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80–706 PDF 2013

S. HRG. 113–14 

HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY AND 

TRANSPARENCY IN FORECLOSURE REVIEWS— 

PART II 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING, TRANSPORTATION, AND COMMUNITY 

DEVELOPMENT 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING THE EFFORTS TO ENHANCE TRANSPARENCY, ACCOUNTABILITY, AND CONSISTENCY IN BOTH THE INDEPENDENT FORECLOSURE REVIEW AND NATIONAL MORTGAGE SETTLEMENT 

APRIL 17, 2013 

Printed for the use of the Committee on Banking, Housing, and Urban Affairs 

( 

Available at: http://www.fdsys.gov/ 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

DAWN RATLIFF, Chief Clerk 

KELLY WISMER, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

ROBERT MENENDEZ, New Jersey, Chairman 

JERRY MORAN, Kansas, Ranking Republican Member 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

SHERROD BROWN, Ohio 

JEFF MERKLEY, Oregon 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

RICHARD C. SHELBY, Alabama 

MICHAEL PASSANTE, Subcommittee Staff Director 

WILLIAM RUDER, Republican Subcommittee Staff Director 

JASON LALLIS, Professional Staff Member 

(II)

C O N T E N T S 

WEDNESDAY, APRIL 17, 2013 

Page 

Opening statement of Chairman Menendez .......................................................... 1 

Opening statements, comments, or prepared statements of: 

Senator Moran .................................................................................................. 17 

WITNESSES 

Lawrance L. Evans, Jr., Director, Financial Markets and Community Investment, Government Accountability Office ........................................................... 3 

Prepared statement .......................................................................................... 23 

Joseph A. Smith, Jr., Monitor of the National Mortgage Settlement ................. 4 

Prepared statement .......................................................................................... 40 

David Holland, Executive Vice President, Rust Consulting ................................ 6 

Prepared statement .......................................................................................... 43 

Responses to written questions of: 

Senator Reed .............................................................................................. 51 

Deborah Goldberg, Special Project Director, National Fair Housing Alliance ... 7 

Prepared statement .......................................................................................... 44 

(III)

(1) 

HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY 

AND TRANSPARENCY IN FORECLOSURE REVIEWS—PART II 

WEDNESDAY, APRIL 17, 2013 

U.S. SENATE, SUBCOMMITTEE ON HOUSING, TRANSPORTATION, AND

COMMUNITY DEVELOPMENT, COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, Washington, DC. 

The Subcommittee convened at 10:05 a.m., in room SD–538, 

Dirksen Senate Office Building, Hon. Robert Menendez, Chairman 

of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ 

Chairman MENENDEZ. Good morning. This hearing of the Subcommittee on Housing, Transportation, and Community Development will come to order. Let me thank you all for being here. I 

know that Senator Moran, the Ranking Member, will be here in 

short order. 

Today’s hearing is about ‘‘Helping Homeowners Harmed by Foreclosures and Ensuring Accountability and Transparency in Foreclosure Reviews.’’ This issue is important to every homeowner, especially those harmed by illegal foreclosure practices. It is of particular concern to countless New Jerseyans who have contacted my 

office, almost all with heartwrenching stories about their experiences going through the foreclosure process, stories in many cases 

of being either mistreated, neglected, and in some cases insulted 

and embarrassed by their mortgage servicers. 

In response to illegal foreclosure practices, regulators and the 

Nation’s five largest servicers announced a National Mortgage Settlement in February of 2012. As part of the settlement, servicers 

are to provide about $25 billion of relief to homeowners and individuals who were victims of such illegal practices. 

The Federal Reserve Board and the Office of the Comptroller of 

the Currency also announced the Independent Foreclosure Review 

process with 14 mortgage servicers. The goal of the IFR was to 

identify as many harmed borrowers as possible, to treat similarly 

situated borrowers across all 14 services in a consistent manner, 

and to help restore public confidence in the mortgage market. But 

challenges and the complexity of the IFR prevailed and regulators 

and 13 of the mortgage servicers abandoned the IFR process in 

2 

January of this year and instead agreed to a new framework that 

would no longer evaluate each mortgage for actual harm. 

As we attempt to correct these past illegal foreclosures, we must 

have transparency, consistency, and accountability. After being 

hard hit by the foreclosure crisis and other economic woes, American homeowners expect and deserve confidence in the mortgage 

market, and it is our job to give them that confidence. 

First, we must learn from the mistakes of the past, remain committed to not repeating them in the future. So I asked the Government Accountability Office to conduct a study on the IFR, focusing 

on challenges to the achievement of the goals of the reviews, transparency of the process, and lessons that could be learned moving 

forward. 

It has been nearly 2 years since the Consent Orders were signed, 

and in that time, over a billion dollars went to third party consultants. But affected borrowers received nothing, even when there was 

documented evidence of bad practices. There is certainly plenty of 

blame to go around, but the American people will not accept excuses for the failures of our regulators. They expect our regulators 

to be up to the task, fully capable of overcoming the challenges of 

these settlements, and effective oversight of our financial system 

should be the number one priority. 

Over 4.5 million people were potentially impacted by these illegal 

foreclosure abuses and they deserve our best efforts and attention. 

The time to act is now, and that is why we are here today, to get 

to the bottom of some of these important issues. 

So let me, in the absence of any Member at this point to be here, 

let me start introducing our panel. Mr. Lawrance Evans is the Director of Financial Markets and Community Investment at the 

Government Accountability Office. He directs a body of work in the 

area of banking and financial intermediation, including leading efforts on the GAO study of the Independent Foreclosure Review. In 

his prior role as a Lead eConomist, he managed a diverse portfolio 

at GAO which included engagements on TARP, Dodd-Frank’s bank 

capital provisions, and Sarbanes-Oxley. So we thank you for your 

work and we look forward to your testimony. 

Mr. Joseph Smith is the Monitor of the National Mortgage Settlement, which was announced in February of 2012 by 49 State Attorneys General and the Federal Government to provide $25 billion 

in relief for distressed borrowers. 

Mr. David Holland is the Executive Vice President of Rust Consulting, Incorporated, a contractor that does outreach to homeowners for the foreclosure reviews and is administering the payments for the amended Consent Agreement for the IFR. 

And Ms. Deborah Goldberg is the Special Project Director at the 

National Fair Housing Alliance, where she advocates before Congress and Federal regulatory agencies on predatory lending and 

sustainable home ownership issues. 

So, let me thank you all for appearing today. We look forward 

to getting your perspective on the situation and your view on the 

approach moving forward. I am going to ask each of you, in the 

order that I introduced you, to synthesize your statement for about 

5 minutes or so. Without objection, all of your entire statements 

3 

will be entered into the record, and then we look forward to having 

a conversation with you. 

Mr. Evans. 

STATEMENT OF LAWRANCE L. EVANS, JR., DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. EVANS. Thank you. Chairman Menendez, I am pleased to be 

here this morning to discuss GAO’s ongoing assessment of the 

Independent Foreclosure Review. My remarks today are based on 

our March 2013 report, developed in response to the amended Consent Orders that replaced the IFR for most servicers with a broader 

framework that will provide cash payments to all eligible borrowers. 

The IFR was intended to identify as many harmed borrowers as 

possible, to ensure consistent treatment and to help restore public 

confidence in the mortgage market. Our report highlighted issues 

stemming from insufficient planning, monitoring, and communication that impeded the regulators’ ability to achieve the stated goals. 

I will briefly review our key findings, including lessons learned, 

which, if leveraged properly, can lead to better outcomes for the ongoing reviews and activities under the payment agreements. 

First, it is important to note that the IFR was, indeed, unprecedented, and the size and scope of the operation posed significant 

challenges to regulators. There were 4.3 million eligible borrowers 

across 14 different servicers, seven consultants, and ten law firms. 

The foreclosure files themselves were sizable and touched on a 

large number of complex issues, ranging from State and Federal 

laws to Loan Modification Program guidelines. In testimony before 

the Senate law week, both OCC and the Federal Reserve noted 

that they underestimated the scale, scope, and complexity of the reviews. 

Second, while some issues were inevitable, these challenges were 

exacerbated by overly broad guidance and limited monitoring for 

the consistency and sufficiency of the consultants’ review activities. 

For example, lack of clarity in sampling guidance resulted in variations in methodologies used by consultants which would have limited the ability of regulators to aggregate the results and pull together a statistically valid description of the extent of errors in 

foreclosure processing. Moreover, the guidance did not include 

mechanisms to facilitate oversight of the extent to which consultants would have identified as many harmed borrowers as possible 

or targeted the appropriate high-risk categories. 

In general, these issues limited the types of information regulators could know and report and increased the risk of inconsistent 

results for similarly situated borrowers. Overall, regulators missed 

opportunities to develop common criteria or reference documents to 

help consultants navigate complexities involving State foreclosure 

law and loss mitigation activities, among other issues. In absence 

of such guidance, consultants developed their own test questions to 

determine harm and potential remediation, again, raising the risk 

of inconsistent treatment. 

Third, the absence of timely and useful communication at certain 

stages of the process undermined public confidence in the reviews. 

4 

Although regulators released more information that is typically associated with Consent Orders, borrowers and the general public received limited information about the status of the reviews. Also, 

some stakeholders perceived informational gaps that raised concerns about how the reviews were being executed and the process 

for determining error and remediation. 

Last, several issues emerged as lessons learned for regulators. 

Most notably, we observed that advance planning can enhance 

project design and better ensure the achievement of goals. Important here is appropriate consultation with stakeholders and establishing mechanisms to systematically monitor progress toward 

goals. Consultation with organizations directly responsible for, or 

familiar with, particular aspects of the review before initiating the 

IFR may have allowed regulators to define the scope of activities 

more appropriately and issue more complete guidance. Had regulators incorporated monitoring mechanisms into the design, they 

would have been better equipped to produce reliable and relevant 

data for oversight and management. In the absence of systematic 

processes to monitor activities, regulators did not have an early 

warning mechanism to help identify problem areas. 

While the goals of the IFR were hampered, it is possible that the 

regulators could have taken steps to address some of these issues. 

In fact, regulators took a number of steps during the process to foster consistency. However, such actions are second best to up-front 

planning, as they increase the risk of further delays, rework, including the retraining of reviewers. 

The final lesson learned is that transparency is essential for public confidence, and advance planning should give consideration to 

the types of data required to credibly communicate useful information to the intended audience. Unfortunately, the regulators are 

limited in what they can report because they did not plan for reporting in the design of the reviews. 

Based on these findings, we offered three recommendations to 

the regulators aimed at using lessons learned to improve outcomes 

for the ongoing reviews and activities under the amended Consent 

Orders. Both OCC and the Federal Reserve were receptive to all 

three. 

Chairman Menendez and Members of the Subcommittee, this 

concludes my prepared statement. I will be happy to answer any 

questions you may have. 

Chairman MENENDEZ. Thank you. 

Mr. Smith. 

STATEMENT OF JOSEPH A. SMITH, JR., MONITOR OF THE 

NATIONAL MORTGAGE SETTLEMENT 

Mr. SMITH. Chairman Menendez, Senator Merkley, good morning. Thank you for inviting me to testify about the implementation 

of the National Mortgage Settlement. 

In April 2012, the National Mortgage Settlement went into effect 

when the United States District Court for the District of Columbia 

entered five separate consent judgments that settled claims of improper mortgage servicing practices against five major mortgage 

servicing organizations, Bank of America, Citi, Chase, the ResCap 

parties, which are the former GMAC, and Wells Fargo. GovernVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
5 

ment parties to the settlement included the Departments of HUD 

and Justice, Attorneys General from 49 States and the District of 

Columbia, various State financial services regulatory agencies, and 

other releasing parties, including the CFPB and Treasury. 

The settlement can be divided into three parts: Direct payments 

to borrowers and States, consumer relief, and servicing standards. 

While I have no oversight over the direct payments, I am responsible for reviewing and certifying the discharge of the servicers’ 

consumer relief obligations and monitoring implementation of the 

servicing standards. I am subject to oversight by a monitoring committee that is comprised of representatives of the Departments of 

HUD and Justice and representatives of 15 States. 

Under the settlement, the servicers have agreed to provide specific dollar amounts of relief to distressed borrowers within a 3- 

year period. In February, the servicers reported that during 2012, 

550,000 borrowers benefited from some type of consumer relief, totaling $46 billion, which, on average, represents about $83,000 per 

borrower. The kinds of consumer relief for which a servicer can receive credit under the settlement are set out in detail in the consent judgments, and the credit varies based on the relief given. For 

that reason, the gross dollar amounts of relief the servicers reported far exceeds the total credited obligations under the settlement. 

To date, only the ResCap parties have requested a determination 

that they have completed their consumer relief obligations. In February of this year, after a review of their performance, I issued a 

report to the court that they had satisfied their minimum consumer 

relief obligations and partially satisfied their mandatory solicitation obligations under the settlement. 

In addition to consumer relief, the settlement establishes 304 

servicing standards, or rules of conduct, to which the servicers 

must adhere. Each servicer has been responsible for compliance 

with the standards since October of 2012. There are servicing 

standards related to document integrity, the loan modification process, dual tracking, single points of contact, and other customer 

service and more general requirements. 

Under the settlement, I measure servicer compliance with the 

servicing standards through 29 metrics, or tests. The servicers conduct these tests internally and report the results to me. Assisted 

by independent professionals in my employ, I assess the work of 

servicers and report my conclusions. If the Internal Review Groups 

or I find noncompliance with the standards, the servicer has to implement a corrective action plan and, in the case of widespread 

error, to remediate. If it cannot or will not correct the potential violations, injunctions or civil penalties can be sought through the 

United States District Court for the District of Columbia. 

My independent professionals and I are nearing completion of 

our reviews of servicer compliance with the metrics through yearend 2012 and intend to issue our report on it to the court and the 

public next month. Our work will continue over the next 2 years. 

To help me better understand the settlement’s impact in the 

marketplace, my colleagues and I closely review complaints we receive through my office as well as the complaints elected officials 

submit to the banks. I also have met with the Attorneys General, 

6 

consumers, and professionals who represent them in a number of 

hard-hit States. As a result of what I have heard from consumers 

and professionals, I am now working with the banks to establish 

additional metrics to address what I have learned. 

In closing, the settlement has been successful in what I believe 

is a worthwhile effort, focusing resources on a specific problem in 

a targeted, time-limited way that augments and supports the work 

of policy makers and Government agencies. I look forward to continuing my work toward that goal and I welcome your questions. 

Thank you very much, Senators. 

Chairman MENENDEZ. Thank you. 

Mr. Holland. 

STATEMENT OF DAVID HOLLAND, EXECUTIVE VICE 

PRESIDENT, RUST CONSULTING 

Mr. HOLLAND. Senator, or Chairman Menendez, Senator 

Merkley, thank you for the opportunity to appear today on behalf 

of Rust Consulting. 

Rust Consulting has been engaged by the servicers to administer 

certain aspects of the Alternative Resolution Settlement, as directed by the Office of the Comptroller of the Currency and the 

Federal Reserve Board. Previously, Rust was engaged by the 

servicers to administer the Consent Orders for the Independent 

Mortgage Foreclosure Borrower Outreach Project, also known as 

the Independent Foreclosure Review or IFR. 

Under the IFR Consent Orders, our responsibilities were to notify homeowners about the program, to answer their questions, to 

review their requests for review forms, and to handle in- and outbound mail. From November 2011 through December 2012, we executed three mass mailings to homeowners along with a series of 

media notice campaigns. Over the same period and through January 2013, we received completed requests for review forms and forwarded them to the servicers. 

We were recently engaged by 11 of the 14 original servicers, 

along with two additional servicers, to serve as a paying agent 

under the Alternative Resolution Settlement. Our responsibilities 

under the settlement are to notify homeowners about the program, 

answer their questions, and distribute settlement payments in the 

form of checks to eligible homeowners. 

Rust mailed postcards on March 18, 2013, informing eligible 

homeowners that they were to receive a payment as a result of the 

settlement. Also, we received relevant settlement data from 

servicers that identified loan classifications for each individual 

loan, and subsequently received data from the OCC and FRB detailing the payment amounts for each loan classification. 

The first wave of checks were mailed on Friday, April 12. Yesterday, we became aware of check cashing issues that some payees encountered and we are addressing those issues and will have solutions in place today and on a go-forward basis. The majority of the 

remaining checks will be mailed in three more waves occurring on 

April 19, April 26, and May 3. 

Rust continues to staff a call center to take incoming calls from 

homeowners with questions about the program. We also updated 

7 

the IFR Web site to provide new information regarding the settlement. 

At the direction of the servicers, the OCC, and the FRB, Rust implemented a number of address correction processes in order to 

maximize the number of homeowners who receive notice as part of 

the IFR. Rust will continue to use address correction processes 

under the settlement. In both projects, the National Change of Address process was used to update addresses. And as part of the 

IFR, Rust received ‘‘undeliverable’’ notices, ran the corresponding 

addresses through a ‘‘skip-trace’’ program, and remailed notices to 

new addresses. For any of the remailed notices that were returned 

as undeliverable a second time, Rust performed another second 

type of address search and again remailed notices to new addresses. 

Under the settlement, Rust will receive undeliverable checks, attempt to find better addresses, and remail checks to new addresses. 

During the IFR process, Rust provided comprehensive daily statistical reporting to the OCC, the FRB, independent consultants, 

and the servicers. Daily meetings were held with a consortium of 

the 14 servicers and independent consultants that covered the current state of project execution, future deliverables, and next phase 

planning. 

As part of the settlement, Rust provides comprehensive daily statistical reporting to the OCC, the FRB, and the servicers. Daily 

conference calls are held with the servicers covering project execution. Two times weekly, conference calls are held with the OCC and 

the FRB covering project execution and future deliverables. 

Thank you. I would be happy to answer your questions. 

Chairman MENENDEZ. Thank you. 

Ms. Goldberg. 

STATEMENT OF DEBORAH GOLDBERG, SPECIAL PROJECT 

DIRECTOR, NATIONAL FAIR HOUSING ALLIANCE 

Ms. GOLDBERG. Thank you, Mr. Chairman. Mr. Chairman and 

Senator Merkley, thank you for inviting me here today to testify, 

and thank you, too, for your engagement in this issue. You have 

brought much needed attention and oversight to the Independent 

Foreclosure Review process. 

The IFR is the only real Federal effort to identify and compensate borrowers who were harmed by their mortgage servicers 

when their loans became unsustainable and they needed help to 

save their homes. While this and other programs seek to prevent 

future foreclosures, the IFR stands alone as an effort to begin to 

make borrowers whole. This is significant because of the harm 

caused by the foreclosure crisis. 

While foreclosures have affected virtually every community, certain communities have suffered more than others. During the heyday of subprime lending, communities of color were flooded with 

unsustainable subprime loans. Borrowers who should have gotten 

safer, cheaper prime loans were given subprime loans because they 

were more profitable. This happened to borrowers of color much 

more often than to white borrowers. Not surprisingly, these borrowers have suffered much higher rates of foreclosure and they and 

their neighbors have lost tremendous wealth as a result. 

8 

We hoped the IFR would begin to set things right, but from the 

beginning, it has been plagued with a lack of transparency and accountability that has undermined its success. It has failed to identify borrowers who suffered harm and in doing so to shed light on 

the nature and extent of the problems in the mortgage servicing industry. It has not provided adequate compensation to borrowers, 

and to date, it has failed to bring about the kind of servicing reforms that are needed to prevent future unnecessary foreclosures. 

With the announcement of the new settlement in January, the 

IFR game has changed. With the rest of my time, I would like to 

highlight some concerns with the settlement’s $5.7 billion worth of 

noncash assistance and some ways in which the regulators can increase the positive impact of their Consent Orders. 

So this so-called soft dollar side of the IFR agreement is similar 

to the structure of the National Mortgage Settlement, or NMS. Unfortunately, the particulars differ from the NMS in three key ways 

that severely deflate the value and limit the impact of these soft 

dollars. 

First, it fails to make saving homes a priority. It places loan 

modifications, which can save homes, on an equal footing with 

short sales and deeds-in-lieu, which do not. 

Second, it gives the servicers credit based not on the amount of 

loan principal they forgive, but on the unpaid balance of the loan. 

This creates an incentive to modify loans with large balances because that is the fastest way for the servicers to get the most credit. It will likely mean that many fewer loans are modified than 

could have been the case. 

And third, this approach places borrowers of color and low- and 

moderate-income borrowers at a disadvantage because they tend to 

live in communities where home values and loan balances are 

smaller. Modifying their loans will put the servicers on a slower 

road to meeting their soft dollar goals. 

We are very disappointed that the settlement was structured this 

way and we are concerned that many homes that could have been 

saved from foreclosure will be lost. However, there are two areas 

in which we believe the regulators can still make a positive impact 

in implementation of the IFR Settlement. 

The first is the area of transparency. We had asked the regulators to make public detailed information about who is getting 

help as a result of this settlement, both through the direct cash 

payments and the noncash assistance. These data must be broken 

out by servicer and by census tract so that the public can see 

whether the communities that have suffered the most are getting 

the assistance they need and deserve. The timely release of such 

information will help to hold the servicers accountable. It is also 

necessary to begin to rebuild public confidence in our regulatory 

system. 

The second is the area of oversight. Despite all of the servicing 

rules that have been written and all of the scrutiny to which 

servicers have been subject, mortgage servicing abuses remain all 

too common. They must be brought to an end so that the millions 

of homeowners still at risk of foreclosure can get the help they are 

supposed to get to save their homes. By stepping up their oversight 

and enforcement, the regulators can help accomplish this goal. 

9 

Recently, the regulators have shown some interest in exploring 

these recommendations. I am hopeful that they will do so and that 

they will put them into action. But as long as problems persist in 

the mortgage servicing industry, we need you in Congress to keep 

up the pressure and continue your oversight. There are still some 

gaps in the servicing rules that must be closed, such as protections 

for people with limited proficiency in English, borrowers with disabilities, and the widows and heirs of deceased homeowners who 

cannot get help from their servicers. We look forward to working 

with you and the regulators to address these problems. 

Thank you again for the opportunity to testify today. I look forward to your questions. 

Chairman MERKLEY. Well, thank you all very much, and we will 

start with a round of questions. 

Mr. Evans, the report by the Government Accountability Office 

found the following things. Correct me if I am wrong in any of 

them. 

Mr. EVANS. OK. 

Chairman MENENDEZ. The goals of IFR to identify as many 

harmed borrowers as possible and ensure similar results for similar 

borrowers were not met. 

The regulator guidance did not specify key sampling parameters 

to consultants for file review, resulting in delays and difficulty assessing borrower harm. 

Limited communication with borrowers and the public adversely 

impacted transparency and public confidence. 

Regulators considerably see more data, but express concerns that 

doing so might disclose private information. 

Borrowers face significant gaps in promised review documentation from regulators and consultants, with some waiting over a 

year. 

No standard sampling method or process between servicers or 

other independent consultants led to reduced reliability of data. 

Regulators stopped the IFR process without having a sufficient 

and objective method—a sufficient and objective method—to determine if the proper number of reviews had been sampled to uncover 

borrowers harmed. 

Limited regulator monitoring and inconsistencies in consulting 

methodology increased the risk of treating borrowers with similar 

types of harm differently. 

And regulators did not rely on stakeholder consultation enough, 

such as housing counselors, community groups with expertise in 

loss mitigation and loan modifications. 

Is that an accurate synthesis of the GAO report? 

Mr. EVANS. I think so, in general. There are just a few technical 

notes I will make. 

Chairman MENENDEZ. OK. 

Mr. EVANS. The regulators—the rationale that they gave us for 

stopping the Independent Foreclosure Review were concerns about 

potential outcomes, and they wanted to get money out quickly to 

potentially harmed borrowers. So we, in our report, we say that the 

achievement of the goals were hindered by a number of missteps 

by the regulators. 

10 

Chairman MENENDEZ. So let me ask you, and maybe Ms. Goldberg, one of the main purposes of the review was to have data to 

enable you to tell the bank had a particular kind of file or type of 

mistake that it was repeating so you could dig deeper into their 

other files. Since the OCC and the Federal Reserve abandoned the 

review, to what extent will they be able to further examine whether certain banks committed systematic errors in their foreclosures 

based on either preliminary results or based on information that 

they gathered through regular bank examinations or other sources? 

Mr. EVANS. And I think that is the right question, and I think 

there—— 

Chairman MENENDEZ. I only ask the right questions. 

[Laughter.] 

Chairman MENENDEZ. I am just kidding. 

Mr. EVANS. I will—— 

Chairman MENENDEZ. I think it is an important question, 

though. 

Mr. EVANS. It is, and I think that is a good place for me to assert 

that any information based on the IFR at this point should be 

deemed incomplete, and the data does not allow us to render any 

conclusions about error rates at a particular servicer or make comparisons across servicers despite what has been reported in the 

press. There were different degrees of completion across the 

servicers, variations in the type of files that were reviewed, and 

also, even if it were complete, depending on the sampling methods 

used, it is possible that this information would still have limits. So 

it is impossible to draw any inferences about the data because they 

are not representative. So we are limited in terms of what we actually know. 

Now, the regulators could have additional information, additional 

judgments that may help them make decisions about safety and 

soundness and corrective actions, but at this point, we have not 

done that type of work to determine what we know and whether 

it is statistically valid. 

Chairman MENENDEZ. Is that information that would be accessible to you if we asked you and charged you to do that? 

Mr. EVANS. As part of our ongoing review, we will start to look 

at those issues. We are more than willing to discuss with your staff 

the protocols governing our audit documentation, including any 

legal or privacy considerations, such as those concerning banking 

information, or any agency determinations that might be relevant. 

But we will continue to do this work for you and have conversations with your staff. 

Chairman MENENDEZ. Thank you. 

Ms. Goldberg, do you have any comments about this? 

Ms. GOLDBERG. Yes. I would add one thing, which is that one 

concern we had all along with the methodology was the potential 

problem that the files themselves would not be enough to understand the problems that borrowers experienced. 

So, for example, one of the most common problems that borrowers encountered was servicers losing their documents and having to resubmit them over and over and over again, or borrowers 

being told the wrong information. You have to stop making payVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
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ments before we can consider you for a loan modification, you 

know, things along those lines. 

And it is not clear that anybody examining just the files would 

be able to tease out that kind of information and understand those 

kinds of errors. And in order to do that, what is really necessary 

is for whoever is doing the review to be talking, at least in selective 

cases, to homeowners themselves or to the advisers who work with 

them, housing counselors or attorneys. 

That is something that never happened as part of this process. 

It would be wonderful if it were to happen as part of a follow-up 

review, because I think you are completely right that getting to the 

bottom of this and understanding more clearly what problems actually took place, you know, how widespread they were, where, what 

borrowers were affected, is a really important lesson for us to be 

able to take away from this whole crisis in order to prevent it from 

happening again. 

Chairman MENENDEZ. I have a whole host of questions, but one 

more before I turn to Senator Merkley. 

The OCC and the Federal Reserve determined that $8.5 billion 

would be enough to cover the harm caused to borrowers, yet we 

know from the GAO study that there were numerous issues with 

sampling and instructions to the independent consultants. So how 

could the OCC and the Federal Reserve possibly determine that 

$8.5 billion, which would include $3.6 billion in direct payments to 

borrowers, is enough money to help these victims? 

Mr. EVANS. That question was outside the scope of this particular study, but it is a question that we will be considering going 

forward. 

Chairman MENENDEZ. Well, it is a question that we are going to 

look to work with you. I know that Congressman Waters also has 

joined us in this effort from the House side. I really want to know 

that, because if people went through harm, then at the end of the 

day, you have to have the resources to address the harm. And to 

come to a figure that is defective, from my perspective, because you 

do not have the sound science, so to speak, to make that determination, is, at best, a guess. 

Ms. Goldberg, do you have any comment on that? 

Ms. GOLDBERG. I would say it is probably a lowball guess. 

Chairman MENENDEZ. OK. Senator Merkley. 

Chairman MERKLEY. Thank you very much, Mr. Chairman, and 

thank you all for your testimony. 

Mr. Smith, I wanted to start with a feature that was well publicized of the National Mortgage Settlement which said, in many 

cases, banks essentially wrote off the second loan that they had in 

the portfolio while not lowering the first loan, which was the bulk 

of the challenge for the homeowner. They did this for families that 

essentially had a foreclosure, in other words, did little to help the 

homeowner. How did this process of basically acting only for the 

loan you hold and not for the one that would affect the core of the 

family’s success come about? Why was that acceptable? 

Mr. SMITH. Well, Senator, the question you asked is important. 

The structure of the settlement itself was—I got it—I am administering it the way I found it. And so the settlement allows for different valuations, credits for different kinds of second loan forgiveVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
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ness. The highest credits would be for performing loans or for loans 

where there is a—where it is done in conjunction with a first loan 

reduction so that you have more affordability. But the data does 

not show that a lot of that has been done to date. 

The settlement does permit credit—at ten cents on the dollar, by 

the way, not dollar-for-dollar—for expungement of second liens as 

a goal in the effort—what the settlement documents say is to increase the prospects for future home ownership by the borrower. 

It has been brought to my attention and it has been in the public 

domain, a discussion about the issue of whether, in certain circumstances, a second lien release does the borrower any good. I 

will say the fact that a loan has been written down, of course, does 

not mean it is—the loan itself is still a legal obligation of the borrower, even after foreclosure in and of itself, in some States, not 

all, it would be an obligation. So it is not clear that it will not always benefit the borrower. 

But I think what the settlement does do is to credit second lien 

forgiveness most where they do the most good from the perspective 

of the question you just asked and least where it does the least 

good, and that is about all I can say to answer your question. 

Chairman MERKLEY. Thank you. 

Mr. Holland, I want to turn to the consultants who worked on 

the IFR. We had testimony in front of Sherrod Brown’s subcommittee that the folks, the consultants who worked on it, had no 

idea how it was that individual homeowners got placed into different categories of possible financial harm. It is my understanding 

that that decision was actually made by servicers. How is it that 

the consultants who were doing the reviews had no idea of how individual homeowners got into different categories of financial 

harm? 

Mr. HOLLAND. When you say consultants, are you talking about 

the independent consultants? 

Chairman MERKLEY. That is my understanding, yes. 

Mr. HOLLAND. I do not have knowledge of how that process, or 

how that process came about. We received the categorizations directly from the servicers and the OCC provided us with the dollar 

amounts that corresponded to those categorizations. 

Chairman MERKLEY. How would the servicers who had not been 

the ones reviewing the files and had been essentially at the heart 

of so many pieces of this function possibly be a responsible party 

for putting people into categories of harm? 

Mr. HOLLAND. I do not know. I do not have an answer for that 

question. I was not involved in that process. 

Chairman MERKLEY. Ms. Goldberg. 

Ms. GOLDBERG. I would like to correct one thing, Senator 

Merkley—— 

Chairman MERKLEY. Great. Thank you. 

Ms. GOLDBERG. ——which is that when the independent reviews 

were stopped, the decision was made not to find harm, not to worry 

about finding harm. So the categories, as I understand it, the categories that borrowers were placed in for purposes of payments was 

based on how far along they had gotten in the loss mitigation process or the foreclosure process with their servicer. 

13 

So the fact that a particular borrower was in a particular category was not a reflection of whether they were actually harmed, 

but just kind of what stage of the process they had gotten to. 

Chairman MERKLEY. I see. 

Ms. GOLDBERG. But I think your fundamental question is a very 

good one. If we know that the servicers made the mistakes to begin 

with and we know that their systems were highly flawed, putting 

them in the position of slotting people into different categories 

seems unwise. 

Chairman MERKLEY. Ms. Goldberg, when this IFR was announced, we had a hearing to have it explained to us and I raised 

the question on how is it that homeowners would feel confidence 

that their condition was going to be reviewed when they had had 

so many frustrating experiences to date and that the reviewers 

were being hired not by an independent strategy, but by the banks 

themselves, and that these reviewers were not third party, that 

they had clear financial connections to the banks themselves. I 

think then the fact that homeowners were promised a review and 

did not get the review just kind of, if you look at it from the street 

level, it seems like just one more farce. Is this far off the mark? 

That is a technical term, ‘‘farce.’’ 

[Laughter.] 

Ms. GOLDBERG. Well, I would say that the feedback that we hear 

is a lot of frustration and disappointment and confusion from borrowers on the street who, I think, do not have confidence that this 

process played out in a fair and evenhanded manner. 

Chairman MERKLEY. I have more questions, but I am over my 

time, so I will kick it back to the Chair. 

Chairman MENENDEZ. Well, we will go through another round. 

Let me ask, Ms. Goldberg, if the settlement provides around $5.5 

billion in other forms of consumer mortgage-related relief, such as 

loan modifications and principal reduction—some people refer to 

that as soft dollars—so I would like to hear, to the extent that you 

know, more about how those soft dollars are being used to keep 

borrowers in their homes and how lenders are being credited under 

the IFR Settlement for taking such actions. For example, if a borrower has a $200,000 mortgage and receives $20,000 in mortgage 

relief, how is that relief calculated under the IFR Settlement? And 

are servicers doing all they can to keep homeowners in their 

homes? 

And I would like to get a sense from Mr. Smith from the National Mortgage Settlement, how are those soft dollars calculated 

for that purpose under your settlement, and could you explain how 

each category is credited? 

Ms. GOLDBERG. Thank you, Mr. Chairman. So, this process has 

not actually started yet, at least to the best of my belief, and I am 

not sure what the launch date will be, but we will get, hopefully, 

more information as time goes by. 

But in terms of the way it is structured, what we know is that 

there are some specified categories of activity for which the 

servicers will get dollar-for-dollar credit. So that includes principal 

reduction, you know, loan modifications with principal reduction on 

first liens and second liens, short sales, and deeds-in-lieu of foreclosure. So for those four categories of activity, they will get dollarVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
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for-dollar credit. So that is a difference from the National Mortgage 

Settlement, and Mr. Smith can explain those details much more accurately than I. 

And in addition, another difference from the National Mortgage 

Settlement is that rather than getting credit for the amount—so let 

us take a loan modification—the amount by which the principal is 

reduced, the $20,000 in your example, servicers will get credit for 

the full unpaid principal balance of that loan, or the $200,000 in 

your example. So the borrower is still going to owe $180,000, and 

presumably with a loan modification will be able to repay that 

$180,000, and the $20,000 is really the benefit that they have experienced, but the servicer is going to get credit for the entire 

$200,000. 

Chairman MENENDEZ. What is the public policy idea behind 

that? 

Ms. GOLDBERG. I cannot answer that question. I cannot answer 

that question. I think that raises a lot of very serious concerns, 

some of which I mentioned in my testimony. And for us, one of the 

key ones is that—— 

Chairman MENENDEZ. If I can get ten times my investment of 

write-off, I would like to have that opportunity. 

Ms. GOLDBERG. Right. And it certainly would encourage you, if 

you were the servicer, to do the biggest loans—you know, work on 

the biggest loans that you can because that is going to be the fastest route to meeting your goal, whatever that might be, for your 

soft dollar credits. 

The downside of that is that the communities that we know experienced the most harm, low- and moderate-income communities 

and communities of color, where housing prices are lower and, 

therefore, loan balances are lower, it is going to take more of those 

loans to get to the same soft dollar goal, and the chances are too 

big in our estimation that those loans will be put aside. That is not 

where the priority will be focused, and instead it will be the higherincome, higher-balance loans that will get the first cut at the help. 

Chairman MENENDEZ. That is a real concern. That is a real concern. 

Mr. Smith, how does it work under your—— 

Mr. SMITH. Very well. Under the National Mortgage Settlement, 

there are certain categories of relief that are required to be not less 

than a certain percentage of total relief. And I would like to exclude, for a moment, only because it is somewhat separate, refinancing assistance is also required in each of the settlements, a 

specific dollar amount based on—there is a formula there, but it is 

essentially a multiplier based on yearly interest savings, or multiplied by a multiplier affecting the remaining maturity of the loan. 

So that is—the principal forgiveness must comprise 60 percent of 

the total relief, soft dollar relief, credited otherwise, and I would 

like to emphasize credited because this is important. So, for example—and half of that 60 percent has to be first lien principal forgiveness. 

Now, somewhat to Senator Merkley’s point before. If a bank is 

a servicer and owner of a loan and forgives—and the loan has less 

than a 175 percent loan-to-value—I am going to simplify this 

slightly—but it is less than 175 percent LTV, owned and serviced— 

15 

let us say $45,000 is written down, $45,000 of credit is given. So 

the amount of relief and the credited amount are the same. If, on 

the other hand, a bank has originated a loan, is still servicing it, 

sells it into a securitization, to get $45,000 of credit, it has to write 

down $100,000. In other words, it is 45 cents on the dollar. 

So that the thought, again, was—the theory, as I understand 

was, there was a concern about servicers getting credit for loans 

not owned by them. And so, at the very least, what the settlement 

does is to give less credit for that—in that circumstance. There is 

a different crediting for more than 175 percent. 

Second liens, which have been discussed—forgiveness of a loan 

that is less than 90 days past due, or 90 days delinquent, which 

is different—delinquent—is 90 cents on the dollar. Ninety-one to 

179 days is 50 cents on the dollar. And as I was saying before, 180 

days or more past due is ten cents on the dollar. 

So, again—but the amounts credited have to be—60 percent of 

the credited relief has to be principal forgiveness, and half of that, 

at least, has to be first lien principal. 

In the case of ResCap, which we just did, actually, it was more 

than 50 percent was first lien forgiveness—— 

Chairman MENENDEZ. Well, that appears to be a far more equitable process than—— 

Mr. SMITH. And it goes on—and I could go on, but it is pages. 

But, I mean, for each category of relief, I do think—you can argue 

about the price, you can argue about the number of cents on the 

dollar, but I do think the settlement attempts to give credit that 

mirrors the benefit to the borrower, roughly, in a pretty good—— 

Chairman MENENDEZ. And that should, in my mind, be the principle. 

Ms. GOLDBERG. And if I could add one thing, Senator, one other 

difference is—so Mr. Smith talked about the 60 percent of the credits under the National Mortgage Settlement have to be for principal reduction on first lien, right? That is what you said? 

Mr. SMITH. Well, on the total. Thirty percent has to be—— 

Ms. GOLDBERG. OK. There is no kind of limits like that under the 

IFR settlement. So it would be possible for a servicer to meet their 

entire goal by doing short sales and deeds-in-lieu and be within the 

bounds of the settlement, as it is written. 

Chairman MENENDEZ. And that would not necessarily maximize 

the goal of keeping people in their homes. 

Ms. GOLDBERG. It would not. 

Chairman MENENDEZ. Senator Merkley. 

Chairman MERKLEY. Thank you very much, Mr. Chairman. 

I wanted to continue on this same issue. In your testimony, Ms. 

Goldberg, on page ten, you note that on a loan with an unpaid balance of $500,000, a loan modification that provides any amount of 

principal reduction, be that $1,000 or $10,000 or $100,000, yields 

$500,000 worth of credit for the servicers. It is hard for anyone 

apart from this process to truly believe that if you do a $1,000 reduction, you get $500,000 credit. Yet are you saying, absolutely, 

that is the way it works? 

Ms. GOLDBERG. That is what it says in the settlement. I have to 

say, Senator, that when I first read the settlement, I did not pick 

that up because it was so hard for me to believe it could be strucVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
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tured that way, as well. But, in fact, that is the wording of the settlement. 

Chairman MERKLEY. Mr. Holland, is this accurate, to your 

knowledge? 

Mr. HOLLAND. I have no knowledge of the way the settlement 

was written. In our role, you know, we have the administrative 

back-office tasks at hand—mailing, phone calls—— 

Chairman MERKLEY. But you have heard this issue. You have 

not found anything that contradicts what Ms. Goldberg has said? 

Mr. HOLLAND. No. No, I have not. 

Chairman MERKLEY. OK. Well, I would just like to point out that the roughly $6 billion in soft money that is in the settlement, at 

that 500-to-one rate, that is reduced down to $12 million. Six billion goes to $12 million. That is a vast difference. 

Now, you have pointed out, Ms. Goldberg, that this creates a 

pure incentive to do reductions on large loans. Now, I live in a 

working class neighborhood, three-bedroom ranch houses. There 

are no $500,000 mortgages where I live because there are no 

$500,000 houses. So your point in your testimony is that working 

class communities, and certainly communities of color, are essentially—there is an incentive to kind of bypass them. Why would the 

Fed and the OCC agree to a structure that allows a 500-to-one or 

more—for that matter, it could have been one dollar under the argument you are making rather than a thousand—why would they 

agree to such a fictitious form of accounting and a structure that 

incentivizes the bypassing of working Americans in this whole 

process? 

Ms. GOLDBERG. I think that is an excellent question, Senator 

Merkley. I am afraid I cannot answer it. It would be a good question to ask them to explain. 

Chairman MERKLEY. Has anyone at the OCC or Fed explained, 

given a rational explanation of what they were possibly thinking? 

Ms. GOLDBERG. At one point, I heard one person say that they 

believed that this structure accurately reflected the value of the assistance that the borrower received. That is the only explanation 

that I have heard, and it is not one that I find credible. 

Chairman MERKLEY. Well, I am not sure how a borrower who 

gets $1,000 relief would feel they had gotten $500,000 of relief. 

Ms. GOLDBERG. That is right. 

Chairman MERKLEY. Well, and it is our working class neighborhoods that have been hit so hard, and in our communities of color 

where folks might have been more recent homeowners and had less 

equity, they were not in a case of losing a share of their equity. 

They were losing their entire house, and that brings us to the third 

point you have raised, which is that, essentially, there is no emphasis on saving the family, that a short sale gets the same value as 

preventing a foreclosure. 

Ms. GOLDBERG. That is correct. 

Chairman MERKLEY. Why would a settlement intended and publicized to help the homeowner put the same weight on a situation 

where a family loses a home as on a situation when a family is able 

to keep their home? 

Ms. GOLDBERG. That is another excellent question to which I do 

not have an answer, and it is really because of those flaws, which 

17 

we view as being extremely serious and severely undermining the 

potential benefit of this settlement, that—it is a done deal, right. 

The ink has dried on these settlements and I do not have this 

sense that there is any desire on the part of either the regulators 

or the servicers to go back and renegotiate them. 

And so for us, that means it is really important to try and think 

about the places where something good can be rescued from this, 

and we see the two avenues to that being putting detailed information about who is getting help out there in the public arena, doing 

it regularly and in a timely fashion so that all of us can see who 

is and is not getting help and—— 

Chairman MERKLEY. So you are asking for—— 

Ms. GOLDBERG. ——and hope to help to shape that a little bit. 

Chairman MERKLEY. You are asking for data on a census tract 

basis—— 

Ms. GOLDBERG. That is right. 

Chairman MERKLEY. ——so this can truly be evaluated, which is 

transparency and accountability. 

Ms. GOLDBERG. That is right. 

Chairman MERKLEY. Is that guaranteed now, or does that require some future decision, and where would that decision-making 

power lie? 

Ms. GOLDBERG. So, as I understand it, and I think as is actually 

reflected in the settlement itself, the servicers are required to report on a 45-day schedule to the regulators. I believe that they are 

still in the process of deciding which information that they will ask 

servicers to collect and report. And they have told us they are prepared to put some data out there in the public arena, but we do 

not know yet exactly what that will look like or how often that will 

be made available to the public, you know, when and how often. 

Chairman MERKLEY. Mr. Chairman, I would be interested in 

pursuing this in partnership with you, that we should ask for such 

data to be part of this process for at least evaluation, looking back 

at what worked and what did not. Thank you. 

Chairman MENENDEZ. Thank you. I am in agreement with the 

Senator. I will be happy to work with him. 

Let me recognize our distinguished Ranking Member, Senator 

Moran, for any comments or questions. 

STATEMENT OF SENATOR JERRY MORAN 

Senator MORAN. Mr. Chairman, thank you. 

I apologize for my lack of presence this morning. I am also the 

Ranking Member on an Appropriations Subcommittee that is meeting this morning with Secretary Duncan. But I wanted to at least 

make an appearance here at our first Subcommittee hearing and 

express my desire to be an active and full participant in this Subcommittee. I look forward to working with you, Mr. Chairman. Real 

estate, housing, is such an important component of the economy, 

but on a personal level, so important to individuals and their lives, 

their families. 

And so I am only here for a few moments to make certain that 

you and others understand the desire on my part to work with you, 

to see that our Subcommittee fulfills its responsibility in oversight 

as well as in pursuing legislative proposals to meet the real estate 

18 

and housing needs of our country. I look forward to working with 

you, Chairman Menendez. 

Chairman MENENDEZ. Well, thank you very much, and we look 

forward to working with you, as well, and to our robust agenda 

that hopefully can continue to spur our housing market and solidify 

those who are in their homes, try to keep as many as possible and 

continue to make this a cornerstone of our American success for 

families. So thank you for coming by today. 

I have another question or two, if I may. 

The Foreclosure Review Payment Agreement provides almost two 

times the amount of relief to borrowers who requested a review 

compared to those who did not. In my previous hearing and 

throughout this process, I have expressed concerns about outreach 

efforts to our underbanked communities, and without 

documentations from these reviews, I believe it is safe to say we 

still do not know whether folks in these communities, who were 

greatly impacted, were ever aware of their right to review. 

So my question is, are we giving the borrowers who may have 

never been contacted, therefore, who never requested a file review, 

the short end of the stick by offering them almost half of the relief 

as those who did request a review? Did you have any experience 

with that, Ms. Goldberg? 

Ms. GOLDBERG. Yes. Thank you, Senator. So I think the GAO did 

an excellent job of outlining some of the problems in the outreach 

efforts around particularly the request for review part of the Independent Foreclosure Review, and we certainly had lots of concerns 

about communities in which people just were not aware that this 

process was going on. And I suspect if you stopped the average person on the street today, most of them would never have heard of 

the Independent Foreclosure Review. 

I think as the result of the GAO’s work, late in the game, the 

regulators made some very helpful changes in the way that they 

were doing outreach, in particular, working much more closely with 

community groups who could reach directly into the communities 

where response rates had been low and do a better job of making 

sure people knew that they had the opportunity to file a request 

for review. 

And, indeed, in the last, I guess, 6 weeks or so of the year, right 

before the final deadline, the number of requests that came in went 

up significantly. But even at its high point, it was only, as I understand it, a little bit over 500,000 folks who filed a request for review out of four-point-some-odd million. So it is still 11 percent or 

something like that of the overall in-scope population who ever 

filed a request for review. 

And my guess is that a great many people just never knew that 

was an option. They certainly, even if they knew it was an option, 

they did not know that it would have any impact on the amount 

of compensation that they would receive because that decision was 

not made until after the deadline passed to file a request for review. 

So I have a grave concern about the level of differential in payment that is being awarded to people who filed a request for review 

and those who did not. As you point out, in many cases, it is douVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
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ble, and I think there are a lot of people who never knew this was 

an option for them who are suffering as a result. 

Chairman MENENDEZ. As do I. If you knew that a review was 

likely to result in an increase in the relief that you received, then, 

number one, if you knew about the review process—— 

Ms. GOLDBERG. Right. 

Chairman MENENDEZ. ——and, second, you knew that as a metric it would be more likely that you would receive greater relief, 

then it would be overwhelming that people would respond to receive the greater relief. 

Ms. GOLDBERG. You would think so. 

Chairman MENENDEZ. So this is a part of transparency that 

lacks here, because had that standard been set, we would have 

known. Mr. Evans, did you find this in your GAO report? 

Mr. EVANS. Well, what I can say here is that, in terms of the recommendations we offered about the borrower outreach, the regulators did respond by targeting communities based on various characteristics, and they did increase their outreach efforts in terms of 

the print advertisements, the radio and television spots. And they 

also did some type of market analysis to identify areas and ethnic 

groups—— 

Chairman MENENDEZ. This is as a result of your—— 

Mr. EVANS. As a result of our recommendations. So that is someplace we can give the regulators credit, but—— 

Chairman MENENDEZ. All right. So let me—in the same vein, let 

me follow with Mr. Holland and Mr. Smith. I do not want you to 

feel out of the conversation, Mr. Holland, so I have a few. There 

is a reason you are here. 

I understand it is a very large undertaking for your firm, and 

certainly the pressure on getting these payments out in a proficient 

manner, so I appreciate you coming before the Committee today. 

But as you may know, the IFR had many flaws related to outreach, 

to materials, to assistance for those who speak languages other 

than English as their man language. Can you provide an update 

on the efforts that your company is taking to make sure we do not 

make the same mistakes this time around as we did with the IFR? 

For example, what channels are available to homeowners who 

contact Rust if they have questions or issues that need to be addressed? What steps or action plans are in place to actively or effectively communicate with borrowers? If somebody calls Rust and 

English is not their dominant language, are there other language 

abilities to be dealt with? Give me a sense of how you are working 

your job of this. 

Mr. HOLLAND. Right. We have a call center and we are taking 

calls currently from people who have received the postcard notice 

as part of the settlement. And now, our first wave of checks that 

went out on Friday. So we do have the phone bank ready to answer 

any and all questions that we get from affected borrowers. 

We have on-site Spanish-speaking operators that can assist 

Spanish-speaking people. And there is a process by where we can 

use a third party to help translate, I believe it is up to 200 languages, if somebody calls and has a language that we are not supporting live with Spanish or English. And we can get an operator 

on the phone that can help them. 

20 

In terms of your other question about are we making efforts to 

reach out to people, we have had the data, the mailing data for this 

group of people going back to the IFR, and it went through several 

levels of mailing address correction that we performed. So when we 

had the settlement, we started with that address information and, 

once again, ran it through the National Change of Address data 

base, and we are mailing checks to the best address that we have 

currently. 

Some of those will be returned as undeliverable and we will 

make other attempts to find better address information for those 

that are undeliverable. And there is nothing in place yet, but we 

have had conversations about taking additional steps beyond what 

we have done in terms of address trace. We could implement an 

outbound calling program, email blasts. There are all sorts of 

things that may be available to us, nothing set yet, but those discussions are happening. 

Chairman MENENDEZ. Those are discussions with the servicers? 

Mr. HOLLAND. With the OCC and the FRB. 

Chairman MENENDEZ. With the OCC and the FRB. 

Mr. HOLLAND. And to the extent that, you know, even to the extent that somebody may receive a check and lose it, we will have 

information from the bank that shows us which checks are cleared, 

which checks are not. The regulators have said they want to leave 

the account open for up to 2 years, so that will give us ample time 

to even investigate those who do not cash checks, and then we can 

reach out to them to make sure that they received it and they get 

a chance to cash it. 

Chairman MENENDEZ. Mr. Smith, with the National Mortgage 

Settlement, it required those five major mortgage servicers to comply with extensive servicing standards, including requiring a single 

point of contact for borrowers, adequate staffing levels and training, better communication with borrowers, appropriate standards 

for executing documents in foreclosure cases, ending improper fees, 

ending dual-track foreclosures for many loans. 

Now, there have been some reports that there are abuses that 

are still occurring, even for borrowers that are part of the settlement. Can you provide an update on what you are seeing and hearing as it relates to these mortgage servicing standards. How far 

along have the lenders come in terms of implementing the new 

standards, and give us a sense of how that is moving forward. 

Mr. SMITH. I will, Senator. Well, the standards were in place effective October 2nd or 3rd, 2012, so they are all to be applicable 

now. A thing that needs to be understood about the settlement is 

that my enforcement capacity, as I said in my written and oral testimony, is based on metrics which are tests of particular aspects of 

the standards. 

We will issue our first report—we intend to issue a report on our 

initial testing of that performance in May. I mean, I say ‘‘intend’’ 

only because these are—we are doing a very thorough job, and if 

I have learned one thing from what I have heard today, it is do not 

rush to judgment. We are going to be sure we do a thorough job 

before we issue a report to the court and to the public. But I think 

I am hopeful that it will get done by the end of May. This will give 

us the beginning of insight based on sampling under the settleVerDate Nov 24 2008 11:25 Jun 14, 2013 Jkt 048080 PO 00000 Frm 00024 Fmt 6633 Sfmt 6633 L:\HEARINGS 2013\04-17 Z DISTILLER\41713.TXT JASON
21 

ment, which, by the way, will be done under consistent standards 

that will be comparable across servicers. So we will be able to compare performance. And so I am hopeful that will begin to be some 

answers for you. 

In our work this year, and because I have gone out and talked 

to a number of people who represent distressed borrowers, we believe we need additional metrics, that the metrics we have are 

good, but we need to fill in some spaces, and so I am hopeful within 

the next month, also, to get some additional metrics out, including 

an additional one on—we have one on single point of contact that 

will be tested, will be in our first report. We need more. The metric 

is OK, but it needs supplementation. And I think in a couple of 

other topics, we will do the same thing. 

I think it is—I will tell you about a conversation one of my colleagues—to answer your question, generally, how they are doing, 

one of my colleagues, Josh Stein, had a Skype conversation with 

New Jersey advocates and counselors this last week. And what he 

heard were two things, and I want to make sure I will tell you 

both. 

The first was that they are beginning to see an increase in responsiveness by the servicers over what they had experienced in 

the past. Quicker responses. They may not like the responses, but 

they are getting it quicker. Less lost documents. Less static. Not 

no static, but less. They did not say they were satisfied. There are 

still issues of concern and contention that need to be worked out. 

We have got a long way to go. 

And so I think the fair thing to say is, I believe we are better 

off now than we were a year ago as a result—at least with regard 

to the five, as a result of the settlement. But I am not declaring 

victory. I think we have got a lot more work. 

Chairman MENENDEZ. And just to follow up on your answer, all 

the elements that I mentioned that are part of the settlement, do 

you have metrics as it relates to all of those elements? 

Mr. SMITH. No. I cannot honestly say that. I think the metrics— 

I think it is fair to say that the metrics cover a broad enough representation of what is required under the settlement to be pretty 

representative. But the short answer to your question is there 

are—I have got it here, actually—113 of the 304 are mapped to 

particular—of the standards are mapped to metrics. That leaves a 

number not mapped. So what we are doing, Senator, I think it is 

fair to say, is to give, I believe, a good insight and a good—we will 

give a good representation of where the servicers are. But it is supplemental to what their primary regulators, what the CFPB and 

others need to be doing going forward. 

Chairman MENENDEZ. So let me close with one other question to 

you, which is in line with some of what we are talking about. I understand that most of the information that you are now able to report has been self-reported by the banks. Is that accurate? 

Mr. SMITH. Yes. 

Chairman MENENDEZ. OK. And while I am somewhat troubled 

by that idea, because that has not been a particularly good record 

by some of these institutions, can you explain what authority you 

have as the monitor to verify the information you receive from 

these servicers? How are you able to determine from the data that 

22 

your most recent reports will be accurate? And is there any policy 

in place that would allow you to verify information in cases where 

you felt the self-reporting data lacked accuracy? 

Mr. SMITH. Yes. The short answer—first, the self-reporting is the 

servicer, that is to say the firm, reports responses to these metrics, 

the questions on the metrics test. The servicers are required by the 

settlement to establish an Internal Review Group, which is to be 

separate from the mortgage servicing and the mortgage line of 

business. So it is—I would analogize it to the independent audit capacity in most organizations, which is to report separately outside 

the business operation. 

That Independent Review Group will itself assess whether it 

agrees. It will test itself and will test whether it agrees with the 

servicer’s assertion of compliance or if—of compliance. I then have 

an accounting firm of my own which reviews the work papers that 

the IRG has produced and has the capacity—and we have done additional tests and we have asked additional questions and we are 

going to—we are doing our best to tease out of all what we have 

gotten, all the information you can get to assure that what they are 

telling us is true. The one reason I cannot tell you for sure we are 

going to report in May is because we having prayer, shall I say, 

over a bunch of items now with regard to some of the servicers. 

So we will—we are—what we have got is what I would say is a 

targeted approach to determining compliance. But we are going to 

do our very best to assure that we get everything we can out of 

that process and publicly report it so you can review and see what 

you think, how you think we did. I mean, I think—I am under no 

illusion that what we report will not be widely read and discussed, 

and that is good. That is intentional. 

Chairman MENENDEZ. Well, I can assure you it will be widely 

read by this Committee, so—— 

Mr. SMITH. I am sure it will. 

Chairman MENENDEZ. Let me thank you all for your testimony. 

It has been very elucidating in many respects. I have real concerns, 

as I have expressed early on to the regulators about this, and unfortunately, my concerns that were expressed going back some time 

ended up being, unfortunately, the reality. 

It is the intention of this Committee to continue to pursue all the 

elements of this as we move forward with the regulators. I think 

that Ms. Goldberg’s suggestions, making the best of what we have 

right now, are important ones and we look forward to pursuing 

that, as well. At the end of the day, those who were harmed should 

have the appropriate relief. They should know what that relief can 

be. They should be able to maximize that relief, and it seems to me 

a little perverse that you can get a lot—that the servicers, the institutions can get a lot but do a little in comparative ways, much 

different than the National Mortgage Settlement process. So those 

are real concerns to me as the Chair and I will look forward to continuing to pursue these. This record will remain open for 2 days for 

any Members who have questions for the record. 

And with the thanks of the Committee, this hearing is adjourned. 

[Whereupon, at 11:12 a.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 

23 

PREPARED STATEMENT OF LAWRENCE L. EVANS, JR. 

DIRECTOR, FINANCIAL MARKETS AND COMMUNITY INVESTMENT, GOVERNMENT

ACCOUNTABILITY OFFICE

APRIL 17, 2013 


41713001.eps
24 


41713002.eps

Chairman Menendez, Ranking Member Moran, and Members of the 

Subcommittee: 

I am pleased to be here today to discuss the Independent Foreclosure 

Review process . In April 2011, the Office of the Comptroller of the 

Currency (OCC) , the Board of Governors of the Federal Reserve System 

(Federal Reserve), and the Office of Thrift Supervision (OTS) issued 

consent orders against 14 mortgage servicers. These orders required the 

servicers to engage third-party consultants to review servicers' loan files 

to identify borrowe rs who had suffered financial harm due to errors, 

misreprese ntations, or other deficiencies in foreclosure processing and 

recommend remediation for the harms these borrowers suffered. 1 

Roughly 4.3 million borrowers who were in some stage of foreclosure in 

2009 and 2010 were eligible for the foreclosure review. 2 As of December 

2012, consu~ants had more than 800,000 loans slated for review. In 

January 2013, the regulators announced agreements that led to amended 

consent orders with 11 of the 14 servicers to discontinue foreclosure 

reviews and replace the reviews h a compensation framework that 

does not rely on determinations of whether borrowers suffered financial 

1The 14 servicers that entered into consent orders 'Nith OCC, OTS, and/or Federal 

Reserve were All y Financial, Inc. ; Aurora Bank, FSB; Bank of America, N.A.; Citibank, 

N.A.; EverBank Financial Corp.; HSBC Bank USA, N.A.; JPMorgan Chase, N.A. ; Metlife 

Bank, N.A.; OneWest Bank, FSB; PNC Bank, N.A.; Sovereign Bank; SunTrust Bank, Inc.; 

U.S. Bank, N.A.; and Wells Fargo Bank, N.A. and their affiliates or acquired loan servicing 

companies. The Federal Deposit Insurance Corporation (FDIC) was also a party to the 

Federal Reserve's order 'Nith Ally Financial (GMAC Mortgage). The Dodd-Frank Wall 

Street Reform and Consumer Protection Act, Pub. L. No. 111-203, §§ 311-313, 124 Stat. 

1376, 1520-1523 (2010), eliminated OTS and transferred its regulatory responsibilities to 

OCC, FDIC, and the Federal Reserve. The transfer of these powers was completed on 

July 21 , 2011 , and OTS was officially dissolved 90 days later (Oct. 19, 2011). 

2Borrowers were eligible to be included in the foreclosure review and have their loan files 

reviewed for errors if foreclosure actions took place on their primary residences between 

January 1, 2009 and December 31 , 2010, by one of the participating servicers. 

Page 1 GAO-13-550T 
25 


41713003.eps

harm.s The remaining 3 servicers, covering 450,000 borrowers (10 

percent), are continuing with the foreclosure review \f1A)rk.4 

My remarks today are based on our March 2013 report on the 

implementation of the foreclosure review and lessons learned that can be 

applied to the aclivities required by the amended consent orders and 

ongoing foreclosure reviev..s ' My statement addresses (1) challenges to 

the achievement of the goals of the foreclosure review, (2) the extent of 

transparency in the foreclosure review process , and (3) lessons that could 

be useful for the activities under the amended consent orders and 

continuing reviews. As noted in our report, we Vve re in the process of 

reviewing other aspects of the foreclosure review when ace and the 

Federal Reserve announced the agreements. Neither our report nor this 

statement assesses the regulators' rationale for accepting the 

agreements nor any trade-offs involved in the regulators' choice to amend 

the consent orders with the servicers . 

In summary, we found the following : 

Regulators' ability to achieve the goals of the foreclosure review was 

affecled by the complexity of the reviev..s , as well as by overly broad 

SOCC and the Federal Reserve announced on January 7, 2013, that they had reached 

agreements 'Nith 10 mortgage servicers. Those servicers are Aurora, Bank of America, 

Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and 

Wells Fargo. On January 18, 2013, oee and Federal Reserve announced that an 

agreement had been reached with HSBC. While not part of the original consent orders 

issued in April 2011 , two additional institutions, Goldman Sachs (Litton Loan Servicing, 

LP) and Morgan Stanley (Saxon Mortgage Services, Inc.), also entered into consent 

orders 'Nith the Federal Reserve in 2012 that required a foreclosure review for deficient 

practices in mortgage loan servicing and foreclosure processing. The Federal Reserve 

announced on January 16, 2013, that it had reached agreements 'Nith these tv>.o servicers. 

Collectively, these 13 servicers are identified as the participating servicers in the 

agreements; however, Goldman Sachs and Morgan Stanley ......ere outside the scope of our 

study because they were not part of the original 2011 consent orders. 

4-rhe servicers not participating in the agreements are Ally Financial (GMAC Mortgage), 

EverBank, and OneWest. 

5GAO, Foreclosure Review: Lessons Learned Could Enhance Continuing Reviews and 

Activities Under the Amended Consent Orders, GAO·13·277 (Washington, D.C .. Mar. 26, 

2013). This report represents the second phase of our examination of the foreclosure 

review process. In a previous report, we reviewed servicers' outreach efforts to inform 

borrowers of the foreclosure rev-iew, see GAO, Foreclosure Review: Opportunities Exist to 

Furlher Enhance Borrower Outreach Efforls, GAO·12·776 (Washington, D.C.: June 29, 

2012). 

Page 2 GAO·13-550T 
26 


41713004.eps

regulator-issued guidance and limited monitoring for the consistency 

and sufficiency of consultants' review activities. For example, 

regulators' statistical sampling approach did not include mechanisms 

to allow the regulators to monitor consultants' progress toward finding 

as many harmed borrowers as possible. Our prior work has ident~ied 

practices, such as assessing progress tovvard goals and designing 

monitoring during the planning stage of a project, as effective 

management practices' In addition, the Office of Management and 

Budget (OMB) has found that in planning data analysis activities, such 

as sampling, agencies should take necessary steps to ensure that 

they have collected the appropriate data from which to draw 

conclusions. 7 Without using objective measures to compare review 

methods or assess sampling among consultants, regulators' ability to 

monttor progress toward achievement of foreclosure review goals was 

hindered. 

Although regulators publicly released mere information on the 

foreclosure review process than is typically disclosed in connection 

with a consent order, the absence of timely and useful communication 

to the general public and individual borrowers at certain stages of the 

process impacted transparency and public confidence. To promote 

transparency, oee and the Federal Reserve released redacted 

engagement letters between servicers and consultants, among other 

documents. Hovvever, some stakeholders felt there vvere gaps in the 

publicly released information, including the lack of detailed information 

on how the revievvs were to be carried out. In addition, although 

borrovvers who requested revievvs under the foreclosure review 

process received an acknowledgement letter, some borrovvers did not 

receive updates on their request for almost a year after the program 

was launched. 

6See GAO, Agency Performance Plans: Examples of Practices that Can Improve 

Usefulness to Decisionmakers, GAO/GGD/AIMD-99-69 (Washington, D.C .. Feb. 26, 1999) 

and Executive Guide: Effectively Implementing the Government Performance and Results 

Act, GAO/GGD-96-118 (Washington, D.C.: June 1996). These reports identify and 

describe practices to improve the usefulness of agencies' annual performance plans and 

successful ly implement results-oriented-management initiatives. 

70MB, Standards and Guidelines for Statistical Surveys (Washington, D.C .. September 

2006). This document provides 20 standards that apply to work with the statistical 

purposes of describing, estimating, or analyzing the characteristics of groups, segments, 

activities, or geographic areas. 

Page 3 GAO-13-550T 
27 


41713005.eps

The foreclosure review experience revealed lessons related to 

planning, monitoring, and communication that could help inform 

regulators' implementation of the amended consent orders and the 

remaining foreclosure revievvs. In our prior work , we found that 

assessing lessons learned from previous experiences, such as 

through discussions with key participants and stakeholders, and 

applying these lessons can help strengthen future activities. 8 Without 

assessing and applying relevant lessons learned, regulators might not 

address similar challenges in activities under the amended consent 

orders or in the continuing revievvs. In particular, regulators 

announced the agreements that led to the amended consent orders 

without a clear communication strategy, including determining what 

information to provide to borrowers. GAO's internal control standards 

and our work related to best practices indicate that an effective 

communication strategy and timely reporting can enhance 

transparency and public confidence.

9 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. 

Based on our findings, we recommended that Dec and the Federal 

Reserve improve oversight of sampling and consistency in the continuing 

revievvs; apply lessons in planning and monitoring, as appropriate, to the 

activities of the amended consent orders and continuing revievvs; and 

implement a communication strategy to keep stakeholders informed. The 

regulators agreed to take steps to implement these recommendations. 

For our March 2013 report, on which this testimony is based, we analyzed 

consultants' sampling plans; reviewed relevant documents from 

8GAO, Federal Real Property Security: Interagency Security Committee Should 

Implement a Lessons-Learned Process, GAO-12-901 (.Washington, D.C.: Sept. 10, 2012) 

and NASA: Better Mechanisms Needed for Sharing Lessons-Learned, GAO-02-195 

(.Washington, D.C .. Jan. 30, 2002). 

9See GAO, Standards for Internal Controls, GAO/AIMD-OO-21.3.1 (Washington, D.C.: 

November 1999), Troubled Asset Relief Program: One Year Later, Actions Are Needed to 

Address Remaining Transparency and AccountabJJity Challenges, GAO-1 0-16 

(Washington, D.C.: Oct. 8, 20(0); Troubled Asset Relief Program: Additional Actions 

Needed to Better Ensure Integrity, Accountability, and Transparency, GAO-09-161 

(Washington, D.C .. Dec. 2, 2008); Troubled Asset Relief Program: Status of Efforts to 

Address Transparency and AccountabJJity Issues, GAO-09-539T (Washington, D.C.: Mar. 

31, 2009); and Troubled Asset Relief Program: June 2009 Status of Efforts to Address 

Transparency and Accountability Issues, GAO-09-658 (Washington, D.C.: June 17, 2009). 

Pag e 4 GAO-13-550T 
28 


41713006.eps

Background 

regulalors, such as regulalor-issued guoance 10 third-party consulanls, 

law firms, and local exanination teams, describing sleps taken to foster 

consistency; reviewed regulators' communication materials; and 

interviewed five consultant teams, regulator staff, and consumer groups. 

We then compared this information and these parties' actions to criteria, 

such as Ihe regulalors' slandard practices and policies, regulalors' goals 

for Ihe reviellS, and our previous v.ork. For Ihose Ihird-party consulants 

we did nol inlervow, we oblained written inforrml"n from Ihem 10 

address our object. es. We conducted Ihe performance aud~ on v.!lich 

Ihis slalemenl is based from July 20121hrough March 2013 in 

accordance Vwith generally accepted government aud ing standards. 

In Seplember 2010, allegalions surfaced Ihal several servicers' 

documents accompanying udic~ 1 forec",sures rmy have been 

inappropriate~ signed or notarized. 10 In response to this and other 

servicing issues, federal banking regulalors conducted a coordinaled onsile revow of 14 of Ihe .rgesl mortgage serv"ers 10 evaluale Ihe 

adequacy of the controls over servicers' foreclosure processes and 

assess servicers' policies and procedures for compliance \Wh applicable 

federal and state laws. On the basis of their findings, the regulators 

issued Ihe April 2011 consenl orders againsllhese serv<ers thai required 

Ihe serv"ers 10 conduct Ihe foredosure review, among olher Ihings." In 

January 2013, OCC and Ihe Federal Reserve reached agreemenls v.;lh 

11 of the 14 mortgage servicing companiessubject 10 Ihe April 2011 

consenl orders 10 disconlinue Ihe foredosure reviellS and 10 provide 

approxirmlely $3.4 billion in direct payments 10 eligible borrowers. These 

agreements were formalized in amended consenl orders Ihalthe 

regulalors released in lale February 2013. As shown in lable 1, I>iIh Iho 

change from the foreclosure review to an agreed-upon payment process, 

regulators and servicers shifted from identifying the types and extent of 

lGrhis practice, v.t1ich includes bank employees or contractors automatically sjgning 

forecbsure documents withoot verifying the details contained in the papel'Mlrk or the 

validity of the aoco an~1l9 affidavits, became 'Nidely knO'Ml as 'robo-signing.' Failure to 

reviewdocurrenls filed in connection "";th a judicial foreclosure may vk;ilate consumer 

protectDn and foreclosure laws, v.t1ich vary by state and wtlich establish certain 

procedures that mortgage servicers must fonowv.tlen condocting forecbsures 

liThe foreclosure review process had tv.o components: a process for eligible borrov.ers to 

request a review of their particular circumstances (referred to as the t;o r~r outreach 

process) and a review of cate(pries of files (referred to as the look-back review). 

Page 5 GAO·I3-55OT 
29 


41713007.eps

harm borrowers may have experienced to instead focus on assigning all 

eligible borro'Ners into categories based on objective criteria. In addition, 

under the amended consent orders, the servicers also ",II prov.e 

approximately $5.4 billion in foreclosure prevention assistance to 

borrowers, such as .an modil.ations. ConsuHants lor the serv.ers that 

did not reach agreements with the regulators continue their foreclosure 

review activities. 

Table 1: Comparison of Borrower Payment Oetenninations between the Foreclosure Review and Amended Consent Orders 

Purpose of payment 

8orrov.ers assessed 

Categorization process 

Categorization crrteria 

Payment categor~s 

Foreclosure review Am ended consent orders 

Remediate borrowers v.fio suffered financial Provide cash payments to all el igible borrov.ers 

harm as a resuH of servicer errors, 

misrepresentations, or other deficienciesa 

Sample of ~i bl e borrowers plus all borl'Oll!ers All eligible borrov.ers 

in certain categories, including borrowers who 

submitted a request.for.revieVl' 

ConsuHant reviews loan files for errors and 

categorizes borrowers 

Type of financial harm resulting from identified 

servicer error 

Borrowers may be l~i ble for payment in 

multiple categories of harm 

Servicer reviev.s information in their systems 

and categorizes borrowersc 

8orrov.er and loan characrertstics 

8orrov.ers bl e for payment in one category 

S<:me GK! ~\ III ocr;nj Feliilri!l R~erw r1b:malKll'l 

.... ilOitoo\:l (\rod: r»JITIOOlS. boIrM«> I'ti(lllJf«w Ininlal ~ mil\' roce..e otI!rl)peos ofr_~all(:I1. IlrlI ~ CIITOCtOO of 

cre;ilrepi)~ (l", IIfli<l ~tle , JeSOSliOO oIl1le bradosae 

'R~!~SlonedIt'lrlli'«tiCOOSl1tlxtstousesa~ agtJlio r\!alt ~dllSth;i' ~coraJtl!nl5'nli!I 

~rd)%ofsall~MIoil~'IiilrIlMffi"('f$.(l)rwliJll>"~fIjl~.M OWl ~liJl<iy;lI<llIto!I);j~1 1;.-1 \OO'JIlJ~!ilase 

'n rTI:j~ Mel, I~, .. ttl r89Jale<s' awwaI, er>medthe l'''~(X'fI';Lllartl \:l ~ Wro"'lrs' ~ellltw<l caeg.l.lle> 

(Serv~Il'b!l;o.iI RlliefM.OO(fllredo\edbom:.o!l;Mo\'lOlralldi'ld<mt )ll deterTrule...,ether~e:penencedlhlle 

lpoJQlct\l)eslllrorm 

Complexities of the 

Foreclosure Review 

Process and 

Limitations in 

Regulators' Guidance 

and Monitoring May 

Have Hindered 

Achievement of Goals 

Complexity of the file revieVY'S, overly broad guidance, and limited 

monitoring lor consistency may have il11"ded the ability of OCC and the 

Federal Reserve to achieve the goals of the foredosure review. These 

goals 'Nere to ensure sinilar results for similar~ situated borrowers, 

identify as many harmed borro'Ners as possible, and restore public 

confidence in the mortgage market. According to regulator staff and third· 

party consultants, coordinating the foreclosure revow process was 

challenging because of the large number of actors and borrowers eligible 

for review, the size of the loan files, and the scope of the file revieVw'S. In 

addition, each servicer had a unique process for recording and storing 

information on borrowers' loan files, vvtlich made defining review 

paramete~ and developing a uniform review structure that was 

appropriate for all consuHants challenging. 

PageS GAO·13·SSOT 
30 


41713008.eps

Regulators took a number of oversight steps to address the complexities 

and challenges, including issuing nearly identical sections of the consent 

orders outlining the purpose of the foreclosure revieVwS, providing thirdparty consu~ants with guidance to help frame the file review process, and 

implementing regular communication mechanisms among the key actors 

to help foster consistency in the reviews. However, broad guidance and 

limited monitoring for consistency reduced the potential usefulness of 

information being collected and increased risks of inconsistency. 

According to third-party consultants, regulators' guidance did not address 

certain aspects of the foreclosure review, and consultants had to use 

additional judgment and interpretation when applying certain guidance, 

increasing the risk of inconsistency among review results. Third-party 

consultants and their respective law firms we intervievved said that they 

each developed their own test questions based on analyses of state 

foreclosure laVv'S, loan modification guidelines, and bank policies, among 

other references." According to OCC staff, the state law references were 

fairly straightforward and they had confidence that the consu~ants and 

law firms would provide fairly consistent interpretations. HOlNever, 

according to third-party consultants and law firms we interviewed, 

compiling these references and using them to develop review questions 

was challenging and time consuming and, in some cases, required 

judgment or interpretation of the laVv'S or guidelines. 

Regulators took steps to monitor potential inconsistencies among the 

reviews, but these steps vvere limited and likely would have resulted in 

delays in providing remediation to borrowers. Our prior work has identified 

using intermediate activities or measures to assess progress to'vVdrd 

intended results as an effective management practice to understand the 

extent to which activities are on track to reach stated goals. 13 We have 

found that such activities can help management target areas that need 

improvement and select appropriate methodologies to realize that 

improvement. oce and Federal Reserve staff said they had planned to 

assess the extent of inconsistencies affecting the outcomes for borrowers 

across the revievvs after the reviews and recommendations for 

remediation were completed. However, conducting such an assessment 

after the completion of the revievvs could have resulted in consultants 

12To assess each of the review areas, consultants developed a series of test questionsgenerally yes or no questions-to identify potential errors. 

13See GAO/GGD/AIMD-99-69 and GAO/GGD-96-118. 

Page 7 GAO-13-550T 
31 


41713009.eps

needing to re-do file revievvs, which would have led to delays in 

remediation . 

Other guidance issued by regulators did not spec~y key sampling 

parameters for the file revievvs, and regulators lacked objective monitoring 

measures, resulting in difficulty assessing the extent of borrovver harm. 

For example, our analysis of the May 2011 guidance on sampling found 

that the guidance was ambiguous about a key sampling parameter that 

resulted in variations in sample sizes used by the consultants and led 

consultants to use different triggers to determine when to conduct 

additional analysis. This ambiguity could have produced inconsistent 

resutts for similarly situated borrowers. According to ace staff, they 

recognized that some consultants had not fully implemented the sampling 

approach as expected, and ace is taking steps to address these 

differences for one of the servicers continuing the foreclosure review. In 

addition, our analysis found that the May 2011 guidance did not include a 

discussion of regulators' expectations for reporting on sampling, and 

variations among the sampling plans would have limited the types of 

information that regulators could report. 

Finally, the regulators' sampling approach did not include key oversight 

mechanisms to facilitate assessment of whether consultants' revievvs 

were sufficient to realize the goal of identifying as many harmed 

borrovvers as possible, except in those cases where there were few or no 

errors. The OMS standards for statistical surveys state that where 

sampling is used, it should include protocols to monitor activities and 

provide information on the quality of the analyzed data.

14 Good planning 

and objective data collection provide a basis for making sound 

conclusions . In the absence of objective measures to compare review 

methods among consultants or assess sampling, regulators did not have 

an early warning mechanism to help ident~y problem areas that may have 

hindered achievement of the foreclosure review goals. 

140MB, Standards and Guidelines for Statistical Surveys, September 2006. 

Page B GAO·13·550T 
32 


41713010.eps

OCC and the Federal Reserve ackno'J'Aedged the importance of 

transparency in the foreclosure review process and publicly released 

more information than is typically disclosed in connection with a consent 

order." For example, regulators released redacted engagement letters 

between servicers and third-party consuttants and the remediation 

framey.,.crk for consultants to use that provided examples of situations in 

which compensation or other remediation is required for financial injury 

due to servicer errors , misrepresentations , or other deficiencies. 

However, the absence of useful and timely communications at certain 

stages of the process-for the general public as well as individual 

borrowe rs-hindered transparency and public confidence in the 

processes and results. 

Some stakeholders perceived gaps in key information about how the file 

revievvs were being conducted . Regulators did not release any additional 

guidance documents, nor did they publicly disclose consultants' test 

questions. To increase the transparency and credibility of the foreclosure 

review, consumer groups recommended that regulators release such 

information. According to consumer groups, vvithout such information, the 

public would have questions and doubts about how the reviews were 

being executed. OCC and the Federal Reserve staff said that they 

considered releasing additional guidance to the public, but both 

expressed concerns that releasing detailed information risked disclosure 

of confidential or proprietary information. Moreover, test questions 

developed by consultants were numerous and complex , and Federal 

Reserve staff stated that review processes were too dissimilar to provide 

a comprehensive summary. 

Borrowers who requested revievvs under the foreclosure review process 

initially received limtted information about the status of their individual file 

review. Borrowers received a letter acknowledging their request was 

15Sy law, federa l banking regulators must disclose any formal enforcement actions 

entered into under the Federal Deposit Insurance Act. See 12 U.S.C. §1818(u). On a 

case-by-case basis, banking regulators may consider the release of information beyond 

the mandatory disclosures. The Freedom of Information Act (FOIA), 5 U.S.C. § 552, 

generally provides that any person has a right of access to federal agency records, unless 

the records, or any portion thereof, are protected from disclosure by one of FOIA's nine 

exemptions. Records pertaining to the supervision of financial institutions are subject to 

one of FOIA's exemptions. 5 U.S.C. § 552(b)(8). Despite that exemption, regulators may 

exercise discretionary disclosure authority under 12 C.F.R. § 4.12(c) and 12 C.F.R. § 

261. 14(c) for OCC and the Federal Reserve, respectively, to release records concerning 

financial institution supervision. 

Page 9 GAO-13-550T 
33 


41713011.eps

received, but some did not receive updates until almost a year after the 

outreach program was first launched, when they received a letter 

informing them of the continuing nature of the review. In letters to OCC 

and the Federal Reserve, consumer groups indicated that these 

borrovvers vvere frustrated by the lack of information on their particular file 

review. Regulators indicated that additional status letters and information 

\l\()uld be sent to borrovvers with outstanding requests-for-review. 

However, regulators were still uncertain about specific information they 

would require servicers to share with both borrowers who would receive 

remediation and those who would not. Regulators have acknowledged 

the importance of transparency, but after announcing the agreements that 

led to the amended consent orders, they had not yet determined what 

information to convey beyond that which was included in their press 

releases and public websites and whether additional information \l\()uld be 

provided to borrowers who submitted a request-for-review. 

During the foreclosure review process, acc released two interim reports 

that provided the public with information on the organization and conduct 

of the file review process and preliminary results, such as the number of 

requests-for-review received, for institutions it supervises. These reports, 

according to acc, were intended to build transparency into the process. 

The Federal Reserve did not issue interim reports on the foreclosure 

review process for institutions it supervised. According to Federal 

Reserve staff, they did not do so because their public release of servicers' 

action plans provided sufficient information about how servicers vvere 

addressing the requirements of the consent orders and their public 

release of servicers' engagement letters provided sufficient information 

about how the foreclosure review would be conducted. Prior to the 

announcement of the agreements that led to the amended consent orders 

and ended the foreclosure review for most servicers, acc staff told us 

they had planned to release a final report on the results of the foreclosure 

review, and Federal Reserve staff indicated they expect to publish 

additional relevant information related to the foreclosure review and the 

agreements. Hovvever, as of February 2013, regulators had not decided 

what information on the work conducted under the foreclosure review 

prior to the agreements will be made available. 

Page 10 GAO-13-550T 
34 


41713012.eps

The foreclosure review revealed three key lessons related to planning, 

monitoring, and communication that could help inform regulators' 

implementation of the amended consent orders and the continuing 

foreclosure reviews. These key lessons could help contribute to an 

effective process for distributing direct payments and other assistance as 

prescribed by the amended consent orders. Based on the foreclosure 

review experience, we found that (1) designing project features during the 

process's initial stages influences the efficiency of file reviews, (2) 

monitoring progress helps ensure achievement of goals, and (3) 

promoting transparency enhances public confidence. 

Our prior work shows that assessing and using lessons learned from 

previous experiences can provide a powerful method of ensuring that 

beneficial information is factored into the planning and work processes of 

future activities.

17 Key practices of assessing lessons learned include 

collecting and analyzing information on prior activities and applying that 

information to future activities. Assessing lessons learned by using project 

critiques and discussions with key participants and stakeholders-such 

as local examination team staff, third-party consuttants and law firms, and 

external groups~ould identify the root causes of strengths and 

weaknesses of the foreclosure review that could apply to the amended 

consent order activities. 

The foreclosure review experience suggests that a planning process to 

determine key project features, such as guidance and necessary data 

elements, for activities conducted under the amended consent orders 

could lessen the risk of changes to planned activities, future delays, or 

rework. Our work on designing evaluations, including financial audits, has 

found that systematic and comprehensive planning enhances the quality, 

credibility, and usefulness of the results and contributes to a more 

effective use oftime and resources.

18 As regulators prepare to implement 

17See GAO-12-901 and GAO-02-1 95. In GAO-02-195, \/lie established a lessons-learned 

process based, in part, on research done by the Naval Research Laboratory at the Navy 

Center for Applied Research in Artificial Intell igence. In GAO-12-901 , we updated this 

\oVOrk through a literature review and interviews with agencies. 

l 81n assessing the foreclosure review process, \/lie considered our prior \oVOrk on program 

evaluations, government auditing standards, and financial auditing. See GAO, Designing 

Evaluations: 2012 Revisions, GAO-12-208G twashington, D.C.: January 2012); 

Government Auditing Standards: 2011 Revision, GAO-12-331G (Washington, D.C. : 

December 2011); and GAO and President's Council on Integrity and Efficiency, Financial 

Audit Manual: Volume 1, GAO-08-585G twashington, D.C. : July 2008). 

Page 11 GAO-13-550T 
35 


41713013.eps

the amended consent orders, they risk having to make changes in the 

planned acti ~ies or publicly announced time lines IT they miss 

opportun~ies to make key project planning decisions, including issuing 

clear guidance. 

The foreclosure review experience also suggests that using mechanisms 

to monitor the amended consent order activities and the continuing 

foreclosure revieVIIS may help ensure achievement of goals. The 

regulators' process for monitoring the acti ~ies of third-party consultants, 

servicers, and examination teams during the foreclosure review process 

could provide a useful model for mon~oring acti ~ies under the amended 

consent orders. In addition, regulators' experience vvth the foreclosure 

review suggests that identifying comparative oversight mechanisms to 

centrally promote consistency and monitor activities under the amended 

consent orders could help achieve consistent results for borrowers. 

GAO's internal control standards state that agencies should take steps to 

comprehensively identify and analyze program operations to determine IT 

risks exist to achieving goals-such as risks to the regulators' goal of 

providing similar results for similarly s~uated borrowers." In our prior 

Vv'Ork, we found that using a horizontal review mechanism is an option to 

help mitigate risks of inconsistent results for activities conducted by 

multiple entities, such as multiple servicers.

2O Using mechanisms to 

centrally mon~or the consistency of servicers' activities under the 

amended consent orders may lessen the risk of inconsistent re u~s or 

delays in providing direct payments to borrowers. Similarly, monitoring 

potential inconsistencies for the servicers that are continuing the 

foreclosure revievvs will provide regulators with information to assess 

vvhether there is a risk of those borrowers being treated inconsistently. 

Finally, lessons from the foreclosure review activities conducted to date 

suggest that developing and implementing an effective communication 

strategy that includes public reporting goals could enhance the 

19See GAO/AIMO-00-21.3.1. 

2OGAO, Opporlunities Exist to Apply Lessons Learned from the Capital Purchase Program 

to Similarly Designed Programs and to Improve the Repayment Process, GAO-11 -47 

(Washington, D.C.: Oct. 4, 2010). In our analysis of the U.S. Department of the Treasury's 

oversight of the Capital Purchase Program under the Troubled Asset Relief Program, Vole 

found that Treasury's practice of establishing centralized control mechanisms to help 

ensure consistency of activities conducted by multiple banking regulators helped lessen 

the likelihood of inconsistent results. 

Page 12 GAO-13-550T 
36 


41713014.eps

transparency of the activities under the amended consent orders. GAO's 

internal control standards emphasize the importance of relevant, reliable, 

and timely communications both within an organization and with external 

stakeholders. 21 In addition, our work on the Troubled Asset Relief 

Program (TARP) has underscored the importance of a communication 

strategy to strengthen communication with external stakeholders and 

improve transparency and accountabiltty." Experiences with current 

government initiatives that are aimed at assisting struggling homeowners 

and involve institutions and mortgage-related issues similar to those of 

the foreclosure review highlight the benefits of regular performance 

reporting. Specifically, periodic reports on the performance of and 

participation in TARP programs and scheduled reports on servicers' 

compliance with requirements of the National Mortgage Settlement are 

intended to promote transparency and build public confidence.

23 Like 

TARP and the National Mortgage Settlement, the foreclosure review and 

the subsequent activities under the amended consent orders are part of 

the larger governmental response to the housing and mortgage crises. As 

a result, a communication strategy which incorporates plans for periodic 

public reporting may enhance transparency in the distribution of direct 

payments and other assistance and help restore confidence in mortgage 

markets. 

Regulators announced the agreements that led to the amended consent 

orders without a clear communication strategy. As a result , what 

information will be provided to individual borrowers and the general public 

21See GAO/AIMD-OO-21.3.1. 

22we have made a series of recommendations aimed at improving the transparency of 

TARP by ensuring that Treasury develops a comprehensive communication strategy. 

T ARP, like the foreclosure review and subsequent activities under the amended consent 

orders, is one of many activities the federal government has put in place to respond to the 

financial crisis, including the crises in the housing and mortgage markets. As such, we believe that similar efforts to improve communication ""';11 enhance the transparency in the 

implementation of the amended consent orders and continuing foreclosure revieVolS. See 

GAO-1 0-16, GAO-09-161 , GAO-09-539T, and GAO-09-658. 

23rhe National Mortgage Settlement is the resu lt of an agreement reached in February 

2012 by the country's five largest mortgage servicers ",..;th the Departments of Justice, 

Treasury, and Housing and Urban Development and 49 state attorneys general. Under the 

terms of the settlement, Ally Financial (GMAC Mortgage), Bank of America, Citibank, 

JPMorgan Chase, and W ells Fargo will prO'lide approximately $25 billion in relief to 

distressed borrowers in states that signed on to the settlement as well as direct payments 

to participating states and the federal government. United States v. Bank of America 

Corp., No. 1:12-CV-00361 (D.D.C. Apr. 4, 2012). 

Page 13 GAO-13-550T 
37 


41713015.eps

about processes, progress, and results of activities under the amended 

consent orders is unclear. OCC and the Federal Reserve have provided 

some information on the amended consent orders, and planned to 

release additional information, such as details on payment categories that 

were publicly released in April 2013. However, we found that as of March 

2013, regulators had not made key decisions on communicating directly 

with individual borrowers and the extent to vvhich they would report on 

activities related to the amended consent orders and continuing 

foreclosure reviews. While the amended consent orders terminate the 

foreclosure review for most of the servicers , transparency of past and 

current efforts continues to be important to stakeholders, including 

Congress and consumer groups. In the absence of a clear 

communication strategy to direct external communications, including 

public reporting and direct communication with individual borrowers, 

regulators face risks to transparency and public confidence similar to 

those experienced in the foreclosure review process . 

In our March 2013 report, we recommended that OCC and the Federal 

Reserve improve oversight of sampling and ident~y and apply lessons 

from the foreclosure review process, such as enhancing planning and 

monitoring activities, to better ensure that the goals of the foreclosure 

review and amended consent orders are realized . In addition, to better 

ensure transparency, we recommended that acc and the Federal 

Reserve develop and implement a communication strategy to regularly 

inform borrovvers and the public. In commenting on the report, acc and 

the Federal Reserve both ident~ied actions that they have taken or 

planned to take to implement the recommendations . 

Chairman Menendez, Ranking Member Moran, and Members of the 

Subcomm~tee , this concludes my prepared statement. I would be happy 

to ansvver any questions that you may have at this time. 

If you or your staff have any questions about this testimony, please 

contact Lawrance L. Evans, Jr. at (202) 512-8678 or evansl@gao.gov. 

Contact points for our Offices of Public Affairs and Congressional 

Relations may be found on the last page of this statement. Other staff 

who made key contributions to this testimony include: John Karikari; Jill 

Naamane; Anna Maria Ortiz; Karen Tremba (Assistant Directors) ; 

Bethany M. Benitez; Charlene J. Lindsay; Patricia MacWilliams; Marc 

Molino; Robert Rieke; Jennifer Schwartz; Andrew Stavisky; Sonya 

Vartivarian; James Vitarello; and Monique Williams. 

Page 14 GAO-13-550T 
38 


41713016.eps

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39 


41713017.eps

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40 

PREPARED STATEMENT OF JOSEPH A. SMITH, JR. 

MONITOR OF THE NATIONAL MORTGAGE SETTLEMENT

APRIL 17, 2013 

Introduction 

Thank you Chairman Menendez, Ranking Member Moran, and Members of the 

Subcommittee for inviting me today to testify about implementation of the National 

Mortgage Settlement. It is a pleasure to be here with you to talk about this important issue. 

As you know, on April 5, 2012, the National Mortgage Settlement went into effect 

when the United States District Court for the District of Columbia entered five separate consent judgments that settled claims of alleged improper mortgage servicing 

practices against five major mortgage servicing organizations: Bank of America, 

N.A., CitiMortgage, Inc., JPMorgan Chase Bank, N.A., Residential Capital LLC and 

affiliates (formerly GMAC) and Wells Fargo & Company and Wells Fargo Bank, 

N.A. Government parties to the settlement include the U.S. Department of Housing 

and Urban Development, the U.S. Department of Justice, Attorneys General from 

49 States and the District of Columbia, various State financial services regulatory 

agencies and other releasing parties, including the Consumer Financial Protection 

Bureau and the U.S. Department of Treasury. 

The settlement was an unprecedented and collaborative bipartisan effort by the 

States and the Federal Government to improve the way mortgage servicers work 

with distressed borrowers while also providing much needed relief to homeowners 

across the Nation. 

The settlement can be divided into three parts: direct payments to borrowers and 

States, consumer relief and servicing standards. While I have no oversight over the 

direct payments, as the monitor of the settlement, I am responsible for reviewing 

and certifying the discharge of the servicers’ consumer relief obligations and overseeing their implementation of and compliance with the servicing standards. 

Organizational Overview 

As monitor, I am subject to oversight by a Monitoring Committee that is comprised of representatives of the U.S. Department of Housing and Urban Development, the U.S. Department of Justice, and representatives of 15 States. My office 

operates under a budget I prepare annually in consultation with the Monitoring 

Committee and servicers and is paid for by the servicers out of their corporate 

funds. My budget for fiscal year beginning July 1, 2012, was so prepared and is in 

effect. At the end of this fiscal year, I will make publicly available a report with 

audited financial statements covering my operations. 

To assist me in enforcing the settlement, I am authorized to employ a primary 

professional firm (PPF) agreed to by the servicers. In selecting the PPF, my goal 

was to find a firm that not only had the organizational capacity and subject matter 

expertise to do the work well, but also was independent of all five servicers. I conducted a thorough selection process during which I invited 46 firms to submit a proposal and reviewed 23 proposals. At the end of this process, I retained BDO Consulting. BDO has substantial financial services industry experience, yet has no 

meaningful conflict with any of the servicers. 

As the PPF, BDO is responsible for ensuring quality control and making sure that 

the review of the servicers’ implementation of and compliance with the servicing 

standards is done in a consistent way. BDO is also responsible for reviewing and 

confirming the consumer relief that the servicers extend to borrowers under the 

terms of the settlement and has been performing that work to exacting standards 

over the last 6 months. 

To assist in the review of servicer implementation of and compliance with the 

servicing standards, I also have retained five separate secondary professional firms 

(SPFs), including Baker Tilly Virchow Krause, LLP; BKD, LLP; Crowe Horwath 

LLP; Grant Thornton LLP; and McGladrey LLP. Each SPF is assigned to a specific 

servicer. As with BDO, each SPF is free of any relationship to its assigned servicer 

that would undermine public confidence in its work. 

Each servicer also has an internal review group (IRG), or group of employees and/ 

or independent contractors and consultants that is responsible for performing reviews of the servicer’s compliance with the settlement and whose members are required to be separate and independent from the line of business being reviewed. My 

office and its associated professional firms have also reviewed the qualifications and 

resources of each IRG to ensure it has the capacity and independence to do a credible job. 

41 

In addition to the PPF and SPFs, the settlement authorizes me to retain attorneys and other professionals to help me carry out my duties. Accordingly, I have 

engaged the law firms of Poyner Spruill and Smith Moore Leatherwood; the forensic 

accounting firm of Parkside Associates; the accounting firm Cherry, Bekaert & Holland; and the communications firm Capstrat. As required by the settlement, each 

firm is independent of the servicers. 

Though it was not required by the settlement, I have sponsored the creation of 

the Office of Mortgage Settlement Oversight (OMSO), a not-for-profit organization 

that provides administrative support for my work, including acceptance and payment of money and the maintenance of books and records. OMSO enables me to 

carry out my duties transparently and independently with administrative oversight 

from an independent Board of Directors. 

Consumer Relief 

Under the settlement, the servicers have agreed to provide specific dollar amounts 

of relief to distressed borrowers within a 3-year period. This relief includes first and 

second lien modifications, short sale assistance, deficiency waivers, forbearance for 

unemployed borrowers, antiblight activities, benefits for members of the armed services, and refinancing programs. 

Within limits, the servicers have flexibility to apply these different kinds of relief 

as they see fit to meet their overall obligations. The settlement specifies that certain 

types of relief must make up a certain percentage of each servicer’s commitment. 

For example, 60 percent of the total credited relief must come from first and second 

lien modifications; of that at least half must be modifications made on first liens. 

Under the consumer relief terms of the settlement, the servicers are required to 

make quarterly reports to the States (with copies to the Monitoring Committee and 

to me) of relief during that quarter in each State and in the Nation as a whole. They 

have done so, in November of last year and February of this, and the data they provided was the basis of my progress reports to the public issued in the same months. 

The kinds of consumer relief for which a servicer can receive credit under the settlement are set out in detail in the consent judgments and the credit varies based 

on the relief given. For example, servicers can receive dollar for dollar credit for 

principal forgiveness on loans both owned and serviced by the servicer and as little 

as five cents on the dollar for certain forbearance activities. For that reason, the 

gross dollar amounts of relief the servicers have delivered to homeowners far exceeds their total credited obligations under the settlement. 

For each amount of relief it has provided to borrowers on or after March 1, 2012, 

a servicer will receive credit against the commitments it made when it entered the 

settlement. To encourage the servicers to make substantial progress in the first year 

of the settlement, it gives them an additional 25 percent credit for any credited first 

or second lien principal reductions or refinancing activities that take place within 

the 12 months after March 1, 2012. If a servicer’s total commitment is not fully satisfied within 3 years, it will be required to pay a penalty of no less than 125 percent 

of its unmet commitment amount. 

A servicer can choose to seek a determination by me of its satisfaction of its consumer relief obligations whenever it has asserted such satisfaction to its IRG, its 

IRG has confirmed such satisfaction and such confirmation is reported to me. In November 2012, the ResCap parties requested a satisfaction review. In February of 

this year, after a review of their performance, I issued a report confirming their satisfaction of their minimum consumer relief obligations and partial satisfaction of 

their mandatory solicitation requirements. My report was filed with the United 

States District Court for the District of Columbia and is available for review on my 

Web site. In February, each of the other four servicers requested a determination 

of partial satisfaction of their consumer relief obligations through December 31, 

2012. A review of the assertions of completed consumer relief by the servicers and 

the confirmation of completion by their IRGs is in progress. I will publicly report 

my determination later this year after my review is done. 

In their latest reports to the States, compiled in my most recent progress report, 

the servicers have reported that from March 1, 2012, to December 31, 2012, 554,389 

borrowers benefited from some type of consumer relief totaling $45.83 billion, which, 

on average, represents about $82,668 per borrower. This figure includes both completed relief and active first lien trial modifications. The amounts reported are gross 

dollar figures rather than credited relief under the settlement and, except for 

amounts reported by the ResCap parties, have not been reviewed or scored by the 

PPF or by me. 

Additional information with regard to consumer relief to date under the settlement is available in my most recent report, titled ‘‘Ongoing Implementation’’. 

42 

Servicing Standards 

In addition to consumer relief, the settlement establishes 304 servicing standards, 

or rules of conduct, to which the servicers must adhere. These servicing standards 

are intended to redress the practices in mortgage servicing that led to the claims 

that resulted in the settlement. It is important to note that the servicing standards 

apply to all loans serviced by the servicers, regardless of the loan’s owner. Each 

servicer has been responsible for implementation of and compliance with the standards since October 2, 2012. 

There are servicing standards related to document integrity, the loan modification 

process, dual tracking, single points of contact, other customer service requirements, 

and other more general requirements. 

Under the settlement, I am directed to measure servicer compliance with the servicing standards through 29 metrics—tests designed to determine whether one or 

more of the servicing standards are being followed. The servicers conduct these tests 

through their IRGs, who then report the results to me. Assisted by my PPF and 

SPFs, I assess the work of the servicers and report my conclusions. If the IRGs or 

I find potential violations—noncompliance with the standards—the servicer has to 

implement a corrective action plan and remediate any identified potential violations. 

In the case of a widespread error, the servicer has to search for all potential violations since implementation of the servicing standard and remediate them. If it can’t 

or won’t correct the potential violations, injunctions or civil penalties can be sought 

through the United States District Court for the District of Columbia. 

We have completed our first review of servicer compliance under the settlement— 

for the calendar quarter ended on September 30, 2012—and have nearly completed 

our second quarterly review. When that review is complete, I will report to the 

Court and to the public on how the servicers have performed. I intend to deliver 

that report next month. This process will continue for the next 2 years. 

Complaints 

To help me better understand the settlement’s impact in the marketplace, my colleagues and I closely review consumer complaints we receive through my office as 

well as the complaints elected officials escalate to the servicers. As part of the settlement’s terms, the servicers are required to provide me with access to all the complaints submitted to them by Members of Congress, Attorneys General and other 

governmental agencies. I also have met with Attorneys General, their staffs, lawyers 

who represent borrowers and housing counselors in hard hit States such as Florida, 

Nevada, California, Illinois, and Arizona, and I look forward to doing as much more 

of this as is possible. Further, I have recently entered an information sharing relationship with the Consumer Financial Protection Bureau that has great promise. 

Through the complaints and my meetings with Attorneys General staff, housing 

counselors and lawyers, I have learned about the issues that borrowers continue to 

experience. While I have heard about progress and success in obtaining consumer 

relief, problems with the servicing standards, including single points of contact, dual 

tracking and the loan modification process in general are still occurring all too often. 

These are the issues that guide my conversations with the servicers. 

The settlement anticipated situations in which there would be issues surrounding 

servicing standards not tested by a metric and allowed me the opportunity to develop three discretionary metrics. As a result of what I have heard from consumers 

and professionals, I am now working with the servicers to establish my discretionary metrics. They are not yet completed, but they will address what I have 

learned in the last year. 

Conclusion 

In closing, the settlement has been successful in what I believe is a worthwhile 

effort: focusing resources on a specific problem in a targeted, time-limited way that 

augments and supports the work of policy makers and governmental agencies. I applaud the bipartisan leaders who crafted this settlement to address serious issues 

with local and national implications. Properly implemented and enforced, the settlement has the potential to result in a substantial public benefit. I look forward to 

continuing my work toward that goal and welcome your questions. 

43 

PREPARED STATEMENT OF DAVID HOLLAND 

EXECUTIVE VICE PRESIDENT, RUST CONSULTING

APRIL 17, 2013 

Introduction 

My name is David C. Holland. I am an executive vice president based in Rust 

Consulting’s Minneapolis, Minnesota, office. Rust Consulting, or ‘‘Rust,’’ has been 

engaged by the servicers to administer certain aspects of the Alternative Resolution 

Settlement as directed by the Office of the Comptroller of the Currency (OCC) and 

the Federal Reserve Board (FRB). Previously, Rust was engaged by the servicers to 

administer the Consent Orders for the Independent Mortgage Foreclosure Borrower 

Outreach project, also known as the Independent Foreclosure Review (IFR). 

Rust provides project management, data management, notification, contact centers, claims processing, and fund distribution, typically in support of large, complex, 

and time-sensitive programs. Rust has handled more than 4,000 programs in all. 

Independent Foreclosure Review 

Rust was originally engaged by 14 servicers to serve as the administrative provider under the IFR Consent Orders. Broadly speaking, our responsibilities under 

the Consent Orders were to notify homeowners about the program, to answer their 

questions, to receive their Request for Review forms, and to handle in- and outbound mail. From November 2011 through December 2012, we executed three mass 

mailings to homeowners. Over the same period and through January 2013, we received and forwarded homeowner Requests for Review forms. 

Alternative Resolution Settlement 

Rust was recently engaged by 11 of the 14 original servicers, along with two additional servicers, to serve as the Paying Agent under the Alternative Resolution Settlement (Settlement). Our responsibilities under the Settlement are to notify homeowners about this program, to answer their questions, and distribute settlement 

payments in the form of checks to eligible homeowners. 

1. Rust updated the ending-IFR-program database of homeowner addresses 

through the National Change of Address service and mailed postcards on 

March 18, 2013, informing homeowners that they were eligible to receive a 

payment as a result of the Settlement. 

2. Rust received relevant data from servicers that identified loan classifications 

for each individual loan and subsequently received data from the OCC and 

FRB detailing the payment amounts for each loan classification. The first wave 

of checks, approximately 1.4 million, were mailed on Friday, April 12. The majority of the remaining checks will be mailed in three more waves occurring 

on April 19, April 26, and May 3. 

3. Rust continues to staff a call center to take incoming calls from homeowners 

with questions about the program and update the Web site for the IFR project 

to provide new information regarding the Settlement. 

Outreach Efforts 

At the direction of the servicers, the OCC, and the FRB, Rust implemented a 

number of address correction processes to maximize the number of homeowners who 

received notice as part of the IFR. Rust will continue to use address correction processes under the Settlement. 

1. In both projects, the NCOA process was used to update addresses. 

2. As part of the IFR, Rust received undeliverable notices, ran the corresponding 

addresses through a ‘‘skip-trace’’ process, and whenever possible, remailed notices to new addresses. 

3. For any of the remailed notices that were returned as undeliverable, Rust performed another second type of address search, and again, whenever possible, 

remailed notices to new addresses. 

4. Under the Settlement, Rust will receive undeliverable checks and attempt to 

find better addresses and, whenever possible, remail the checks to new addresses. 

Reporting 

During the IFR process, Rust provided comprehensive daily statistical reporting 

to the OCC, the FRB, independent consultants, and the servicers. Daily meetings 

were held with the consortium of the 14 servicers and independent consultants that 

44 

1 CoreLogic, ‘‘CoreLogic Reports 767,000 Completed Foreclosures in 2012’’, February 1, 2013, 

available at http://www.corelogic.com/research/national-foreclosure-report-december-2012. pdf. 2 Bocian, Debbie Gruenstein, Wei Li, Carolina Reid, and Roberto G. Quercia, ‘‘Lost Ground, 

2011: Disparities in Mortgage Lending and Foreclosures’’, Center for Responsible Lending, November 2011. 3 Brooks, Rick, and Ruth Simon, ‘‘Subprime Debacle Traps Even Very Creditworthy’’, Wall 

Street Journal, December 3, 2007. 

covered the current state of project execution, future deliverables, and next-phase 

planning. 

As part of the Settlement, Rust provides comprehensive daily statistical reporting 

to the OCC, the FRB and the servicers. Daily conference calls are held with the 

servicers covering project execution. Two times weekly, conference calls are held 

with the OCC and the FRB covering project execution and future deliverables. 

PREPARED STATEMENT OF DEBORAH GOLDBERG 

SPECIAL PROJECT DIRECTOR, NATIONAL FAIR HOUSING ALLIANCE

APRIL 17, 2013 

Chairman Menendez, Ranking Member Moran, and Members of the Subcommittee, my name is Debby Goldberg, and I am a special project director with 

the National Fair Housing Alliance (NFHA). Founded in 1988 and headquartered 

in Washington, DC, the National Fair Housing Alliance is a consortium of more 

than 220 private, nonprofit fair housing organizations, State and local civil rights 

agencies, and individuals from throughout the United States. Through comprehensive education, advocacy and enforcement programs, NFHA protects and promotes 

residential integration and equal access to apartments, houses, mortgage loans, and 

insurance policies for all residents of the Nation. 

I want to thank you for the opportunity to testify here today about the Independent Foreclosure Review (IFR). The IFR was one component of consent orders 

that the Office of the Comptroller of the Currency and the Federal Reserve Board 

signed 2 years ago with 14 mortgage servicers, later expanded to 16 companies. 

Those consent orders were intended to address widespread failures in those companies’ mortgage servicing and loss mitigation systems, as identified in the ‘‘horizontal 

review’’ that the regulators conducted in the wake of the so-called robo-signing scandal. 

NFHA and many other civil rights and consumer organizations welcomed the announcement that the regulators had entered into consent orders with these servicers 

and supported the dual goal of the orders: to ensure that the servicers made 

changes to their staffing, systems and oversight that would prevent future borrowers from experiencing the kinds of problems that could lead to unnecessary foreclosures; and to identify borrowers whose servicers acted improperly in the foreclosure process and the events leading up to it, and compensate those borrowers for 

the financial harm they suffered. We only wish that the announcement had come 

much sooner, so that some of the four million or more homes that have been lost 

to foreclosure since 2008 might have been saved. 1

The Negative Impact of the Foreclosure Crisis on Communities of Color 

For NFHA, the 2011 consent orders represented an important regulatory milestone. Four years earlier, in 2007, we and four other national civil rights organizations called for a national moratorium on foreclosures. We did so because we were 

hearing from our members and others about the massive level of foreclosure activity 

occurring in communities of color all across the country. The situation had reached 

crisis proportions and called for a national response. In previous years, communities 

of color had been flooded with subprime and other unsustainable mortgages. African 

American borrowers were 3 times more likely, and Latino borrowers were 2.5 times 

more likely to be placed in subprime loans than their white counterparts. 2 Research 

indicated that significant numbers of these borrowers had credit that was good 

enough to qualify them for safer, less costly prime loans. 3 Recent settlements between the U.S. Department of Justice and several major mortgage lenders illustrate 

how financial incentives encouraged mortgage brokers and loan officers to charge 

higher fees to hundreds of thousand of African American and Latino borrowers. 

These incentives also encouraged lenders to steer tens of thousands of borrowers 

who qualified for prime loans into subprime mortgages that were more profitable 

for the loan originators, but proved to be disastrous for the borrowers, their communities and our economy as a whole. 

45 

4 Bocian, Debbie Gruenstein, Peter Smith, and Wei Li, ‘‘Collateral Damage: The Spillover 

Costs of Foreclosures’’, Center for Responsible Lending, October 24, 2012. 5 National Fair Housing Alliance, ‘‘The Banks Are Back, Our Neighborhoods Are Not: Discrimination in the Maintenance and Marketing of REO Properties’’, April 4, 2012. 6The servicers covered by the National Mortgage Settlement include Bank of America, Citi, 

JPMorgan Chase, Wells Fargo, and GMAC/Ally (see, www.nationalmortgagesettlement.org for 

further details). All of these servicers also entered into consent orders with OCC and/or the Federal Reserve Board in April, 2011 and were subject to the requirements of the IFR. 

While the foreclosure crisis has affected a great many borrowers and communities, 

some have been hit harder than others. According to research by the Center for Responsible Lending (CRL), by early 2011, 25 percent of all African American and 

Latino homeowners who had mortgages originated between 2004 and 2008 had either lost their homes to foreclosure or were seriously delinquent, a rate twice that 

of white borrowers. The impact of these foreclosures has been devastating, not only 

for the families who have lost their homes, but also for their neighbors whose lives 

and communities and property values have all be affected. CRL’ s research indicates 

that $2 trillion of wealth has been lost as a result of the foreclosure crisis. Half of 

that amount, $1 trillion, has been lost by communities of color. 4 It may be a full 

generation or more before this lost wealth is regained, and the implications of this 

loss for our country are profound. 

NFHA’s own work shows that the negative impact of foreclosures lasts far beyond 

the event itself. We have investigated the practices of mortgage servicers with respect to maintenance, management and marketing of the homes they have taken 

back through foreclosure (i.e., their real-estate owned or REO properties). We have 

found that, compared to REO homes in white communities, REOs in communities 

of color are many times more likely to have multiple problems with respect to their 

physical condition, such as leaking roofs, broken windows, unsecured doors, trash 

in the yard, poorly maintained yards, and the like. They are less likely to be marketed effectively, are more likely to linger on the market longer, and are more likely 

to be bought by an investor rather than an owner occupant. 5 All of creates eyesores 

and hazards and depresses property values for the homeowners who remain. 

In sum, the foreclosure crisis has had a significant impact on people and communities of color. For us at NFHA, addressing the sources of these problems and protecting against their recurrence have been a high priority, and one that we see as 

consistent with our civil rights mission. We were pleased when the OCC and the 

Federal Reserve announced their consent orders, and were hopeful that the effort 

to identify and compensate aggrieved borrowers would be an important step towards 

mitigating some of the damage done by servicers’ abuses. We also hoped that the 

servicing provisions of the consent orders and the regulators’ increased focus on 

servicing practices would result in better loss mitigation so that more borrowers 

would receive the loan modifications for which they were eligible and be able to stay 

in their homes. 

Importance of the Independent Foreclosure Review and Consent Orders 

The 2011 OCC/FRB consent orders, with their provisions requiring the servicers 

to conduct independent foreclosure reviews, were one of several efforts under way 

in recent years to address the foreclosure crisis. In 2009, Making Home Affordable 

was launched, with its HAMP, HARP, and Hardest Hit Funds programs. In February, 2012, 49 State attorneys general and several Federal agencies reached an 

agreement with five major mortgage servicers, 6 the National Mortgage Settlement 

(NMS). These efforts are aimed at preventing further foreclosures, by reforming 

mortgage servicing practices, standardizing loan modification terms and conditions, 

increasing the use of principal reduction in loan modifications, and making it possible for homeowners who were current on their mortgages but underwater to refinance into loans with lower interest rates. What sets the IFR apart from these other 

efforts is its emphasis on identifying and compensating borrowers who were harmed 

by problems in the way their servicer handled their mortgages and their requests 

for assistance when they could no longer make their payments. 

This approach is particularly important from a civil rights perspective. As noted 

above, a disproportionate number of unsustainable subprime loans were made to African American and Latino borrowers. Many of these loans became unaffordable and 

unsustainable, forcing the borrowers into default, in the earliest waves of foreclosures. By the time the consent orders were signed, many of these borrowers may 

have already lost their homes. However, even if it was too late to help these borrowers save their homes, it was not too late to find them and compensate them, at 

least in part, for the harm they suffered. For this reason, NFHA has taken a particular interest in the implementation of the IFR process. 

46 

7 Cohen, Alys, ‘‘Helping Homeowners Harmed by Foreclosures: Ensuring Accountability and 

Transparency in the Foreclosure Reviews’’, Testimony before the United States Senate Subcommittee on Housing, Transportation, and Community Development of the United States Senate Committee on Banking, Housing, and Urban Affairs, December 13, 2011. 

Concerns With the Independent Foreclosure Review 

The IFR had two components. One of these was the ‘‘look-back’’ process, for which 

the independent consultants (ICs) that the servicers were required to hire would review samples of files, and where a certain level of errors was found, expand those 

samples to capture all of the files of borrowers with similar characteristics. The second component was the Request for Review (RFR) process, which provided an opportunity for borrowers who believed they had been harmed to request a review of their 

particular file, whether or not it was also captured in one of the samples reviewed 

by the ICs. 

Reviewing the files of 4.4 million borrowers who faced foreclosure to determine 

whether their servicers acted properly, whether the borrowers suffered financial 

harm, and quantifying that harm is a big, complex undertaking. For NFHA and the 

civil rights and consumer advocates with whom we work, it was important for the 

reviews to be: 

• conducted in a timely and transparent manner, 

• thorough while focusing in on the problems experienced most frequently by borrowers, 

• fair and even-handed by capturing the borrower’s side of the story, and 

• consistent, resulting in comparable outcomes for similarly situated borrowers 

with different servicers. 

Transparency, consistency, and fairness have all proven problematic in the IFR 

process, as is evident in the record compiled by this Committee through its earlier 

hearings, and in the two reports published by the Government Accountability Office 

(GAO). With respect to the look-back process, NFHA and other advocates raised several key concerns. 

Our first concern was the lack of transparency due to the regulators’ reluctance 

to make public the rulebook for this undertaking. Despite numerous requests, the 

regulators never released the guidance they provided the ICs about how to implement the reviews and how to resolve any issues that arose. This lack of transparency undermined public confidence in the process and made it difficult to have 

confidence that the ICs knew what to look for in the files or how to interpret what 

they found (or didn’t find). This lack of transparency also undermined public confidence that the outcomes would be consistent across servicers. 

Further, the process did not allow for input from the borrower about his or her 

interactions with the servicer. This was necessary to identify cases where borrowers 

were given incorrect inconsistent or conflicting information by their servicers, and 

to shed light on the many instances in which borrowers submitted the documents 

required to be considered for a loan modification or other loss mitigation options— 

often several times—but servicers claimed never to have received them. For many 

borrowers, this had caused significant and costly delays in the processing of their 

loan modification applications. In some cases, the mounting arrearages made them 

ineligible for the modification they requested. 

The Request for Review (RFR) process also raised many concerns. Again, the GAO 

report on the subject lays them out clearly. Many of these problems stemmed from 

the failure to provide for the kind of outreach necessary for the RFR process to be 

successful. This was a problem in the consent orders themselves. No resources were 

allocated for outreach; no organizations that work closely with borrowers, such as 

housing counseling agencies or legal services offices, were consulted about the best 

way to reach borrowers or what role they might play in doing so; no provisions were 

made for developing effective outreach materials; and no consideration was given to 

a reasonable timetable for such an effort. 

A second, more targeted outreach effort was conducted during the last 6 weeks 

or so before the final application deadline. This resulted in a substantial increase 

in the number of borrowers who filed an RFR, but in the end only some 11 percent 

of eligible borrowers made such a request. Many borrowers may not have been in 

a position to submit an RFR, others may have lacked confidence that the outcome 

would justify the effort required, and a great many others may simply never have 

known that the IFR process existed and they could file a request to have their file 

reviewed. These are just a few of the concerns about the RFR process. Others were 

detailed in the testimony provided to this Committee by Alys Cohen, of the National 

Consumer Law Center, on December 13, 2011. 7

47 

Concerns With the January, 2013 IFR Settlement 

On January 7, 2013, the regulators announced that they had reached a settlement 

with 13 of the IFR servicers, were halting the IFR process at those companies and 

replacing it with a combination of direct payments to borrowers and other forms of 

mortgage assistance. The settlement was valued at $9.3 billion, including $3.6 billion in direct payments to 4.2 million borrowers, and $5.7 billion in other assistance. 

The agencies expressed concern about the slow pace of the IFR process and the substantial cost of the Independent Consultants, already reported to be $2 billion, and 

stated their belief that the new settlement would put more money in the hands of 

more borrowers more quickly. 

Questions About the Cash Distribution 

Borrowers and their advocates certainly shared the regulators’ frustration over 

the pace and cost of the reviews. Whether the new settlement provides a more equitable distribution of relief, however, is a different matter. Last week the regulators 

released a chart that details how payments will be allocated among 3.9 million borrowers (payment details have yet to be released for borrowers whose loans were 

serviced by Goldman Sachs and Morgan Stanley). They range from $300 to 

$125,000. At the top end of the scale, 2,041 borrowers will receive $125,000. These 

are borrowers who were protected under the provisions of the Servicemembers Civil 

Relief Act (SCRA), but whose servicers foreclosed on their homes anyway. Another 

98 borrowers who were never in default but still lost their homes to foreclosure will 

also receive $125,000. At the bottom end of the scale, 2,358,441 borrowers whose 

servicers brought foreclosure actions against them after approving their request for 

a loan modification, whose servicers never reached out to them to offer assistance, 

or who fall into an ‘‘other’’ category will receive $300 apiece. None of these borrowers filed an RFR. Their 260,623 counterparts in the same categories who did file 

an RFR will receive either $500 or $600. 

The chart raises more questions than answers. For example, it is not clear why 

responsibility for ‘‘slotting’’ borrowers into specific categories was given to the 

servicers and why their record systems, which are known to be seriously flawed, 

were used as the basis for the slotting process. Nor is it clear why certain categories 

of borrowers were awarded one amount of money and other categories were awarded 

a different amount. In the end, no determinations were made about which borrowers 

experienced financial harm. With the exception of the SCRA violations and the borrowers who were never in default, the fact that a borrower falls into a category 

higher on the chart is no indication that he or she actually experienced harm. Similarly, the fact that a borrower is slotted into a category lower on the chart is no 

indication that he or she did not experience harm. Given this, it is not clear why 

there are so many different categories of borrowers and awards, or even any categories at all. And given the likelihood that a great many borrowers never knew 

about the IFR at all, let alone that they could file a request for review, and the fact 

that no borrowers knew that doing so would affect the amount of compensation they 

would receive, it is not clear why borrowers who filed an RFR were awarded so 

much more compensation than their counterparts who did not file such a request. 

These questions are confusing and distressing to borrowers, and I suspect many 

of the Members of this Committee are hearing from your constituents with these 

and other concerns about how this process has played out. 

Advocates have many concerns about the payment process itself. As with the initial RFR process, no resources were allocated for outreach to borrowers to let them 

know about the change in plans and the fact that checks will be coming their way. 

Postcards from the payment agent, Rust Consulting, were mailed to borrowers, but 

these postcards are subject to the same critiques that GAO cited in its report on 

the previous IFR outreach process. We are already hearing reports that borrowers 

are confused about the postcards, believe they may come from scam artists, or are 

simply throwing them out as junk mail. 

This, in turn, raises concerns about whether, when the IFR checks are mailed, 

borrowers will actually open the letters and cash the checks. It is critical for the 

regulators to track returned mail and cashed checks to determine whether the funds 

are not getting through in certain geographic areas or to groups of borrowers, particularly those who may not be proficient in English and may not fully understand 

the letter of explanation accompanying the checks. Despite advocates’ recommendation, the regulators did not send postcards or letters in both English and Spanish, 

let alone any other languages. If gaps are identified among those borrowers cashing 

the checks, the regulators should take additional steps to ensure that they have the 

correct address for borrowers. They should also conduct additional, and where appropriate language specific, outreach in those communities to ensure that borrowers 

actually receive the funds to which they are entitled. 

48 

In addition, it is inevitable that some funds will go unclaimed. The regulators 

have not announced what will be done with such funds. After every effort is made 

to locate those borrowers who did not cash their checks and encourage them to do 

so, we recommend that remaining funds be earmarked to support housing counseling, legal services and other foreclosure prevention services. 

Questions About the Other Forms of Assistance to Borrowers 

There are also many questions and concerns about the provisions of the settlement relating to nonmonetary assistance to borrowers, the so-called soft dollar side 

of the settlement. The $5.7 billion worth of assistance will be provided to borrowers 

in the form of loan modifications, short sales, deficiency waivers and the like. The 

servicers themselves will determine which borrowers will receive assistance, how 

much, and in what form. The structure of this side of the settlement resembles the 

structure of the National Mortgage Settlement (NMS), in that servicers will receive 

credit towards their targeted level of borrower assistance for the specified activities. 

There are some significant differences between the IFR settlement and the NMS, 

however, and many of these are cause for concern because they undermine the regulators’ stated goal for this part of the settlement, which is to help save people’s 

homes. 

Our greatest concern is that, unlike the NMS, the IFR settlement bases the 

amount of credit the servicer receives on the unpaid balance of the loan, rather than 

the amount of assistance provided to the borrower. In other words, if a servicer forgives $50,000 worth of principal on a $500,000 loan, it receives soft dollar credit not 

for $50,000 but for $500,000. This severely inflates the amount of credit the servicer 

receives, and dramatically reduces the number of borrowers who are likely to receive assistance through this program. 

An equally alarming aspect of this approach is that it creates an incentive for 

servicers to focus their efforts on higher-priced homes with larger unpaid loan balances. On a loan with an unpaid principal balance of $500,000, a loan modification 

that provides any amount of principal reduction—be that $1,000, $10,000, or 

$100,000—will yield $500,000 worth of credit for the servicer. A modification that 

provides the same amount of principal reduction on a loan with an unpaid principal 

balance of $150,000 will only yield $150,000 worth of credit. 

This crediting structure encourages servicers to focus their efforts on large-balance loans. It is likely to disadvantage borrowers in communities of color, where 

home prices and therefore loan balances are systematically lower than those of comparable homes in predominantly white communities. Thus a process that initially 

held promise for remediating some of harm suffered by borrowers in communities 

of color may instead leave those borrowers out in the cold. 

In another contrast to the NMS, the IFR settlement places loan modifications 

which have the real potential to save the borrower’s home—on equal footing with 

short sales, in which the borrower loses the home. Both receive dollar for dollar 

credit under the IFR settlement. Unlike the NMS, the IFR settlement places no cap 

on the amount of credit that servicers can receive for short sales, so if they choose, 

servicers can meet their entire soft-dollar goals through short sales. Nor does the 

IFR settlement make any provision for resources to support outreach to borrowers 

and counseling or legal assistance. Funding for these efforts, which is strictly left 

to the discretion of individual servicers, will come out of the soft-dollar side of the 

settlement. 

Ways in Which the IFR Settlement Could Still Be Helpful 

The results of the 2011 consent orders and the IFR process to date have been extremely disappointing. They have failed to identify borrowers who were harmed by 

the actions or inactions of their servicers, and the checks that are being sent to borrowers will not adequately compensate those who were harmed. Nonetheless, the orders still provide the regulators with two key opportunities to help keep borrowers 

in their homes, if they choose to use them. These are through reforming servicing 

practices and ensuring that help goes to those borrowers and communities that have 

been hardest hit. 

Servicing Reforms Needed 

Servicing abuses remain widespread, and too often, servicers still are not providing borrowers with the loan modifications for which they are eligible. This is a 

problem that the 2011 consent orders were intended to fix, although this component 

of the orders has received little attention from the regulators, who have been focused on the IFR. While the regulators report that more than half of the more than 

4 million homeowners who were in scope for the IFR process have subsequently lost 

their homes to foreclosure, as many as two million have not. For these and other 

49 

8 California Reinvestment Coalition, ‘‘Chasm Between Words and Deeds IX: Bank Violations 

Hurt Hardest Hit Communities’’, April, 2013. Available at www.calreinvest.org/. 

at-risk homeowners, it is critical that the regulators step up their focus on loss mitigation and servicing reforms. 

In addition to the servicing reforms spelled out in the consent orders, the regulators have broad supervisory authority to ensure that servicers comply with other 

contractual and programmatic requirements. If the regulators were to put more emphasis on servicing reforms in their compliance reviews, borrowers would benefit 

tremendously. To do this, they must bring their examination teams up to speed on 

what servicers should be doing, and get input from the field about how servicers 

are actually performing. 

The ongoing servicing problems are illustrated by a survey of housing counselors 

in California, released earlier this month by the California Reinvestment Coalition. 8

The survey focused on the provisions of the NMS and the servicers to which it applies, but the results are indicative of more widespread problems in the industry. 

Seventy percent of the counselors who responded to the survey reported that the 

single point of contact provided to borrowers by their servicer to manage and assist 

in their request for a loan modification was never, rarely, or only sometimes accessible, consistent or knowledgeable. More than 60 percent of counselors reported that 

the servicers always, often or sometimes pursue foreclosure while the borrower is 

still under review for a loan modification. Sixty percent or more of counselors reported that servicers never or rarely make decisions about loan modifications within 

30 days of receiving a completed modification, and a majority of counselors reported 

that servicers rarely or never acknowledge receipt of applications in a timely manner or notify borrowers of documents needed to complete their applications. Counselors also reported problems with servicers giving borrowers enough time to supply 

missing documents, losing documents, and improperly denying loan modifications to 

borrowers who appear to be qualified for them. 

Through aggressive use of their authority under the provisions of the consent orders, as well as their broader supervisory authority, the OCC and the Federal Reserve could help to bring about much-needed changes in servicing practices and help 

homeowners keep their homes. Advocates have recommended that the regulators 

take some specific steps to accomplish this: 

1. The regulators should increase their oversight of loss mitigation practices and 

the servicers’ compliance with contract, regulatory, and programmatic standards. 

2. The regulators should require those servicers covered by the consent orders to 

certify that they have properly reviewed borrowers for loan modifications or 

other loss mitigation options before moving forward with any action that results in the loss of a home. 

3. The regulators should establish a separate appeals or complaint process for 

IFR borrowers who believe their servicer has acted improperly, and inform 

those borrowers of this channel for an outside review of their case. Foreclosures 

should be halted until any such complaints are resolved. 

4. In cases where servicers consistently break the rules, the regulators should impose significant penalties. 

These four steps could make a big difference for millions of homeowners seeking 

to stay in their homes. 

Ensuring That Help Goes to Those Most in Need 

While the consent orders and recent settlement agreements provide the regulators 

with few tools to ensure that help goes to those most in need, they do allow for the 

regulators to collect detailed information on the actions that servicers take to meet 

their soft-dollar crediting targets. Servicers will submit reports to the regulators 

every 45 days. The regulators should make this information available to the public 

at a granular level to establish some accountability for the servicers. 

Advocates have recommended that the regulators collect and disclose the detailed 

information by servicer and census tract. The data collected should include, at a 

minimum: 

• the number of borrowers still in their homes, 

• the number who have applied for loan modifications, 

• the number of modifications approved for both first and second liens (linked 

where possible), 

50 

• the terms of the modification (interest rate reduction, principal reduction, 

change in payment amount, etc.), 

• the number of modifications denied and the reasons for denial, 

• the number and dollar value of short sales, deeds in lieu of foreclosure, and associated deficiency waivers, and 

• the dollars allocated for housing counseling services. 

It is critical for these data to be reported at the census tract level. This is the 

only way to determine whether the allocation of the IFR’ s soft dollar assistance is 

going to communities most in need. The lack of such data under the NMS has been 

a major source of frustration for civil rights groups, community organizations and 

counseling/legal services agencies. Many of these groups report that their clients 

and constituents are not receiving offers of assistance under that settlement, and 

wonder where the help is going. The OCC and Federal Reserve have the opportunity 

to do a better job of tracking the funds, and we hope Congress will encourage them 

to do so. 

Conclusion 

Congress has a crucial role to play in making sure that the Federal regulatory 

agencies responsible for policing the Nation’s mortgage market do their jobs. Unfortunately, we are not yet at the point where either Congress or the public can have 

confidence that mortgage servicers are in compliance with their obligations under 

various enforcement actions, program guidelines or their contractual with their investors. The problems are widespread and long-lasting, with millions of homeowners 

still at risk of foreclosure, it is important that servicers correct these problems in 

order to prevent unnecessary foreclosures and speed our economic recovery. 

Looking ahead, NFHA is concerned about gaps in the existing servicing standards 

and those that will go into effect next year. Among other things, these gaps leave 

borrowers with disabilities, those with limited English proficiency, and the widows 

and heirs of deceased borrowers without the protections they need to get the help 

they deserve from their mortgage servicers. We look forward to working with you 

to address these gaps in the servicing standards and to make it possible for the 

greatest possible number of vulnerable borrowers to keep their homes. 

Thank you for the opportunity to testify here today, and for your ongoing oversight of the Independent Foreclosure Review process. I will be happy to answer any 

questions you may have. 

51 

RESPONSES TO WRITTEN QUESTIONS OF SENATOR REED 

FROM DAVID HOLLAND 

Q.1. How closely did the OCC and the Federal Reserve monitor 

and oversee your participation in and your duties with respect to 

the IFR settlement? How often and in what manner? 

A.1. The Federal Banking Regulators participated in and monitored key decisions and elements of the Settlement process. This 

included but was not limited to matters of: 

• Structuring of the Qualified Settlement Fund Entities and 

bank accounts. 

• How settlement funds were deposited. 

• Coordination of borrower loan classification on behalf of the 

Servicers. 

• Reconciliation of the data loan classifications between Rust, 

the Servicers, and the Regulators. 

• Review and approval of all correspondence. 

• Review and approval of call center scripting. 

• Review and approval of Web site content. 

• Review and approval of letter and check mailing schedules. 

• In-person, on-site review of the end-to-end process the print 

vendor implemented for print production, and the quality 

check steps incorporated throughout the printing process. 

• During the early stages of the Settlement, the OCC was on-site 

at Rust for the purposes of gathering information and exploring settlement administrative options. Subsequently, Rust had 

weekly planning sessions with the OCC to discuss the implementation and production schedules. These planning sessions 

were conducted via teleconference, and decisions were documented in an End-to-End Implementation Plan. The Rust IFR 

Payment Agreement Processes were also reviewed and documented. As we moved closer to the initial check mailing date, 

a second weekly meeting was added to ensure all the necessary 

items were addressed and considered leading up to the check 

mailings. 

• Once checks were mailed, daily conference calls were established which included the OCC, FRB, Rust, and Huntington 

National Bank. These daily calls reviewed operational performance, issues logs, check clearing status and future processes. 

Q.2. What procedures did you have in place to ensure checks did 

not bounce? 

A.2. We believe it is important to first clarify that a ‘‘bounced’’ 

check is intrinsically different than a situation in which a checkcashing store or other financial institution declines to cash a check. 

Huntington Bank has indicated that no valid checks were returned 

for insufficient funds (bounced). However, a small number of checks 

were not honored at the point of cashing for reasons detailed in 

this response. 

Rust was responsible for working with OCC and Federal Reserve 

to: 

• Execute advance notification to borrowers. 

52 

• Establish a schedule for payment waves. 

• Arrange for servicer deposits of funds at Huntington National 

Bank. 

• Establish and staff toll-free phone numbers for borrowers to 

call with questions and for financial institutions to call to 

verify checks and funds availability. 

• Print and mail checks. 

• Review Huntington National Bank’s prepared reports for fraud 

attempts. 

• Rust also implemented the additional safeguard of printing a 

toll-free number on the back of checks to assist borrowers and 

financial institutions with check processing. 

At Rust’s recommendation, Huntington National Bank of Ohio 

was selected by the OCC and Federal Reserve as the financial institution in which settlement funds would be deposited and that 

would process and clear the settlement checks. 

Rust sent postcards to the 4.2 million borrowers notifying them 

in advance of their eligibility to receive payment under the agreement. 

Funds for payment were deposited with Huntington National 

Bank by the 13 servicers at various times on or before April 5, 

2013. The first wave of check was mailed on April 12, 2013. 

A collaborative decision was made by the regulators, Huntington 

Bank and Rust, that checks were to be cleared through a ‘‘zero balance’’ account in Huntington National Bank. In a ‘‘zero balance account’’, checks are paid without holding excess funds in a checking 

account. All interest earned on the funds accrues to the benefit of 

the fund. 

To assist borrowers and to mitigate opportunities for fraud, Rust 

Consulting printed a toll-free number on the back side of each 

check to allow check-cashing stores and other financial institutions 

to call Rust and validate the check. Through April 25, 2013, more 

than 44,000 callers to this number had spoken with a Rust customer service representative. Through April 24, 2013, we have 

identified thirty-two (32) fraudulent checks submitted as settlement payments. Huntington National Bank, in its role as the 

issuing bank, initiated an Early Warning Service for the payments 

on April 16, 2013, four days after the first wave of checks were 

mailed. 

Q.3. Have you addressed your flaws in internal controls and procedures that led to this unfortunate outcome? 

A.3. Response: 

• Huntington National Bank instituted the Early Warning System on April 16, 2013. 

• Huntington National Bank removed the zero balance account 

structure so that Huntington National Bank tellers would no 

longer see a zero balance when accessing the checking account. 

• We have determined that when some check stores called to 

validate checks, they also asked Rust Consulting to guarantee 

that adequate funds were available, which only a bank representative can do. In response, we established a process to 

53 

link callers to Huntington National Bank for the necessary 

guarantee. 

• As of April 25, 2013, almost 1.1 million settlement checks 

worth over $1 billion have cleared. 

• We continue to work with Huntington National Bank and borrowers to ensure that future payments can be negotiated without unnecessary delay. 

Q.4. In light of this setback, would you agree to have your fees 

withheld until all payments are satisfactorily delivered to their intended recipients? If not, what protections are currently in your 

contract that ensure that these sorts of mistakes do not happen 

again? 

A.4. Response: 

• While we have been disappointed to learn that a relatively 

small number of check recipients encountered problems when 

they tried to cash their checks, we are also very proud of the 

assistance that we have provided to thousands of recipients 

whose checks were validated via our toll-free number for financial institutions. 

• We have addressed check-processing issues with Huntington 

National Bank, in their role as the check-issuing institution, 

and they have assured us that appropriate banking procedures 

and market notifications are now in place to prevent a recurrence of issues experienced by a relatively small number of 

borrowers in the first wave of checks. 

• Working with the OCC, Rust has developed extensive processes and procedures to ensure a smooth and error free plan 

of administration. We believe to date the plan has been executed by Rust and the results to date have been favorable. 

• We have individual contracts with the 13 servicers. Our contracts generally focus on defining our arrangements, scope of 

work and liability with regard to errors that result in a financial loss. 

• We do not believe a delay in payment of Rust Consulting’s fees 

is warranted. 

54 


41713018.eps

May 14,2013 

VIA HAND DELIVERY 

Mr. James Ahn 

Office of Senator Jack Reed 

Committee on Banking, Housing and Urban Affairs 

United States Senate 

Dirksen Senate Office Building, SD-534 

Washington, DC 20510 

Re: Rust Consulting, Inc. 

Dear James: 

AkinGump 

Strauss Hauer & Feld LLP 

STEVEN R. ROSS 

202.687 .4343/fax: 202.887 .4288 

sross@akingump.com 

On behalf of our client, Rust Consulting, Inc. ("Rust"), we appreciate the opportunity to 

supplement our responses to the Committee's Questions for the Record by providing an update 

on the Independent Foreclosure Review ("IFR") settlement payment process. Attached here is a 

White Paper that lays out in careful detail the facts about the program and the events surrounding 

the various settlement payments. In addition to a general overview about the lFR program, 

challenges inherent in such a large program and background about Rust, we've also included a 

point-by-point analysis of the factual errors contained in the May 8, 2013 New York Times article. 

The enclosed information represents our current understanding with respect to the issues raised 

in that article. We are continuing to look into any issues that have arisen in the implementation of 

this large settlement process 

If you have any questions or comments, please do not hesitate to contact me at any time. 

We look forward to continuing to work with the Committee in a cooperative manner. Please let 

us know if you have any questions. 

Counsel for Rust Consulting, Inc. 

Enclosure 

Robert S. Strauss BUIlding 11333 New Hampshire Avenue, NW I Washington, DC 20036~15641202.887.4000 I fax: 202.887.4288 1 akingump.com 
55 


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I RUST 

Independent Foreclosure Review Settlement Payments 

Background, Process and Status - from Rust Consulting 

What is the IFR? 

The Independent Foreclosure Review (lFR) 

settlement is a massive and complex 

undertaking. It results from an agreement 

reached in January of 2013 between 13 separate 

mortgage-service companies and federal banking 

regulators. The servicers agreed to pay a 

combined $3.6 billion to 4.2 million borrowers 

whose primary residence was affected by a 

foreclosure process in 2009 or 2010 by one of 

these servicers. 

Federal banking regulators and the 13 mortgage 

servicers negotiated the $3.6 billion amount to 

be paid to borrowers. Contrary to certain 

inaccurate news articles, Rust Consulting was not 

part of these decisions. 

Rust was selected as the "Paying Agent" to 

administer the predetermined settlement 

payments to eligible borrowers. The mortgage 

servicers gave Rust the names and last-known 

addresses of the 4.2 million borrowers as well as 

the payment category for each borrower. 

Federal banking regulators validated the process 

by which servicers categorized borrowers and 

determined the amount of payment that would 

be paid to borrowers in each category. 

Who is Rust Consulting? 

Rust Consulting has provided administration 

services for complex projects for more than 30 

years. In that time, the company has handled 

over 3,500 projects similar in nature to the IFR 

Payment Agreement. The company's key 

strengths include claims processing and 

adjudication, payment distribution, tax 

reporting, data management and security, all 

types of notification and claim forms support, 

May 2013 

Key Points: 

• No IFR settlement checks were returned 

for insufficient funds. Initially, a very small 

number of check-cashing stores and banks 

declined to cash checks. Rust assisted the 

processing bank, which worked quickly to 

resolve issues the check-cashing stores and 

banks were having. 

• Payments with an incorrect amount went 

to 96,000 borrowers in the May 3, 2013, 

mailing. A clerical error occurred in which 

payment amounts were pulled from the 

wrong data table. Affected borrowers will 

receive a supplemental check for the 

balance due. 

• The 13 separate mortgage servicers gave 

Rust the names, addresses and categories 

for borrowers. 

• Federal banking regulators validated 

borrower payment categories and 

determined how much borrowers in each 

category would be paid. 

• Rust's role is to administer and distribute 

the predetermined payments. 

• Rust earns no interest on these settlement 

funds or uncashed checks. 

• Rust maintains a borrower customer care 

center that has handled 660,000 consumer 

calls to date. The center can be reached at 

+ 1 (888) 952-9105. 
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41713020.eps

I RUST 

reglliatory compliance and customer contact center;. 

Steps to Facilitate IFR Payments 

Based all its experifflce, Rust anticipated that a program with the IFR's scope-with mil lions of 

participants, bilHoM of dollars and recipient data from 13 separate sources _. inherently would 

preserlt challenges in many individual cases. Rust took multiple steps to improve the process for 

eligible borrowers as well as financial institlltions that would r&eive checks for cashing or 

deposit. 

As an added measure to facilitate paymeflts in such a large distribl/tion, Rust had a toll-free 

number printed on tile back of each check. The goal was to provide faster service for borrowers 

and to reduce fraud opporturlities. Since the first wave of payments was ma iled on April 12, 

2013, this "teller line" has handled more than 100,00) calls from check-cashing stores and 

fi l'lancial institutions. 

In addition, Rust established two customer call centers in Minnesota to assist borrowers, 

employing approximately 1.100 customer service representatives. The centers are open for 

calls 14 hours every weekday and for 9 hours on Saturdays. To date, the centers have ~ndled 

more than 660,000 borrower inquiries. Customers in need of assistance can call the center tollfree at +1 (888) 952-9105. 

Settlement Funding and Payments 

Funds were deposited by the mortgage servicers at the processing bank well before the first 

ched:s were mailed. Funds were readily available to cash checks. During the initial days after 

the first mailing, a very small number of irlStances occurred when a check<ashing store or bank 

declined to cash a settlement check. Rust assisted the processing bank, which worked quickly to 

resolve issues that check<ashing stores and barlks were having. Based on reports it has 

received, Rust believes that nearly all borrowers who attempted to cash an IFR check were able 

to do so without any difficulty. 

Noched was returned for insuffident funds. In the first 17 days after the initial mailing, 

1.2 million settlement checks worth more than $1.2 billion cleared the bank. As of Friday, May 

10, 2013, more than 2.1 million borrowers have cashed or deposited settlement checks worth 

$1.9 billion. 

Ru st Earns No Interest from These Settlement Funds or Uncashed Checks 

Rust administers payments to borrowers from the IFR settlement funds. Rust earns no interest 

from these settlement funds or ullCi3shed checks. 

Partial Payments to Certain Borrowers in May 3, 2013, Mailirlg 

Payments with an incorrect amount went to 96,000 borrowers in the May 3, 2013, mailing. A 

dencal error, which Rust regrets, occurred irl which payment amounts were pulled from the 

wrong data table. Upon learning of the error, Rust immediately began taking steps to issue 

supplemental checks to pay affected borrowers the remaining balallCe oftheir payment. This 

Mav 2013 
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I RUST 

helps ensure that all borrowers receive the full payment amount, as determined by federal 

banking regulators. 

Borrower Information Changes 

Throughollt this project, Rust lias processed many thousands of address and name challges, 

updoting the initial borrower information that in many cases was fOllr years old when Rust 

received il. Rust conducted research to help ensure accurate updates as needed. 

The company also maintains a dedicated HIFR triage team" that helps resolve issl.leS such as 

changes in borrower status including IleW addresses, new names or the death of a borrower. To 

prevent fraud, each charlge request is reviewed aoo validated to help erlSure that an authorized 

borrower is requesting the change. 

When new information for borrowers is verified, reissued checks will be mailed in batches. The 

timing is subject to regulatory review. 

Inaa:urate Media Coverage 

Recent stories published by the New York Times contained numerous factual errors and 

mischaracterizations of Rust and the IfR proje(t. An analysis of the May 8, 2013, story follows· 

New York Times Story The Reality 

New York Times, A1oy8, 2013 

"Errors Afflict More Checks 

Issued to Aid Homeowners" 

NYT: 

"At least these checks cleared. Three weeks A very small number of check<ashing stores 

after checks sent to homeowners as and banks declined to cash checks. Rust 

compensation for foreclosure abuses were assisted the processing bank, which quickly 

rejected for insuffident funds, the consulting resolved the issues that check<ashing stores 

firm at the center of the mishap erred again: a and banks were having. The processing bank 

fresh round of checks was written for the has indicated that no checks were returned for 

wrong amounts. "insufficient fu nds.~ 

Funds were deposited by the servicers at the 

processing bank well before the first checks 

were mailed. Funds were readi ly available to 

cash checks. 

Mav 2013 
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I RUST 

"In recerll days, according to officials briefed 

on the matter, Rust COll5ufting issued nearly 

lOO,1XXl checks for less than the homeowners 

were owed. The mistake potentially cheated 

consumers out of millions of dollars they were 

owed under a deal reached between the 

government and the nation's biggest banks. 

NIT: 

" ... the developmellts cast aoother harsh 

spotlight on Rust, which had been selected.;s 

the distributor of checks for the $3.6 billion 

settlement deal that reg ulators strocK with the 

banks. The continued problems with Rust also 

raised questions aboot the government's 

oversight of the firm and the wisdom of hiring 

it in the first place. 

'Wtlat's more, some homeowners complain 

the problem is broader than Rust has 

acknowledged. Jennifer Lawson, whose 

husband is on active duty with the Navy, said 

she was stunned when she received a check 

on April 19 for $600. Urlder the terms of the 

settlement deal, Ms. Lawson expected 

thousarlds of dollars in compensation for her 

foreclosure ... 

NYT: 

"But problems emerged soon after the 

settlement was announced in January. The 

consulting firm, officials said, was initially slow 

to alert borrowers to expected payments. 

Then, the officials say, Rust delayed the chE'1::k5 

for weeks as it struggled to gear up fo r the 

payments. Once Rust issued the first rourld of 

ched:s in April, it failed to move money into 

the bank account I.lSed forthe settlement. The 

Mav 2013 

The lower payment amounts fesulted from an 

unintentional human clerical error. Rust is 

issuing supplemental checks that will be 

mailed as early as May 17, 2013, to pay 

affected borrowers the rema ining b.olance of 

their payment. 

To the contrary, Rust's experience with la rge 

arid complex settlement distributions enables 

quick resolution of issues inherent in such a 

la rge and complex project. 

The article thoroughly mischaracterizes the 

entire IFR process and Rust's role in it. Rust 

had no input into determining wha t amoont of 

payment borrowers would receive. Mortgage 

servicers provided names and last-known 

addresses as well as the categorization of 

borrowers. Regulators validated the process 

by which servicers placed borrowers into 

payment categories and determined payment 

amounts for each category. Rust is 

implementing the predetermined dedsions, 

arid administering payment and customer 

contact centers. 

Rust wor1<ed with federal banking regulators 

to distribute the checks in a timely fashion. 

Furlds were deposited by the mortgage 

servicers at the processing bank wel l before 

the first checks were mailed. Furlds were 

readily available to cash ched:s. 

Rust orinted a toll-free number on the back of 
59 


41713023.eps

I RUST 

decision prevented some homeowners from 

cashing their checks .. , 

NYT: 

"But, in effect, the checks bounced. ArK! after 

the incident, Rust lost sigllificallt credibility 

with the regulators, offidals said. 

"More recently, homeowners have 

complained about clerical errors at Rust, 

problems like cheds sent to the wrong 

addresses or issued to deceased borrowers. 

"The firm's latest mistake - sending out 

chetks in the wrong amounts - could also 

prove difficult to remedy. 

"The problem stems from last week, when 

Rll5t issued checks to customers of 

Morgan Stanley and Goldman S<lchs ... 

"But Rust, according to the officials briefed on 

the matter, failed to follow the payout plan. 

Instead, it issued checks to customers of 

Goldman Sachs and Morgan Stanley based on 

a metric adopted by the 11 other banks, 

indudingJPMorgan C~5e and Bank of 

America. 

Mav 2013 

checks to fadlitate the process for borrowers. 

Rust assisted the processing bank, which 

quick1y resolved the issues that check-cashing 

stores and banks were having. In just 17 days 

after the first wave of ctlecks were mailed, 1.2 

million checks worth more than $1.2 bill ion 

tlad cleared. 

Ttle article mentiofled individuals who 

experienced life changes (fleW name, address, 

etc.), which affected their ability to receive or 

process their check. Rust is sympathetic to 

these individuals and is working with 

borrowers on information c~nges. To prevent 

fraud, each change request is reviewed and 

validated to help ensure that an auttlorized 

borrower is requesting the ctlange. Reissued 

ctlecks will be mailed in ba tches. The timing is 

subject to regulatory review. 

Rust's borrower call center is open for 14 

tlours Monday through Friday and for91lours 

on Saturday to assist borrowers with 

information and c~nge requests. We also 

have a dedicated "triage teamW to address 

needs. 

The remedy was instillrted quickly once the 

error was identified, and supplemental checks 

fo r the balance due to affected borrowers will 

be mailed out as early as May 17, 2013. 

Rust regrets that payments with an incorrect 

amount went to 96,000 borrowers in the May 

3,2013, mailing. A clerical error occurred in 

which payment amounts were pulled from ttle 

wrong data table. 
60 


41713024.eps

I RUST 

"'The misstep deprived some homf{)wners of 

thousands of dollars. For example, some 

Goldman and Morgan customers in 

bankruptcy who were wrongfully evicted 

deserved a $4,650 clled. They received 

$3,750 instead ... 

NYT: 

"Rather than uncelthe checks, Rust derided 

to issue a second rClIoo of payments to Ihe 

harmed consumers. In a statement, the Fed 

instructed borrowers to "cash both the 

origillal checks and the supplemental ched.~ 

It also rIOted t hat "Rust has determirled that 

the error was limited to borrowers whose 

mortgages were serviced byGoidman Sachs 

and Morgan Stanley." 

"But anecdotal evidence suggested that Rust 

had E' lloountered separate problems, beyond 

Goldman and Morgan, Housing advocates 

point to the case of Ms. Lawson, Under a 

federal law, banks ilfe required to obtain court 

orders before foreclosing on active-- - duty 

members like Ms. lawson' s nusband. Some 

military members woo were wrongfully 

evicted are eligible to re<eive up to $125,000 

in compensation tnrougn tile settlement. Ms. 

lawson, whose nome near Jacksonville. Ra .. 

was sold at a foreclosure auction in 2010, gid 

tne Npiddling amount" of $600 was an 

injustice. 

"Mr. Cummings, tile congressman from 

Maryland, also notes tnat Rust does not 

indude an explallation of wnat oomeowners 

are owed under the settlement .. 

NIT: 

"Regulators nave noted tnat many consumers 

nave seemingly had no trouble casning tneir 

chem. By tne end of Tuesday. regul'lIors say, 

oomeowners successfully caslled or deposited 

about two million cllecks, or sli ntlv more 

Mav 2013 

All borrowers woo re<eived less than tney 

snould are being isslled supplemental cheds 

tnat will be mailed as early as May 17, 2013 to 

pay affected borrowers tne remaining balarlCe 

of tneir payment. 

Canceling cllecks would nave created massive 

confusion among borrowers as well as 

finand<ll institutions <l nd also would nave 

opened new avenues for fraud. 

Rust sirlCerely sympatnizes witn this family as 

well as tile millions of other individual 

experiences tnat led to the IFR process. Rust's 

role is solely to distribute settlement funds to 

eligible borrowers. Tne mortgage servicers 

placed borrowers into payment categories. 

Federal banking regulators va lidated tne 

process by wnich servicers placed borrowers 

into payment categories and determined 

payment amounts for eacn category. 

Information tnat Rust can provide to 

borrowers is determined oollaboratively witn 

regulators. 
61 


41713025.eps

I RUST 

than half of the total checks issued. 

·Still, that leaves nearly two million people 

who have either delayed cashing the check or 

have had problems doing so .•. 

NIT: 

"One of Ms. Singerman's clients whose home 

in Pleasanton, Calif., is in foreclosure cannol 

cash the S1,(XXl check she re<:eived from Rust 

in April. The problem, Ms. Singerman said, is 

that the check is made out to the 

homeowner's husoooo, who died more than 

three years ago. 

The 4.2 million checks are being mailed in 

waves that began on April 12, 2013. The most 

recent wave went out May 3, 20llin projects 

of this nature, it is not lInusual for check 

recipients to hold their ched<s for some period 

of lime. Rust has resolved known isstll'S. 

Except for individlJal cases that require 

additlooal attention, borrowers are able to 

cash or deposit their ched<s upon receipt. 

Rust has appropriate processes in place for 

updating records and makes updates on a 

daily basis. The necessity to pre~ent fraud 

requires verification befOl'e a check can be 

appro~ed for reissue. 

Closing note: Rust does oot earn any interest 

on these settlement funds 01' from checks that 

have been mailed but oot deposited or 

cashed. 

RlISt urges any check r&ipient with an issue to call the company's borrower contact center at 

+1 (888) 952-9105. 

The eoclosed information represents our current under;tanding with respect to the issues 

raised in certain media. Rust continues to look into any issues that have arisen in the 

implementation of this large settlement process. 

Mav 2013