Settlement Monitor, Looking to Avoid Conflicts, Seeks Out More Consultants

By Kevin Wack JUN 5, 2012 3:56pm ET

WASHINGTON – The job of determining whether the nation’s five largest mortgage servicers are complying with the landmark 49-state settlement will be divided between several private-sector consulting firms, the settlement’s monitor said Tuesday.

Joseph A. Smith Jr., the former North Carolina banking commissioner who is now the settlement’s monitor, said it does not make sense for a single consulting firm to be responsible for assisting him in the oversight of all five banks, in part because of conflicts of interest.

“We didn’t think that any single firm had the capacity and the independence to handle all of them at the same time,” Smith said in an interview.

Those comments came one day after Smith announced that he had selected BDO Consulting, a division of BDO USA, as the primary professional firm that will assist him.

The settlement documents envision only a role for a primary professional firm, but Smith said that he has decided to hire secondary firms as well. Each of those secondary firms (he did not specify how many will be hired) will be responsible for reviewing work plans submitted by the five servicers.

The five companies that are part of the estimated $25 billion settlement are Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial.

Part of BDO Consulting’s role will be to help develop uniform standards for determining whether the five banks are in compliance with the settlement agreement, which requires them to reduce principal on mortgages, among other provisions. The consulting firm will also help Smith as he selects the secondary firms, and later it will help oversee the work of the secondary firms.

Smith, who heads the Office of Mortgage Settlement Oversight, said that BDO Consulting was chosen from a list of dozens of interested firms in part because it has a track record on large public projects.

Most recently, the firm was hired by federal and state officials to conduct an independent analysis of the Gulf Coast Claims Facility, which was established to provide compensation to victims of the BP oil spill.

After being hired as the mortgage settlement’s monitor, Smith said in an April interview that he wanted to keep his own staff small while relying heavily on contractors to help him review the self-monitoring work that will be done by the five banks.

The process of selecting a contractor with sufficient independence from those five institutions was complicated by the fact that many of the large U.S. law firms and accounting firms have long-standing client relationships with the biggest banks.

BDO Consulting does not have anything approaching what would be considered a material conflict of interest, Smith said Tuesday.

“They don’t have much in the way of conflict with any of the servicers now involved in the settlement,” said Smith, who was hired in February by federal and state officials.

Carl Pergola, partner-in-charge of BDO’s consulting services, added in a separate interview, “We’re not aware of any active work that we provide for any of the five servicers.”

In terms of past work the firm has done for the five servicers, Pergola said that BDO did anti-money-laundering work for Washington Mutual, but the relationship ended around the time that JPMorgan bought WaMu in late 2008.

He also said that BDO was previously hired by counsel for Countrywide, but the work ended about three years ago, or roughly one year after Bank of America bought Countrywide.

Pergola said that BDO’s experience in the mortgage industry is one of the chief assets it brings to the monitoring work. The settlement stemmed from widespread allegations of robo-signing and other servicing abuses.

BDO, which provides tax, financial advisory and consulting services to companies, has done work for one of the 14 servicers. That work is part of a separate foreclosure review process being conducted by federal banking regulators, Pergola said.

But he said the servicer is not among the five that are part of the multistate settlement.