreach efforts.

Democratic Rep. Maxine Waters, one of the lawmakers who requested the GAO report, said Thursday that the outreach materials provided to borrowers were written in technical legal language and included little information about the compensation that borrowers would be eligible to receive.

“I believe that this lack of clarity is one reason why, unless servicers change their approach, only a small fraction of eligible households will eventually be screened for any harm caused by improper foreclosures,” Waters said in a statement.

California Passes Homeowner Bill of Rights, Increases Liability for Servicers

By Kate Berry

JUL 3, 2012 7:38am ET

California lawmakers passed a package of foreclosure prevention bills Monday that will slow foreclosures, impose stricter rules on mortgage servicers and potentially raise the cost of getting a home loan in the most populous state.

The Homeowner Bill of Rights, sponsored by California Attorney General Kamala Harris, expands some of the requirements of the national mortgage settlement to all mortgage servicers in the state.

The state assembly approved the legislation by a 53-25 vote, and the Senate approved it by a 25-13 vote.

The legislation allows California homeowners to sue servicers to stop foreclosures under certain conditions or to seek monetary damages if the lenders intentionally or recklessly violate state law. Some lenders said the liability provision would lead to more lawsuits against servicers and force bank’s mortgage lending arms to raise borrowing costs.

The cornerstone of the legislation mirrored provisions of the national settlement earlier this year between federal regulators and the five largest servicers, including Ally Financial (ALLY), Bank of America (BAC), Citigroup (NYSE: C), JPMorgan Chase (JPM) and Wells Fargo (WFC).

The Foreclosure Reduction Act prohibits mortgage servicers from foreclosing on borrowers while they are pursuing loan modifications, a practice known as “dual-tracking.” The Due Process Rights Act requires a “single point of contact” for borrowers eligible for loan modifications. It also for the first time imposes civil penalties for “robo-signing,” the practice of signing foreclosure documents without verifying their accuracy.

The California Bankers Association opposed the legislation because it would encourage “frivolous litigation,” says Beth Mills, a spokeswoman for the trade group. She said the law also lacked clear language stating that there is no right to a loan modification. It also remains unclear how many times a borrower can request a loan mod.

But consumer advocates said the legislation will institute sensible reforms of banks’ foreclosure practices.

“This legislation finally brings some accountability to the banks for harmful foreclosure practices,” says Kevin Stein, associate director of the California Reinvestment Coalition. “Homeowners will now be able to protect themselves from the commonplace violations that banks have exhibited in this foreclosure crisis.”

Mortgage lenders and servicers say the law essentially turns California into a judicial foreclosure state, making it more difficult for banks to recover the underlying collateral in a property. There also is concern that borrowing costs would rise if Fannie Mae and Freddie Mac roll out different guarantee fees for judicial and non-judicial states.

Matt Ostrander, chief executive of Parkside Lending LLC, a San Francisco mortgage lender, described the situation as, “If someone came to you and said: “Hey, I have two borrowers that want to borrow $100. The first one gets to default and not pay you back for 3 to 5 years, and the other must pay you back within one year if they default. What do you want to charge each one for your hard-earned money?”

Christopher Thornberg, an economist at Beacon Economics, says the law will increase losses incurred by mortgage servicers when they have to foreclose.

“The evidence screams that this will do more harm than good by delaying foreclosures,” says Thornberg. “The law has all the wonderful warm fuzzies on the surface that politicians like even if it makes no economic sense whatsoever.”

Thornberg wrote in a report that there is no evidence to suggest that longer foreclosure timelines produce higher numbers of loan modifications or fewer delinquent borrowers moving into foreclosure. He argues that the large number of foreclosures in California is not attributable to misconduct by mortgage servicers but rather to “individuals who borrowed more than they could afford,” including those who took cash out of their home when they refinanced.

Only a few years ago, loose lending standards helped create a frenzy of buying activity in the state. The median price of a single-family home in California hit a peak of $519,714 in early 2007, up 84% from the first quarter of 2003, according to San Diego data provider DataQuick.

The law takes effect Jan. 1. Other bills still advancing through the state legislature include provisions to reduce blight, protect tenants in foreclosed properties, strengthen law enforcement response to mortgage fraud and allow the use of a statewide grand jury to prosecute complex, multi-jurisdictional fraud and crimes.

Sorry, SunTrust, MBA’s Stevens to Remain at Trade Group

By Kate Berry

JUL 2, 2012 9:30am ET

In a last-minute reversal, David H. Stevens, the president and chief executive of the Mortgage Bankers Association, will remain at the trade group rather than departing to run SunTrust Mortgage, as he announced plans to do a month ago.

It will be his last job change for the immediate future; Stevens, 55, has signed a long-term incentive package to lead the MBA for the next five years. Details of his compensation were not disclosed.

Stevens’ change of heart is as much a surprise as was his decision a year ago to join the MBA, leaving his job as commissioner of the Federal Housing Administration and assistant secretary for housing at the Department of Housing and Urban Development.

In an interview Sunday afternoon, Stevens said he was persuaded to remain in his current role last week, during an annual MBA chairman’s conference in Palm Beach, Fla.

“There was an overwhelming response from MBA members, large and small, and for what it’s worth, people were excited about the progress the MBA has made in the past year,” Stevens says. “I never would have made the decision to go to SunTrust had I expected this response, and I never expected the negotiations, as it were, to occur a couple of days before I was planning to leave. I underestimated what the impact was.”

Stevens was slated to take over SunTrust’s mortgage operations on July 16. He says MBA members first raised the possibility of his remaining on June 25, and negotiations continued over the next few days. Once he had decided to remain in his current post, he says he quickly informed senior executives at SunTrust Bank (STI), including CEO Jerome T. Lienhard, who was also at the MBA conference.

Lienhard “saw the pressure, and people came up and talked to him about it,” Stevens says. “Obviously they [Suntrust executives] weren’t pleased and I knew it would disrupt the excitement and changes going on there, and at the end of the day I made the call.”

Representatives for SunTrust did not return email and phone messages on Sunday.

SunTrust’s mortgage operations are still struggling with credit quality issues and repurchase requests, and the Atlanta bank has been trying to reshape the business. Last month, it appointed Peter E. Mahoney as executive vice president of mortgage strategy and Jack Wixted as executive vice president and chief risk officer.

Stevens said last month that he was attracted to SunTrust because it has “been able to take a look at both the legacy issues, which every bank is dealing with, and separate that from how they do the business on a go-forward basis.”

As an MBA member, the bank will continue to rely on Stevens and his trade group for representation. He admitted Sunday that the reversal was a surprise even to him, but said he had “the right to change his mind.”

Stevens, an articulate and knowledgeable spokesman for the mortgage industry, has been instrumental in adding new MBA members, including real estate investment trusts and lenders that had left the group years before. He also helped energize the trade group, which lost members during the mortgage meltdown and saw its reputation suffer in the aftermath, and helped frame the debate about upcoming regulations by focusing on consumer access to credit rather than the lending industry’s desire to loosen standards so its members could make more loans.

“The importance and significance of MBA’s voice during this critical time, coupled with Dave’s experience and talents, encouraged us to do all we could to retain him,” Michael Young, the MBA’s chairman, said in a press release scheduled to be published on Monday morning.

Stevens has raised eyebrows before with his career choices. He had been viewed as a driving force at HUD, which oversees the FHA, and was an advisor to the White House on housing policies before he jumped ship to join the mortgage industry trade group a year ago.

A series in American Banker last year examined emails suggesting Stevens maintained cozy ties to banks while leading the federal agency.

Stevens says his value to the MBA comes from what he calls his ability to understand and promote the mortgage business to outsiders, “and not have to read from crib notes.” He says that mortgage lenders convinced him that those skills were increasingly hard to find, and important to the industry during a period of major reforms.

“When I decided to go to SunTrust, I never expected the reaction I got,” Stevens says. “And it helped me realize there is a unique set of skills that requires maneuvering inside Washington, and for better or for worse I’ve developed unique skills that others haven’t. That recognition was thrust upon me. This isn’t just about one company, this is about the whole industry, and the fact that the industry felt I play such a unique role in that is flattering, and I can’t let them down.”