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.