In a report [PDF] released this morning, the GAO criticizes both the OCC and the Fed for providing “overly broad guidance and limited monitoring for consistency” to the review process, making it difficult to reach the reviews’ intended goals of identifying harmed borrowers and preventing homeowners from faulty foreclosures going forward. Additionally, GAO found that regulators were revising the already broad guidance throughout the process, resulting in delays.
The size of the project presented problems of its own, with as many as 4.3 million foreclosure files to be reviewed. Furthermore, the number of parties involved in the process — 14 servicers, 14 third-party consultant teams from 7 different consulting and accounting firms, some with subcontractors, and more than 10 third-party law firms — only made communication and consistency more difficult.
This lack of oversight and variety of review methods led to disparate results from the servicers involved. For example, the review process at JPMorgan Chase found errors that merited compensation to the borrower in only .6% of cases, while Wells Fargo’s review turned up 11%. It’s possible that these numbers are indeed accurate, but it’s impossible to know for sure, as the guidelines provided to reviewers were too broad.
One of the key issues was a lack of guidance when it came to sampling of servicers’ mortgage files. According to the report, third-party consultants were allowed to determine their own standards for sampling, with some reviewing as few as 100 loans per category with others sampling as many as 370.
“Without using objective measures to assess sampling or comparing review methods across consultants, regulators’ ability to monitor progress toward achievement of foreclosure review goals was hindered,” writes the GAO in the summary of its report. “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.”