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S. HRG. 112–460 

HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY AND 

TRANSPARENCY IN FORECLOSURE REVIEWS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

HOUSING, TRANSPORTATION, AND COMMUNITY 

DEVELOPMENT 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

ON 

EXAMINING TRANSPARENCY, ACCOUNTABILITY, AND CONSISTENCY IN 

THE FORECLOSURE REVIEW PROCESS AND THE ONGOING EFFECTS 

ON HOMEOWNERS AND SERVICERS STEMMING FROM THE FORECLOSURE CRISIS 

DECEMBER 13, 2011 

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 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

KAY HAGAN, North Carolina 

RICHARD C. SHELBY, Alabama 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

JIM DEMINT, South Carolina 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

DWIGHT FETTIG, Staff Director 

WILLIAM D. DUHNKE, Republican Staff Director 

DAWN RATLIFF, Chief Clerk 

RIKER VERMIYLE, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON HOUSING, TRANSPORTATION, AND COMMUNITY DEVELOPMENT

ROBERT MENENDEZ, New Jersey, Chairman 

JIM DEMINT, South Carolina, Ranking Republican Member 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

DANIEL K. AKAKA, Hawaii 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

HERB KOHL, Wisconsin 

JEFF MERKLEY, Oregon 

MICHAEL F. BENNET, Colorado 

MIKE CRAPO, Idaho 

BOB CORKER, Tennessee 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

ROGER F. WICKER, Mississippi 

MICHAEL PASSANTE, Subcommittee Staff Director 

JEFFREY R. MURRAY, Republican Subcommittee Staff Director 

(II)
(III) 

C O N T E N T S 

TUESDAY, DECEMBER 13, 2011 

Page 

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

WITNESSES 

Julie L. Williams, First Senior Deputy Comptroller and Chief Counsel, Office 

of the Comptroller of the Currency ..................................................................... 3 

Prepared statement .......................................................................................... 38 

Responses to written questions of: 

Chairman Menendez ................................................................................. 125 

Senator Reed .............................................................................................. 147 

Senator Merkley ........................................................................................ 147 

Senator Corker .......................................................................................... 149 

Senator Warner ......................................................................................... 150 

Alys Cohen, Staff Attorney, National Consumer Law Center ............................. 16 

Prepared statement .......................................................................................... 51 

Responses to written questions of: 

Chairman Menendez ................................................................................. 152 

Senator Corker .......................................................................................... 155 

David C. Holland, Executive Vice President, Rust Consulting, Inc. ................... 18 

Prepared statement .......................................................................................... 110 

Responses to written questions of: 

Chairman Menendez ................................................................................. 157 

Senator Corker .......................................................................................... 160 

Paul Leonard, Vice President of Government Affairs, Housing Policy Council 

of the Financial Services Roundtable ................................................................. 19 

Prepared statement .......................................................................................... 111 

Responses to written questions of: 

Chairman Menendez ................................................................................. 161 

Senator Reed .............................................................................................. 162 

Senator Corker .......................................................................................... 162 

Anthony B. Sanders, Ph.D., Distinguished Professor of Real Estate Finance, 

George Mason University .................................................................................... 21 

Prepared statement .......................................................................................... 113 

Responses to written questions of: 

Chairman Menendez ................................................................................. 164 

Senator Corker .......................................................................................... 165 

Ann M. Kenyon, Partner, Deloitte & Touche LLP ................................................ 22 

Prepared statement .......................................................................................... 120 

Responses to written questions of: 

Chairman Menendez ................................................................................. 166 

Senator Corker .......................................................................................... 170 

Konrad Alt, Managing Director, Promontory Financial Group, LLC .................. 24 

Prepared statement .......................................................................................... 121 

Responses to written questions of: 

Chairman Menendez ................................................................................. 171 

Senator Corker .......................................................................................... 177 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Comptroller of the Currency Article VII Foreclosure Reviews letter to Independent Consultants ............................................................................................ 179 
Page

IV 

Comptroller of the Currency Independent Foreclosure Review Key Facts 

sheet ...................................................................................................................... 182

Prepared statement of Scott G. Alvarez, General Counsel, Board of Govenors 

of the Federal Reserve System ............................................................................ 183 
(1) 

HELPING HOMEOWNERS HARMED BY FORECLOSURES: ENSURING ACCOUNTABILITY 

AND TRANSPARENCY IN FORECLOSURE REVIEWS 

TUESDAY, DECEMBER 13, 2011 

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

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

The Subcommittee met at 2:31 p.m. in room SD–538, Dirksen 

Senate Office Building, Hon. Robert Menendez, Chairman of the 

Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN ROBERT MENENDEZ 

Senator MENENDEZ. Good afternoon. This meeting of the Committee on Banking, Housing, and Urban Affairs Subcommittee on 

Houston, Transportation, and Community Development will come 

to order. 

Today’s hearing is entitled ‘‘Helping Homeowners Harmed by 

Foreclosures: Ensuring Accountability and Transparency in Foreclosure Reviews.’’ This topic is extremely important to our Nation’s 

homeowners, especially those who have been harmed by illegal 

foreclosure practices. It is of particular concern to the countless 

New Jersey homeowners who have contacted by my office, almost 

all with terrible stories about their experiences going through foreclosure, and many with stories of being either mistreated or neglected by their mortgage servicers. 

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

have transparency, consistency, and accountability in the foreclosure review program. If we do not remain committed to transparency, consistency, and accountability, the foreclosure reviews 

will be toothless. 

After being hit hard by the foreclosure crisis and other economic 

woes, American homeowners expect and deserve a fair review and 

compensation where appropriate. The success of the foreclosure review program is one of the factors in the recovery of our Nation’s 

housing market. 

Transparency, consistency, and accountability in the foreclosure 

reviews are necessary for the public and policymakers to know that 

they are being performed fairly. Transparency will ensure that borrowers and the public know who is eligible for relief, what type of 

relief will be provided, and the results on a bank-by-bank basis. 
2 

The public needs full and clear guidelines on what constitutes financial harm to a borrower so that people who are actually harmed 

do not fall through the cracks. There must also be better guidance 

from homeowners who are facing imminent foreclosure as to 

whether their foreclosures will be temporarily halted or not. 

And, finally, it is imperative that homeowners, advocates, and 

counselors have a regular seat at the table and give their input on 

the process. Many of the counselors have been working with consumers a long time on these issues, and their input is invaluable. 

Consistency is critical so that similarly situated borrowers with 

different servicers and different reviewers receive similar treatment and outcomes. There must be established protocols in place 

for both the foreclosure reviews and compensation process to ensure that similarly situated borrowers are treated fairly. Also, outreach and materials must be available for people who speak different languages so that they do not miss out on participating in 

this program. 

Accountability will give the public confidence that our bank regulators, the OCC, and the Federal Reserve are fairly and effectively 

working to protect borrowers’ rights and fix harms caused by the 

banks they regulate. Although the Federal Reserve did not appear 

today because of the Federal Open Market Committee meeting, 

they have submitted a statement for the record and will take questions for the record from all Senators. 

Senator MENENDEZ. I would note that the Federal Reserve has 

lagged the OCC in that they have not released their engagement 

letters yet, and I would urge them, as the Chairman of the Subcommittee, to move along quickly with that. 

In terms of accountability, it is also important that the thirdparty consultants who are making these critical decisions are held 

accountable for doing these reviews independently of the banks 

that hire them with the OCC’s approval, which is a challenge considering that most of them have done business in some form with 

the same banks whose work they are now expected to evaluate. 

It is also important that banks be held accountable for their results on a bank-by-bank basis with appropriate penalties such as 

fines. And there must be clear standards on how the OCC and the 

Fed will conduct oversight over the consultant activities and the actions regulators will take against consultants and servicers if it 

finds their performance lacking. Moreover, there must be a measurable goal and benchmark for the program so that all parties are 

publicly accountable. 

In closing, let me just say the foreclosure review program could 

potentially impact about 4.6 million homeowners who are eligible 

for review. We must begin to fix those unscrupulous lending practices that took place and wrongful foreclosures with the public interest as our core principle. And I look forward to our witnesses 

today, both Ms. Williams of the Office of the Comptroller of the 

Currency, as well as all of those on the second panel who will help 

us come to an understanding of where we are, where we are headed, and what needs to be done. 

With that, I am happy to recognize any of my colleagues who 

may have an opening statement. And if not, let me welcome Ms. 

Julie Williams, who is the First Senior Deputy Comptroller and 
3 

Chief Counsel of the Office of the Comptroller of the Currency. She 

is responsible for all of the agency’s legal activities, including legal 

advisory services to banks and examiners, enforcement and compliance activities, litigation, legislative initiatives, and regulation of 

securities and corporate practices of national banks. 

Ms. Williams, thank you very much, and we look forward to your 

testimony. 

STATEMENT OF JULIE L. WILLIAMS, FIRST SENIOR DEPUTY 

COMPTROLLER AND CHIEF COUNSEL, OFFICE OF THE 

COMPTROLLER OF THE CURRENCY 

Ms. WILLIAMS. Thank you. Chairman Menendez and Members of 

the Subcommittee, I appreciate the opportunity to appear before 

you this afternoon to provide information on the status of the 

OCC’s implementation of enforcement actions that direct the country’s largest mortgage servicers to correct deficient and unsafe or 

unsound servicing and foreclosure processing practices and to provide remediation to borrowers financially injured by those practices. 

The OCC appreciates the Subcommittee’s concerns regarding 

transparency and accountability throughout this process. My written testimony provides up-to-date information describing in detail 

the independent foreclosure review process required by our enforcement orders and the other required comprehensive corrective actions that are underway. Our goals are clear: Fix what was broken, 

identify borrowers who were financially harmed, provide compensation for that injury, and make sure this does not happen again. 

The work to correct mortgage servicing and foreclosure process 

defects involves many components. Efforts include: establishing 

single points of contact to improve communication with borrowers; 

addressing how to eliminate dual tracking; improving oversight 

and management of third-party service providers; enhancing operations related to MERS; and improvements in management information systems, risk assessment and management, and compliance 

oversight. 

The OCC has also required the servicers to retain independent 

consultants to conduct an independent review of each servicer’s 

foreclosure activities spanning 2009 through 2010. The independent review has two parts: first, a claims process whereby borrowers who believe they were financially harmed by defective servicing and foreclosure practices during that period may obtain an 

independent review of their case; and, second, a file review component. 

The most public aspect is the claims process, which was launched 

on November 1. Since that date, more than 2.7 million letters have 

been sent to borrowers explaining how they may request an independent review of their case. More than 4 million letters will be 

sent by the end of the year. To date, less than 5 percent of those 

letters have been returned as undeliverable, and the independent 

claims processor is working to identify addresses for those undeliverable letters. 

The OCC is requiring servicers to use advertising, a Web site, a 

toll-free number, and various other forms of outreach to increase 

awareness and understanding of the review process. Advertising 
4 

will kick off at the beginning of next year and will include full-page 

advertisements in widely read national publications as well as publications that serve minority and underserved audiences. The OCC 

will monitor the effectiveness of this effort, and additional advertising and outreach may be required. 

As of December 9th, the independent foreclosure review Web site 

had been visited more than 280,000 times, and the toll-free number 

had answered nearly 49,000 calls. The OCC also will launch a series of public service announcements in January that will include 

both print and radio spots in English and Spanish. We are working 

with a number of public interest organizations to explain the foreclosure review process. We are discussing their concerns about the 

scope and effectiveness of the outreach program and their suggestions for improvements. 

In addition to this claims process, our enforcement orders require 

the independent consultants to perform file reviews of identified 

segments of borrowers. They are using sampling and other tools to 

identify files for review subject to guidance and oversight from the 

OCC. Currently, 56,000 files are under review. 

We are requiring 100 percent review of some borrower segments, 

including cases involving the Servicemembers Civil Relief Act, 

bankruptcy cases involving foreclosures in 2009 and 2010, cases referred by State or Federal agencies, and reviews requested through 

the coordinated claims process that I have described. 

With respect to SCRA cases, I would like to close by offering particular thanks to the Defense Manpower Data Center of the Department of Defense and to the Department of Justice. We reached 

out to both to explore how to effectively identify servicemembers 

whose cases should be reviewed as part of the 100 percent review. 

And as a result of that collaboration, processes have been developed that will ensure that all eligible servicemembers are identified 

for inclusion in the 100 percent file review. 

Again, I appreciate the opportunity to testify, and I look forward 

to answering your questions. 

Senator MENENDEZ. Well, thank you very much. 

Let me start off. You and I had a conversation a few days back, 

and I just want to follow up on some of the points. 

Will the OCC release full guidelines, other than your 20 examples, to the public for what constitutes financial harm to a borrower? 

Ms. WILLIAMS. Senator, what we have tried to do in the information that we have released so far, in connection with releasing the 

engagement letters, is to release what has been developed to date 

by the OCC and the Fed as examples of types of financial injury 

that could be covered in providing financial remediation. So to the 

extent that the OCC and the Fed have developed examples, we 

have made those available. 

If there are other situations that are identified through the process as it goes forward, if there are aspects of clarifications of the 

examples that we have already made available, that should be put 

out in order to fully inform the public and potentially affected borrowers that there are other possible examples, I think we are quite 

open to that. 
5 

Senator MENENDEZ. What I do not understand is if you do not 

release some sense of full guidelines, then how are borrowers supposed to know if what happened to them will qualify for relief or 

not? Because, obviously, their effort to do this, you know, when 

they receive these letters, they have to make a determination. 

There is going to have to be not only effort into it, but obviously 

in some cases to assist them to do so maybe even resources spent 

by them to pursue the possibility of relief. And if you are not sure 

what is the universe, the standard at the end of the day, I get concerned. You know, Ms. Cohen in her testimony that will come up 

in the second panel cites other examples of harm to borrowers that 

are not in your 20 examples: servicer delay, the cost of being placed 

in a proprietary modification instead of a HAMP one, to mention 

a few. So I am trying to get a sense of why do we not have a broader outline of what is the guideline to understand what financial 

harm is. 

And, second, as a corollary to that, you state in your written testimony that the OCC will provide guidance clarifying compensation 

for certain categories of harm, but that, ‘‘Any such baseline expectations would not, however, override the independent judgment of 

the independent consultants.’’ And that strikes me as somewhat 

backwards. Who is running the show—the OCC as the regulator or 

the third-party consultants and the servicers who hired them? 

Which, you know, goes to the general concern about the objectivity 

of those really making the key decisions here. 

So why not a more fuller understanding of what is the standard 

of financial harm? And why not in your providing a baseline of— 

and guidance clarifying compensation for certain categories of 

harm, why not say these are, in fact, to be adhered to by the independent consultant? 

Ms. WILLIAMS. Well, two separate questions, so let me try to take 

them in turn. 

As I indicated, what we and the Federal Reserve had tried to do 

at the outset is to identify a number of examples of types of injury. 

If a borrower feels that they have been harmed, that they have 

been injured by servicing or foreclosure practices, they can submit 

a claim and set out whatever type of injury or harm that they 

think they have suffered. The way that the form is designed is it 

does try to cluster some specific questions around the categories 

that were identified by the OCC and the Fed in the injury guidance. But there also is a portion of the form where a borrower can 

tell their story, can present their story of how they feel they have 

been harmed. 

Interestingly, we have looked at the claims forms that have been 

submitted so far, and 78 percent of those forms use at least that 

‘‘Other’’ category. In many of the forms the borrowers are filling out 

more than one category on the form, but in 78 percent of those situations, they are also filling out the ‘‘Other’’ part of the form. 

So what we want is for the borrower to tell their story about how 

they feel they have been injured and get that information into the 

review process with the independent consultants. And we certainly 

will try—if there are other general areas that we and the Fed think 

are appropriate for supplemental injury guidance, we are certainly 
6 

open to trying to get the message out about those. But the claims 

process is designed to let borrowers tell their story. 

Senator MENENDEZ. And the second part? 

Ms. WILLIAMS. The second part, on the types of compensation or 

remediation, we are in the process of trying to develop guidance— 

this is a conversation involving the independent consultants as well 

as the Federal Reserve—so that there is a consistency, a range of 

consistency, around the types of remediation that would be provided in connection with particular types of financial harm. So you 

would not have a situation if you were with Servicer X that you 

would get one type of relief and if you were with Servicer Y you 

get a very different type of relief or you get a very different dollar 

amount. But the process also does contemplate that there is the opportunity and the need for the independent consultants to consider 

the facts that are before them and take those into account. And we 

also do not want to tell any of the independent consultants, if they 

feel they want to do better, then any sort of general guidance that 

the agencies may put out, we would certainly not say anything to 

try to hold them back. 

Senator MENENDEZ. But a baseline does not suggest you cannot 

do better. 

Ms. WILLIAMS. That is correct. 

Senator MENENDEZ. But by the same token, a baseline which you 

then go on to say does not override the independent judgment is 

not really a baseline. 

Ms. WILLIAMS. It is certainly a sense of range to try to encourage 

consistency in the results that are reached with respect to particular types of injury. We do not want to foreclose that there 

might not be facts and circumstances that the consultants would 

find that might produce a variation off of whatever guidance we 

provide. 

Senator MENENDEZ. I have other questions, but let me turn to 

my colleagues. I have been given a list here from the Committee 

staff, so in order of appearance, Senator Merkley. 

Senator MERKLEY. Thank you very much, Mr. Chair. 

I wanted to understand. The letter that families are receiving 

lists six types of potential harm. Now, you say in your testimony 

that you have included 20 types of harm to the independent consultants. Why not alert homeowners to the full range? They are not 

sophisticated analysts of detailed mortgage issues. Why only list 6 

of the 20? 

Ms. WILLIAMS. The way that the form was designed for those 6, 

they are more general than the 22 categories that are listed in the 

joint OCC–Fed guidance. And some might say that the 22 categories listed in the guidance are somewhat technical. So the form 

was an effort to try to category generalize areas where there could 

be types of injury. And then, as I mentioned, there is a portion of 

the form where the borrower can fill in any information the borrower wants to provide about injury. 

Senator MERKLEY. Well, I am interested in the fact that 78 percent of the folks use ‘‘Other.’’ As you analyze what those other categories are, do you find, oh, there are some themes here of major 

forms of perceived mistakes that are worth alerting people to, that 
7 

these qualify? Or are you finding you look at them and you go, oh, 

no, these would not qualify? 

Ms. WILLIAMS. I personally do not know the details of what has 

come in in the ‘‘Other’’ category, but that is information that we 

will be very interested in. I could add just in terms of the breakdown of the categories of the claims, 85 percent of them are providing information with respect to a modification-related type of 

harm; 63 percent about a mortgage balance error; 47 percent are 

raising issues about improper or incorrect fees; and 45 percent of 

what we have so far of the claims forms indicate that the borrower 

thinks there was inappropriate payment processing. 

With those numbers you can tell there is overlap, so the forms 

are obviously coming in with multiple categories being filled out. 

Senator MERKLEY. Why did you all want to keep the independent 

reviewers secret? 

Ms. WILLIAMS. We did not. We made that information publicly 

available by releasing the engagement letters. 

Senator MERKLEY. OK. I had the understanding that you resisted, did not want to release those, and it was only public pressure that you responded to. Is that wrong? 

Ms. WILLIAMS. I think our plan had been that we were going to 

release that information, and that we were going to release the engagement letters. The names would become publicly available with 

the release of the engagement letters. 

Senator MERKLEY. So do you feel like there is some standard 

that eliminates the conflict of interest between these companies, 

which are often major companies that may have contracts with all 

kinds of folks in the banking community? Was there some kind of 

conflict-of-interest standard applied to actually create something 

homeowners can count on as an independent, unbiased point of 

view? 

Ms. WILLIAMS. Senator, we did a couple of things in that regard. 

We screened the independent consultants. We also screened the 

law firms that each of the independent consultants retained. And 

what we focused on was trying to identify situations where the 

independent consultants or the law firms might have previously 

taken positions relative to the types of issues that they were going 

to be asked to render an independent judgment on in their role as 

an independent consultant. And where we felt there was any question about that type of previous role by the independent consultants or the law firms, we disqualified them. 

We also required specific language in the engagement letters between the independent consultants and the servicers that the independent consultants not take direction from and are not under the 

control of the servicers in a number of important respects. The interim report that we released prior to Thanksgiving together with 

the engagement letters lists seven or eight, I believe, separate requirements that had to be included verbatim in the engagement 

letters between the independent consultants and the servicers with 

respect to not being influenced by the servicers in their decisionmaking process and taking direction and being overseen by the 

OCC or the Fed. 

Senator MERKLEY. I am out of time, so I will just note that I feel 

I have a broad concern. This feels like a wild goose chase. So many 
8 

homeowners were told to make these reduced payments or stop 

making payments, and then were told you do not qualify for modification because you reduced your payments. Just numerous elements concern me, but I am out of time, so I will defer to my colleagues. 

Ms. WILLIAMS. Senator, we are very concerned about that as 

well, and our objective is to get as many borrowers who believe 

that they were harmed into this pipeline so that their cases can be 

reviewed. 

Senator MERKLEY. Thank you. 

Senator MENENDEZ. Senator Reed. 

Senator REED. Who selected the independent consultants? 

Ms. WILLIAMS. The independent consultants were initially proposed by each of the servicers, and then they were reviewed and 

signed off on or nondisapproved by the agency. 

Senator REED. Did you reject any of the proposed independent 

consultants? 

Ms. WILLIAMS. I believe we did, and I know that we rejected a 

number of law firms because I was directly involved in that process. 

Senator REED. In terms of the independent consultants, have all 

of them done previous work or many of them done previous work 

for the servicers that they are now supervising? 

Ms. WILLIAMS. There are a number of situations where they have 

done previous work for the servicers in different areas generally, 

but they have had previous business engagements with those 

servicers. 

Senator REED. I think at least appearance-wise it raises questions about the true independence of these organizations and the 

fact that these entities were proposed to you rather than you, in 

fact, assigned a truly independent—and I think that is not only 

perceptual, but is perhaps a substantive floor that is hard to reconcile. Let me ask—— 

Ms. WILLIAMS. Senator, if I could address that. 

Senator REED. Yes, ma’am. 

Ms. WILLIAMS. We did have internal discussions about that, the 

process of retaining the independent consultants and whether it 

would be feasible for the OCC to retain the consultants, for example, and the difficulty with that is that it put us in a position of 

having to go through a procurement process that was going to be 

very time-consuming and raise a lot of difficult questions about 

what standards were we going to use to evaluate their qualifications under the criteria that we would have to have followed. 

So we felt that the independence requirements that we required 

in the engagement letters helped to solidify the understanding of 

the responsibilities of the independent consultants. 

Senator REED. So you are telling me you did not have the authority to order a servicer to engage a specific independent consultant? 

You did not have that authority? 

Ms. WILLIAMS. To say that they had to hire X firm and pay 

for—— 

Senator REED. Exactly, yes. 
9 

Ms. WILLIAMS. We would have to figure out what process we 

would go through in order to determine which one that would be, 

the qualifications of that—— 

Senator REED. Wouldn’t it be very similar to the process you 

went through screening the proposed firms that were selected by 

the company being reviewed? 

Ms. WILLIAMS. I think our screening process was based more 

broadly on this issue of the prior roles of the consultants in connection with the issues that they were going to be asked to opine on 

and their overall capacity, resources to carry out the—— 

Senator REED. I think you are saying two things here: that you 

have done such a thorough screening that you are confident that 

these independent reviewers are truly independent, yet you could 

not do that before the fact, you had to rely upon the recommendation of the individual who was being reviewed. Doesn’t that sound 

somewhat discordant in terms of your ability or capacity? 

Ms. WILLIAMS. Senator, I do not think it does in terms of our 

role. One of the other challenges that we faced, quite frankly, is the 

scope and scale of the firms that had the basic capacity to do this 

work. We found that many of them had various engagements with 

most of the servicers involved. 

Senator REED. Let me ask you another question. If a firm that 

has had a previous engagement encounters a situation in which 

they participated or rendered advice, are they obligated to inform 

you immediately? 

Ms. WILLIAMS. I am not sure if I understand the question, sir. 

Senator REED. You have a firm that is now the independent consultant. 

Ms. WILLIAMS. Right. 

Senator REED. They discover a series of transactions that, in fact, 

they were directly involved with. Do they have the obligation to inform you immediately—— 

Ms. WILLIAMS. We would expect that they would inform us. 

Senator REED. Do they have the obligation, rather than you have 

the expectation? 

Ms. WILLIAMS. I would say that they have the obligation. The expectation we have is that they would not have had that sort of involvement. 

Senator REED. If they find—there is proprietary information engaged here, but if they find proprietary information that is potentially material to investors in terms of the behavior of these 

servicers, and most of the holding companies that own them are 

public companies, are they obligated to inform you and the Securities and Exchange Commission of their findings? 

Ms. WILLIAMS. Again, I am not sure if I understand the focus of 

your question. If they, in doing their reviews—— 

Senator REED. If they are doing their review, find potential 

criminal activity, potential failure to disclose material facts that 

would be subject to reporting by the SEC, are they required to inform you and the SEC of their discoveries? 

Ms. WILLIAMS. I do not know of their obligations to inform the 

SEC. I think they would be obligated to inform us—— 

Senator REED. And you would be obligated to inform the SEC? 
10 

Ms. WILLIAMS. We have a good working relationship with the 

SEC—— 

Senator REED. I am not talking about a good working relationship. I am talking about if you find material information that was 

material to investors that had not been disclosed through this process, do you have the option to inform the SEC or not? 

Ms. WILLIAMS. No. No, of course not. If we find something we 

think constitutes a violation of the Federal securities laws, that is 

the sort of situation where we will work with the SEC. 

Senator REED. Thank you. My time has expired. 

Senator MENENDEZ. I think there are a lot of questions, and so 

we are going to go through a second round. 

Let me ask you, why has the OCC not publicly released at least 

nonconfidential parts of the action plans to implement this program as I requested of the OCC and the Fed in July? 

Ms. WILLIAMS. Senator, the action plans are quite voluminous. 

They are, and I have looked at a number of them myself, a mixture 

of a lot of very detailed functional process information and some 

summary overview types of statements. They have been submitted 

to us with assertions that the information is highly sensitive, that 

it provides competitors with insights into internal risk management methodology and business strategies, with assertions that the 

information includes trade secrets, operations information, confidential statistical data, other confidential commercial and financial data within the meaning of the Trade Secrets Act, for which 

there are sanctions for release. So it is very difficult as a practical 

matter to simply release the whole document without doing a very 

elaborate review and redaction for that type of information. 

If there are particular aspects of the action plans that the Committee is interested in—— 

Senator MENENDEZ. The Fed states in its testimony that it, 

quote, ‘‘expects to disclose significant portions of the documentation 

related to the final action plans.’’ 

Ms. WILLIAMS. Yes. 

Senator MENENDEZ. So why would the Fed be able to do that but 

the OCC not? 

Ms. WILLIAMS. I do not know what process they are going 

through and they have not done it yet, so all I am saying is that 

the process of dealing with the issues involved in releasing the action plans is a lot more complicated than the issues with the engagement letters, and I do volunteer to you, Mr. Chairman, if there 

are particular things that are of interest with respect to the action 

plans, I think we can try to work with the Subcommittee—— 

Senator MENENDEZ. Let me go through a few. You know, openness and transparency in this process is going to be critical to a 

belief that it was done, especially when you have hired independent 

consulters for which there is—I have concerns, Senator Merkley, I 

am sure others have concerns about the process. You know, it is 

going to be critically important to give this any validation at the 

end of the day. So I would urge you to, in that spirit, be as open 

and transparent as you can. 

Let me ask you a series of questions and I hope you can give me 

some brief answers. Homeowner advocates allege that homeowners 

will be required to give up their legal rights to other remedies if 
11 

they apply for this program or take any money, even a small 

amount. Is that accurate? 

Ms. WILLIAMS. There has been no decision made that that would 

happen. 

Senator MENENDEZ. OK. There has been no decision made. That 

does not mean that there could not be a decision made that would 

say, yes, that will happen. 

Ms. WILLIAMS. There could be situations, depending upon the 

type of relief that ends up being provided, where it may be sensible 

for a servicer to seek a waiver. So, for example, if the remediation 

that is provided is the homeowner gets the home back, they get expenses paid and they get some lump sum payment, form of compensation, on top of that, with a package of remediation like that, 

that may be a situation where a waiver would be appropriate. 

Senator MERKLEY. So, in essence—but they would be able to 

make that decision before they chose to give up their rights? 

Ms. WILLIAMS. Absolutely. 

Senator MENENDEZ. Second, the consent orders do not end dual 

track. They perpetuate it, since servicers are still allowed to proceed with foreclosures while they are still reviewing files of homeowners for a modification. Why are we allowing that when that creates such a confusion to homeowners at the end of the day? 

Ms. WILLIAMS. Senator, the consent orders provided for a halting 

of dual tracking when there was an approval of a trial or permanent modification. This was an area, and I apologize here, I am 

going to give a little longer answer—this was an area where we 

specifically envisioned that in the event of a global settlement involving the Department of Justice and the State AGs that there 

would be a term sheet that would be a part of that settlement that 

has more detailed standards in it that would be incorporated into 

the action plans of the servicers. We also anticipated that there 

would be changes made, which now have been made, by the GSEs 

in their requirements for servicers handling troubled mortgages 

and that those two would have to be taken into account in the action plans at the end of the day. The combination there results in 

actually more requirements in stopping dual tracking than the basics that are provided in our consent orders. 

Senator MENENDEZ. Let me finally ask, how many people are eligible and how many do you expect to appeal? 

Ms. WILLIAMS. For the National Bank and Federal Savings Association population, it is just under four million. The total for all of 

the servicers covered by the enforcement orders is about four— 

maybe a little less than four-and-a-half million. 

Senator MENENDEZ. And how many do you expect to appeal? 

Ms. WILLIAMS. We do not know, sir. 

Senator MENENDEZ. And that raises the final question that I am 

concerned about. If you have no sense of how many are going to 

appeal, how will you know whether the third-party consultants will 

have the personnel and the wherewithal to review the cases in a 

timely manner, especially since dual track is permitted? 

Ms. WILLIAMS. What we will be doing through the supervisory 

process is overseeing and checking the processes that the independent consultants are using. We have also required the independent consultants themselves to have certain quality assurance, 
12 

quality control functions, and they will be performing that function 

themselves and we will check that, too. 

Senator MENENDEZ. And if you felt they did not have the sufficient personnel or wherewithal to pursue it, you would have the 

ability to order them to do that? 

Ms. WILLIAMS. To get more people or more resources. 

Senator MENENDEZ. Senator Merkley. 

Senator MERKLEY. Thank you. 

In the letter to homeowners, did you disclose that the independent reviewers were selected by the companies that hold the 

mortgages? 

Ms. WILLIAMS. Senator, I do not believe that is in the letter, but 

I would have to look at it specifically. 

Senator MERKLEY. Do you think that that might be important to 

whether a homeowner feels like it truly is an independent process? 

Ms. WILLIAMS. I can understand the issue that you all are raising, and what I have tried to explain is why we think that we have 

taken steps to make sure that the process has integrity. 

Senator MERKLEY. Do you think the banks would consider it 

independent if the homeowner groups representing homeowners got 

to choose the independent reviewer? 

Ms. WILLIAMS. Would the banks consider that? I would imagine 

that they would. 

Senator MERKLEY. Well, please, that is so insincere, that the 

banks would say, yes, the homeowners get to pick the independent 

reviewer. I mean, absolutely, are you kidding me? You would claim 

that the banks would do that? If so, why not let the homeowners 

pick the independent reviewer if you think the banks would agree 

to that. 

Ms. WILLIAMS. If what you are describing—— 

Senator MERKLEY. I mean, that is just—it is absurd. 

Ms. WILLIAMS. If what you are describing is a process where each 

homeowner could pick the independent consultant for their 

claim—— 

Senator MERKLEY. Yes, one—yes. 

Ms. WILLIAMS. That simply would not, I think, be feasible to implement—— 

Senator MERKLEY. Well, it would not be feasible—— 

Ms. WILLIAMS.——in any reasonable timeframe. 

Senator MERKLEY.——but it would not be considered fair by the 

other party, and I just—I mean, the fact that you have not disclosed—you are talking to the American people here and you are 

putting your reputation on the line, saying we have established an 

independent process. You are not disclosing that it is paid for by 

one party. You are not disclosing that these companies have a relationship already with the party. And you are not disclosing that 

one side chose the independent. And I think to even call it independent is, in that situation, a complete betrayal of your trust with 

the homeowner, homeowners who feel like they have been manipulated and pushed so often for so long. So each time I hear you say 

the word ‘‘independent,’’ I am just going to flinch. 

Then the letter says, possible compensation or other remedy, 

partway down the second page. What compensation? What remedy? 

The homeowner has no sense that there is anything real at the end 
13 

of this journey. Why not fill in the homeowner on kind of the types 

of compensation just so they might feel like maybe this one is not 

a wild goose chase? Maybe this is real? 

Ms. WILLIAMS. And that gets to the guidance discussions that the 

Chairman was asking me about—what types of financial remediation is expected. Our discussions that are ongoing to develop some 

consistency and ranges of types of remediation based on types of 

injury. So the sorts of things that one could envision here are if injury involves the imposition of various fees and charges that were 

not authorized and were not correct, that there should be reimbursement for that. If someone lost their home as a result of an 

impermissible foreclosure and the property is still in the foreclosure pipeline and can be returned to the borrower, that that 

would be a form of financial remediation in that case. 

Senator MERKLEY. Are you planning to send a second letter to 

homeowners to, one, to clarify the way that the independent—socalled independent process has been structured so that homeowners are not misled by their own Government? And second, to 

fill them in on a list of potential types of compensation so they feel 

like, well, this is something real? 

Ms. WILLIAMS. Senator, what we may do through subsequent 

communications—and whether that is media or other form of outreach—is try to provide more information about this process. Now, 

when I say what we may do, there could be subsequent mailings 

as part of that process. But we do envision, as I mentioned in my 

testimony, that there will be a substantial amount of additional information explaining the independent foreclosure review that is 

going to be put out by the independent consultants. And the OCC 

will be doing PSAs. 

Senator MERKLEY. My time is running out, but I just request 

that you be fully honest and transparent. The last thing homeowners need after so many challenges—I mean, I can tell you that 

the one person of a major bank has said the biggest challenge they 

faced, or the biggest mistake they made was in hiring kind of call 

room capable folks to discuss what are complicated transactions 

that the call room folks did not understand and that led to a lot 

of misinformation. They really regretted that they had not hired 

people with mortgage expertise so that there would be more accurate conversation. And I really appreciated the fact that that was 

understood. 

But if you view this from the point of view of the homeowner, 

who did receive so much misleading information along the line, and 

to recognize that servicers have all kinds of different motivations, 

if you will, than, say, a corner bank that owns a mortgage and 

there are extra layers of concern and legal issue and communication, it is just the last thing homeowners need is one more process 

where there is not full and accurate disclosure. 

And I will close by echoing the Chair’s comment that the failure 

to stop the foreclosure process while saying that there may be a 

remedy means that potentially you are saying, yes, we may find 

after 3 months that you have been unfairly—had your home taken 

away, but too bad. We let it happen even while the review was underway. I just—that is a continuation of this sense of, really? That 

is the fair process here, that you are going to consider this issue 
14 

while my home is sold and then I will not be able to get it back 

because it is gone. 

Ms. WILLIAMS. Senator—— 

Senator MERKLEY. It is disturbing. 

Ms. WILLIAMS. Two things. We are working on improving the 

process, the intake process to try to forestall that situation that you 

were describing. And finally, our goal is to get as many borrowers 

who think that they were harmed into this process, and I completely appreciate the points you are making about part of the way 

to do that is for the borrowers to believe that the process is credible. So—— 

Senator MERKLEY. Thank you. I am on my colleagues’ time—— 

Ms. WILLIAMS.——it is in our interest to try to assure that. 

Senator MENENDEZ. Senator Reed. 

Senator REED. Following up on this issue of the independence of 

these consultants, is there any prohibition on future work that 

these companies can do with the party that they are independently 

supervising? 

Ms. WILLIAMS. No, sir. 

Senator REED. Is there any prohibition about contemporary work 

that they are doing in other fields? 

Ms. WILLIAMS. In unrelated areas? No, sir. 

Senator REED. Well, yes, but—so, essentially—you know, there is 

a difficult set of incentives for it to be truly independent, since I 

think there is the notion that down the road, you would like to continue to work with this enterprise. 

Ms. WILLIAMS. One of the circumstances of these independent 

consultants is that they were not dependent upon the particular 

servicer here for their business success. 

Senator REED. Well, but they have done business in the past. 

There is no prohibition against doing business in the future. There 

is not even a contemporary sort of moratorium for a period of time. 

Is there any obligation for them to report back to the OCC on business engagements after the fact so you could essentially make a 

judgment of these engagements—— 

Ms. WILLIAMS. I do not believe there is. 

Senator REED. Would that make sense? 

Ms. WILLIAMS. I could take that back and we can think about it. 

Senator REED. The Servicemembers Civil Relief Act has been on 

the books since 1940, and I am pleased from what you said, that 

you are going to have 100 percent review of every—I want to make 

sure I heard you correctly—of every file involving a 

servicemember? 

Ms. WILLIAMS. That is in scope, yes. 

Senator REED. I do not know what ‘‘in scope’’ means. Could 

you—— 

Ms. WILLIAMS. A borrower who was involved in any stage of the 

foreclosure process during the years 2009 and 2010. 

Senator REED. And the other aspect of this is that, apparently, 

since you complimented DOD and others, you had to rely upon the 

Department of Defense for the information about who was in the 

service and who was not in the service, suggesting that the 

servicers had no idea they were dealing with military personnel? 
15 

Ms. WILLIAMS. The problem was one of available data in doing 

these independent reviews. There were two issues in order to be 

able to facilitate the reviews. One is the timeframe that the 

servicemember’s the active duty information is typically available 

through the Defense Manpower Data Center and the Web site. The 

other is that it has been designed for what folks refer to as 

‘‘pinging,’’ individual names to check to see whether they are active 

duty. 

What was accomplished with DOD and the involvement of the 

Department of Justice is to be able to do a batch processing and 

to cover the time period covered by the independent reviews. 

Senator REED. Let me ask a final question. Are you confident 

now that, going forward, servicers will, in fact, know if an individual is subject to the Servicemembers Civil Relief Act going forward? 

Ms. WILLIAMS. I am confident that once the steps that we require 

be implemented are fully implemented, that that is the case, yes, 

sir. 

Senator REED. When is that going to take place? 

Ms. WILLIAMS. Some of them should already be in place and others should be implemented through the early part of next year. 

Senator REED. Finally, have you reached out to consumer advocates like the National Consumer Law Center, to engage them and 

participate with them and work with them in terms of designing 

this program, vetting this program, responding to their criticism? 

Ms. WILLIAMS. We have been doing that over the course of the 

last several weeks very actively and we had some very constructive 

discussions, that I have been part of, and some good suggestions 

about some of the elements of the media campaign. 

Senator REED. May I ask, why was that not done earlier, when 

you were designing the program, thinking about how you would 

structure the selection of independent consultants, how you would 

screen the consultants, how you would communicate with consumers? 

Ms. WILLIAMS. Part of that answer is that some of the activities 

were activities that were being conducted by the independent consultants, not by us. This is—what I am talking about is interactions that we are having now. The other is that we were initially 

thinking more in terms of implementation of an enforcement consent order, and so there were various steps that we saw taking 

place going forward. So we did not engage right at the outset, but 

we are very engaged now. 

Senator REED. Thank you. 

Senator MENENDEZ. Thank you. 

Well, thank you, Ms. Williams, for your testimony. You are obviously very talented. Your legal skills were well exhibited. Now, I 

just hope that you will use that talent and those legal skills to address some of the Committee’s concerns and take some of the suggestions to heart, and more importantly than to heart, to action, as 

to action. So with that—— 

Ms. WILLIAMS. Senator, thank you—— 

Senator MENENDEZ.——we appreciate your testimony. 

Ms. WILLIAMS.——and you have our commitment. 
16 

Senator MENENDEZ. Thank you. With that, we appreciate your 

testimony. 

Let me call up the next panel. 

Alys Cohen is a staff attorney at the National Consumer Law 

Center’s Washington office where she advocates before Congress 

and the Federal regulatory agencies on predatory lending and sustainable home ownership issues. We thank her from coming. 

David Holland is the executive vice president of Rust Consulting, 

Inc., which is contractor that does outreach to homeowners for the 

foreclosure reviews. 

Paul Leonard is the Housing Policy Council’s vice president of 

government affairs where he works with HPC member companies 

on foreclosure prevention. The Housing Policy Council is assisting 

the 14 mortgage servicers participating in the foreclosure reviews 

with the communications regarding the implementation of the public outreach effort. 

Professor Anthony Sanders is a professor of finance at George 

Mason University School of Management, and we welcome him 

back. He has appeared before the Subcommittee many times and 

imparted his knowledge. He is also a native of Rumson, New Jersey, which makes him an eminent witness. 

Ann Kenyon is a partner at Deloitte & Touche, the third-party 

consultant for servicer JPMorgan Chase. 

And Konrad Alt is a managing director at Promontory Financial 

Group, the third-party consultant for servicers Bank of America, 

PNC, and Wells Fargo. 

So thank you all for joining us. I would ask you each, since this 

is a rather large panel, but we wanted to get all these diverse 

views in, to summarize your statement in about 5 minutes. We will 

have your full statements included in the record, and with that, 

Ms. Cohen, we will start with you. Turn your microphone on, 

please. 

STATEMENT OF ALYS COHEN, STAFF ATTORNEY, NATIONAL 

CONSUMER LAW CENTER 

Ms. COHEN. Chairman Menendez, Senator Merkley, thank you 

for inviting me to testify today. I testify here today on behalf of the 

National Consumer Law Center’s low-income clients and on behalf 

of 20 State and national organizations, including Americans for Financial Reform, who work daily in communities gravely affected by 

the foreclosure crisis. 

I have worked as an attorney in the area of sustainable mortgage 

lending for almost 15 years and have spent the last 8 at NCLC, 

providing technical assistance, training, and policy guidance to attorneys, housing counselors, policymakers, and others. 

In the face of a foreclosure crisis of unprecedented proportions, 

the regulatory response has been staggeringly inadequate. The 

banking agencies’ consent orders and foreclosure exams deny homeowners meaningful reviews and redress. The foreclosure reviews 

are opaque, leave too much control in the hands of the servicers— 

the firms that created the mess in the first place—and threaten to 

strip further rights from homeowners. Given the numerous shortcomings and the potential for homeowner injury, we recommend 
17 

that the Consumer Financial Protection Bureau take over implementation of the orders. 

The CFPB is in a better position to balance the needs of financial 

institutions with those of homeowners facing foreclosure. The foreclosure reviews repeatedly favor banks over homeowners, giving 

the servicers another chance to perpetuate abuses unchecked, while 

hiding behind a fig leaf of reform and accountability. That process 

cannot be permitted to continue. 

To the extent homeowners do participate in the current process, 

servicers may use the process to strip homeowners of their legal 

rights. A lump sum does not equal a sustainable loan, and if you 

waive all your rights, you will have no chance to save your home 

from foreclosure later. And participating will be difficult because 

the outreach process is flawed at every turn, including the fivepage required form attached to my testimony, which is written at 

a college reading level. 

The form itself steers borrowers to narrow descriptions of harm 

geared to underestimate the cost of servicer abuses. Borrowers also 

are not being informed that they will receive a broader review only 

if they do not specify a type of harm. Homeowners who check off 

boxes on the form, even if they inaccurately identify the harm they 

suffered, will only be reviewed for the harms specified. 

The failure to provide multi-language access, an electronic submission option, and outreach in communities of color demonstrates 

a lack of commitment to widespread redress. Even the broader examples of financial injury provided to the consultants by the regulators omit the most common types of financial injury. 

For example, servicer delays are widespread and expensive for 

homeowners. Almost 89 percent of housing counselors in a national 

survey reported that servicer processing delays are the most common barrier to obtaining a loan modification. In one recent case 

from Wisconsin, a servicer’s 2-year delay in converting a temporary 

modification to a permanent modification resulted in additional interest charged to the homeowner of nearly $43,000. 

In addition, no provision is made for foreseeable consequences of 

a wrongful foreclosure. Damaged credit scores will increase credit 

and insurance costs and limit employment and home rental opportunities. The review process and the orders also provide no meaningful limitations on servicer conduct during a foreclosure, even 

during the consultants’ reviews. As a result, homeowners may lose 

their homes while seeking a review or simply while waiting for a 

modification. 

The failure to provide for a foreclosure stop during a review 

makes a mockery of any suggestion that the reviews will make 

homeowners whole or that these steps will stop the abuses from 

happening again. Reliance on other Government agencies to fix 

these problems later is an abdication of responsibility, at best. 

Moreover, the reviews will be conducted in a vacuum without 

firsthand input from interviews with homeowners and without systemic input from stakeholders who work with homeowners. Afterthe-fact feedback on advertising does not on its own constitute 

meaningful participation in the process. 

The OCC’s longstanding record in siding with banks over consumers and over States that seek to protect consumers raises seri-
18 

ous questions about whether the agency will promote a process 

that meets the needs of homeowners. Most recently, the OCC blatantly ignored Congress’ directive to cut back on its regulations 

preempting State laws, instead writing rules with barely a superficial effort to comply with Dodd-Frank. 

National servicing standards are still needed. The consent orders 

in the foreclosure review process provide at best little more than 

window dressing for business as usual, even though business as 

usual has left us in the worst foreclosure crisis in our Nation’s history. 

Thank you for the opportunity to testify, and I would be happy 

to answer your questions. 

Senator MENENDEZ. Thank you. 

Mr. Holland. 

STATEMENT OF DAVID C. HOLLAND, EXECUTIVE VICE 

PRESIDENT, RUST CONSULTING, INC. 

Mr. HOLLAND. Chairman Menendez and Members of the Subcommittee, good afternoon. My name is David Holland. I am an executive vice president with Rust Consulting. Rust has been engaged by the servicers to administer certain aspects of the consent 

orders for the Independent Mortgage Foreclosure Borrower Outreach project. Since this program’s inception, we have worked closely with each of the key stakeholders—the servicers, the independent consultants, the Office of the Comptroller of the Currency, 

and the Federal Reserve Board—to ensure that the terms of the 

consent orders are fully carried out. 

In general, Rust is a company that provides project management 

and administrative services, typically in support of large, complex, 

and time-sensitive programs. We are typically engaged as a neutral 

third party with respect to the issues behind the programs we administer. Our clients include both plaintiff and defense law firms, 

and businesses and Government agencies at the Federal, State, 

and local levels. 

Beginning in June of 2011, we were contacted by several individual servicers regarding our capabilities with respect to this program. Eventually, we were engaged by all 14 servicers to serve as 

the single administrative provider under the consent orders. Broadly speaking, our responsibilities under the consent orders are to notify borrowers about the program, to answer their questions, to receive complaint forms, and to handle inbound and outbound mail. 

More specifically, our responsibilities for this project include the 

following: 

We collaborated with the servicers to prepare plans to ensure appropriate staffing across our responsibilities. An example would be 

staffing our call center with the appropriate number of customer 

service representatives to meet expected volumes. 

We received relevant data comprising the borrower lists from the 

14 servicers. 

We standardized the formatting of names and addresses and arranged for corrections to be made to addresses through the National Change of Address service. We also performed up-front ‘‘skiptracing’’ on the last known addresses for certain borrowers as noted 

by the servicers in their data. 
19 

We continue to oversee the printing and mailing of request for 

review packages to borrowers. The mailing campaign began on November 1 and is scheduled to conclude on December 27. We continue with additional mailings upon request or as better addresses 

are received. 

We have arranged for publication of notices according to a media 

plan prepared by the parties. These advertisements will begin running in January of 2012. 

In addition, Rust established a call center to take incoming calls 

from borrowers with questions about the program, their eligibility 

for it, and their options under it. We have been answering calls 

since November 1st. Borrowers’ requests for complaint forms may 

be placed through the call center, with Rust fulfilling those requests. 

In addition, we established an informational Web site to provide 

basic information about the program to the public. 

Borrowers can submit complaint forms by mail. We have established separate P.O. boxes for each servicer. 

And upon receipt of a complaint form, we send the borrower an 

acknowledgement of receipt. 

We image, data capture, and forward submitted complaint forms 

to servicers and the independent consultants. 

With mail sent by Rust to borrowers but returned by the U.S. 

Postal Service as undeliverable, we attempt to find a better address 

and, whenever possible, re-mail the notices to those new addresses. 

We provide comprehensive daily statistical reporting on program 

activity and service levels to the associated parties, including the 

servicers, the independent consultants, the OCC, and the FRB. 

It is our understanding that Rust may be asked to perform additional related services yet to be determined. 

Thank you, and I am happy to answer any questions that you 

have. 

Senator MENENDEZ. Thank you. 

Mr. Leonard. 

STATEMENT OF PAUL LEONARD, VICE PRESIDENT OF GOVERNMENT AFFAIRS, HOUSING POLICY COUNCIL OF THE FINANCIAL SERVICES ROUNDTABLE 

Mr. LEONARD. Thank you, Chairman Menendez, Senator 

Merkley, and Members of the Subcommittee. My name is Paul 

Leonard. I am the vice president of government affairs for the 

Housing Policy Council of the Financial Services Roundtable. 

Thank you for the opportunity to testify today regarding the independent foreclosure review process, and I will briefly summarize 

my written testimony. 

The goal of the independent review is to assess whether an eligible borrower incurred financial injury and should receive compensation or other remedy due to servicer errors, misrepresentations, or other deficiencies in the foreclosure process on their primary residence in 2009 and 2010. Everyone in this process has the 

desire to get it right. 

It is also important to note that the independent review process 

is in addition to other ongoing efforts the industry has made and 

will continue to make to reach and help at-risk homeowners. 
20 

There are five important points about the independent foreclosure review process. 

First, the reviews are designed to determine if errors in the foreclosure process caused financial injury to borrowers. 

Second, the reviews of the borrower information are independent 

of the servicers and will be overseen and verified by the joint regulators. 

Third, the review process includes a robust outreach campaign 

that includes direct mail, paid advertising, and other steps to reach 

potential borrowers. 

Fourth, it will take some time to receive and complete the actual 

reviews as the outreach efforts just began on November 1st, and 

as Mr. Holland testified, the advertising campaign will begin in 

January. 

And, fifth, the information provided to the regulators on the 

independent foreclosure reviews throughout the process is intended 

to be comprehensive and complete. 

Everyone involved fully appreciates the importance of the process, and we are working to ensure the reviews are conducted as 

prescribed by the regulators. The 14 servicers working under the 

guidance of the regulators have worked together to provide a cohesive process to find lapses in the foreclosure process, to correct 

them and remedy those that caused financial injury to any homeowner. 

In this spirit, the servicers have specifically followed the direction within the consent orders. Additionally, they have worked 

closely with the regulators to create a consistent process for eligible 

borrowers to be contacted and have an opportunity for a thorough, 

independent review of their foreclosure case. The servicers have 

added senior leadership and internal staff to help them with their 

respective borrowers and support the review process. 

While much of the public focus is on the outreach campaign, it 

is important to note that the independent foreclosure review actually contains two components. The first is the borrower complaint 

process that enables eligible borrowers who believe they have been 

financially harmed in the process to request an independent review 

of their files. At the same time, the required file look-back is happening, and that is a valid statistical sampling of borrower accounts, including, as Senator Reed pointed out, a review of 100 percent of borrowers with certain characteristics, such as those who 

may have been eligible for protection under the Servicemembers 

Civil Relief Act. 

Industry-wide, the joint regulators have determined that the population eligible for reviews includes about a little over 4 million 

borrowers. That does not mean that all of these borrowers were financially harmed. However, this is the universe of borrowers eligible for review. 

To reach these borrowers, the public education campaign to inform borrowers about the process has been launched. We are assisting with that. It includes direct mail, national paid advertising, 

and earned media. Servicers are also working with nonprofit 

groups and consumer advocates about the process to further help 

borrowers, and we are sharing that input with the regulator. 
21 

The independent foreclosure review process is underway. It is 

unprecedented in nature and requires close coordination among 

many different entities while maintaining the independence of the 

review process as a whole. 

Ultimately, we believe these collective efforts will help address 

concerns about the foreclosure process and hopefully increase borrower confidence. 

Thank you for the opportunity to speak today, and I am glad to 

answer any questions. 

Senator MENENDEZ. Thank you. 

Dr. Sanders. 

STATEMENT OF ANTHONY B. SANDERS, PH.D., DISTINGUISHED 

PROFESSOR OF REAL ESTATE FINANCE, GEORGE MASON 

UNIVERSITY 

Mr. SANDERS. Chairman Menendez, Senator Merkley, and Members of the Subcommittee, thank you for inviting me to testify 

today. My name is Anthony B. Sanders. I am the Distinguished 

Professor of Real Estate Finance at George Mason University and 

senior scholar at the Mercatus Center. I was previously director of 

asset-backed and mortgage-backed securities research at Deutsche 

Bank and the co-author of ‘‘Securitization,’’ with Andy Davidson, as 

well as many other housing finance and housing economics publications. 

We are all painfully aware that house prices declined precipitously from its peak in 2006–07 resulting in a 32.5 percent decline. 

Homeowners’ equity in real estate fell 53.8 percent from its peak. 

While house prices are actually increasing in some areas of the 

country, they continue to fall in Western and Midwest States. According to Zillow, negative equity rose to 28.6 percent of single-family homes with mortgages in the third quarter of 2011. Unemployment and partial unemployment remains horrific at 8.6 percent 

and 15.6 percent, respectively. And according to the Bureau of 

Labor Statistics’ latest report, 315,000 people dropped out of the 

labor force while 120,000 nonfarm jobs were created amounting to 

a net job loss of 200,000. 

The combination of a recession, a catastrophic decline in house 

prices, and continued unemployment levels not seen since the 

Great Depression has resulted in a staggering number of mortgage 

delinquencies, defaults, and foreclosures. According to the LPS report, of December 1st, mortgage delinquencies are down nearly 30 

percent from the peak while the foreclosure inventory is at an alltime high. As of October 2011, 2.33 million loans are less than 90 

days delinquent, 1.76 million loans are 90 days delinquent, and 

2.21 million loans are now in foreclosure. This sums up to 6.30 million loans delinquent or in the state of foreclosure as of October. 

The foreclosures rates are correlated with housing price declines 

and State unemployment rates. Clearly, the housing market and 

high unemployment rates are a drag on the economy, and households have responded by reducing debt levels as a percentage of 

disposable income, whether voluntary or involuntary. It is clear 

that all parties involved have suffered enormously since this began. 

The Office of the Comptroller of the Currency, OCC, has released 

its Interim Status Report dated November 2011. The report dis-
22 

closes the independent consultants for the review, and there is no 

reason to believe that these independent consultants will skew or 

shape their findings in favor of the servicers. Furthermore, given 

the level of scrutiny on the loan modification process and foreclosures and the lender/servicers’ desires to put this process behind 

them, I am confident that all parties will handle the review process 

accurately. And with so many regulatory eyes on the foreclosure 

process, including this Committee, I find it hard to believe that this 

process will be anything but transparent. When we include the recent Bloomberg Freedom of Information Act request against the 

Federal Reserve, which disclosed some information we were unaware of, I think this will be a continuing trend in the market, so 

I am more comforted that this will be a smooth process. 

My concern is not with the selection of the independent consultants, but with the time and costs involved in such a laborious review process relative to the expected economic assessment of harm. 

In addition to reviewing foreclosures at the request of the borrower—it is a good idea—and certain mandatory groups, there will 

also be a sampling of foreclosures to detect problems. Let us suppose that the 4.5 million eligible are reviewed at a cost of $2,500 

per review. That would result in a cost to servicers of $11.25 billion. So depending on the number of borrowers that ask for a ‘‘free 

review’’ and the sampling size for all foreclosures, this process 

could be quite costly to the lenders and servicers involved. 

More importantly, what would be the penalties for harm done to 

borrowers relative to the cost? There will likely be egregious errors, 

such as violations of the law including foreclosure on active military personnel, but I would be surprised if these exceed 100 instances, or less than two-tenths of 1 percent of the 4.5 million foreclosures. In terms of modification errors, there are likely to be less 

than or near 50,000 instances. In terms of technical errors, such as 

robo-signing, it is difficult forecast how many there will be, but 

technical errors like robo-signing should not result in any financial 

harm to borrowers since they likely would have been foreclosed 

upon after the documentation error was corrected. 

So what we are doing is we are comparing a very large number 

of costs potentially to damages that might amount to approximately $1 billion. Again, any negative or any harm to borrowers, 

of course, should be correct. But once the review is completed and 

the remediation for financial harm is concluded, I urge everyone to 

try to put the foreclosure issue behind us, whether it is uniform 

servicing standards or whatever process we want to undertake, and 

try to let the market and the economy heal itself. 

Thank you for the opportunity to testify before you today. 

Senator MENENDEZ. Thank you. 

Ms. Kenyon. 

STATEMENT OF ANN M. KENYON, PARTNER, DELOITTE & 

TOUCHE LLP 

Ms. KENYON. Chairman Menendez, Senator Merkley, good afternoon. My name is Ann Kenyon, and I lead the Securitization Advisory Group at Deloitte & Touche LLP. My experience for over 30 

years has been in accounting and finance in both industry and public accounting. Since joining Deloitte in 1997, I have led or worked 
23 

on many engagements for financial institutions, commercial clients, 

and governmental entities with respect to their issues in dealing 

with the capital markets. 

Deloitte & Touche LLP and its affiliates have over 45,000 people 

in offices throughout the United States and perform professional 

services in four key areas: audit, financial advisory, tax, and consulting. 

In your invitation, you asked me to discuss the consent orders 

that were reached by the OCC last spring with the major mortgage 

servicers and the foreclosure reviews that will result from them. 

Article VII of the OCC Consent Order creates a foreclosure review 

process for borrowers with residential mortgages referred to foreclosure during 2009 and 2010. 

As contemplated by the consent order, the objective of the review 

is to identify borrowers who have suffered direct financial injury as 

a result in any deficiencies identified in the servicer’s procedures 

in certain areas. Article VII calls for the Bank to retain an independent consultant to conduct ‘‘an independent review of certain 

residential foreclosure actions regarding individual borrowers with 

respect to the Bank’s mortgage servicing portfolio.’’ Deloitte serves 

as the independent consultant for JPMorgan Chase Bank, and I am 

the engagement partner on that matter. As required by Article VII, 

the conduct of the review is subject to the monitoring, oversight, 

and direction of the OCC. We have been and are meeting with the 

OCC regularly to keep the OCC officials apprised of the details of 

our approach and progress. 

Deloitte’s engagement consists of three stages. In the first stage, 

Deloitte undertook the planning and coordination necessary to conduct an effective foreclosure file review as described in the consent 

order. The specific procedures to be performed by Deloitte were approved by the OCC and established based on the requirements of 

the consent order and discussions with independent counsel. 

As a public accounting firm, we do not practice law, so we are 

guided by independent counsel, retained solely to advise Deloitte in 

all matters requiring legal interpretation. These procedures are 

generally described in Appendix E to our engagement letter. 

The second stage focuses on testing of the selected foreclosure 

files. To execute this task, we have deployed file testing teams to 

review applicable foreclosure files as a basis for making appropriate recommendations for further actions. File analysts will be 

assigned a file workload to execute against the procedures in Appendix E. The analysts will conduct necessary research and will obtain additional information as necessary for each to form a sufficient basis of conclusion with respect to the results of the procedures performed. Finally, the analysts will recommend a file for 

further review, for possible remediation activity or closure. 

Throughout the process, the analysts will document the research, 

recommendations, and basis for conclusions, and if the analyst recommends a case for further review or possible remediation activity, 

the basis for the recommendation will be documented and reported 

to engagement leadership. In addition, Deloitte will conduct quality 

assurance procedures on the work performed by our team. 

Finally, the third stage consists of the review, approval, and 

issuance of the results of the foreclosure file testing. Among other 
24 

tasks, a written report will be prepared by Deloitte and submitted 

to the OCC detailing the process, testing methodology followed, and 

results of the procedures performed by Deloitte in the review. 

Our engagement letter was approved by the OCC in September, 

and our work is well underway. As outlined in our engagement letter, we anticipate delivery in late 2012 of the final report based on 

the review. 

I assure you that we at Deloitte take our responsibilities as an 

independent consultant very seriously. We are working hard to 

complete the foreclosure review in a timely and effective manner 

so that the results of our work can be reported to the OCC as 

promptly as possible. I am satisfied with our progress to date, and 

I am confident in the quality of the work performed. However, 

there is much more to be accomplished. 

I thank you for providing me with this opportunity to testify and 

would be happy to answer any questions you have. 

Senator MENENDEZ. Thank you. 

Mr. Alt. 

STATEMENT OF KONRAD ALT, MANAGING DIRECTOR, 

PROMONTORY FINANCIAL GROUP, LLC 

Mr. ALT. Good afternoon, Mr. Chairman, Senator Merkley. My 

name is Konrad Alt, and since 2004 I have been a managing director of the Promontory Financial Group, responsible for our San 

Francisco office. Many years ago, though, I was counsel to the Senate Banking Committee, and I am honored to be back here again 

today. 

The independent foreclosure review is not the only piece but I 

hope it will be an important piece of our country’s efforts to address the foreclosure crisis. Our country cannot recover from this 

crisis until distressed homeowners and former homeowners who 

have been injured by errors in the foreclosure process receive the 

remediation they deserve. I want to commend you, Mr. Chairman, 

for your leadership in addressing this most serious foreclosure 

issue and for advancing transparency in regard to the foreclosure 

review. 

My comments here today are my own and those of my firm. They 

do not necessarily reflect the views of any of the financial institutions with which Promontory is working, nor those of other independent consultants 

As you know, the consent orders issued by the three Federal 

bank regulatory agencies last April direct each servicer to retain an 

independent consultant to conduct a foreclosure review of certain 

residential foreclosures for the purpose of finding borrowers who 

incurred financial injury as a result of errors, misrepresentations, 

or other deficiencies in the foreclosure process, so that they can receive appropriate remediation. 

Early in 2011, several of the servicers that received these orders 

approached Promontory about our willingness and capacity to perform the required independent review. Three of them ultimately 

proposed to the OCC to engage us. In reviewing their proposals, 

the agency requested and we provided exhaustive information concerning our credentials and potential conflicts of interest. After considering that information, the agency approved all three engage-
25 

ments, and as a result I now head one of our firm’s review teams 

and help to coordinate Promontory’s work in this area. 

Given the millions of consumers involved, this undertaking is 

complex by its very nature. Many things can go wrong with a mortgage or a foreclosure, and reviewing a particular file to ascertain 

what, if anything, did go wrong can be both difficult and time-consuming. Yet an overly protracted review is not helpful to borrowers 

who have suffered or are at risk of suffering genuine financial injuries. My colleagues and I want you to know that we are working 

hard to do this job as fairly and effectively as possible, to the highest professional standards, and that every aspect of our work, from 

design to implementation to results, is fully transparent to the 

agencies and subject to agency examination and criticism. 

Following approval of our retention, Promontory began to develop 

a methodology to meet the challenges presented by the foreclosure 

review. We developed that methodology in close consultation with 

regulatory examiners and subject matter experts, and adapted it to 

the particular circumstances of the different servicers with which 

we are working. We detailed it in engagement letters that the regulators reviewed and commented on before authorizing their execution in September. 

Our engagement letters, all of which the OCC has published in 

redacted form on its Web site, make clear that Promontory works 

at the agency’s direction. Promontory, not the servicers, determines 

what information to review and whether financial injury has occurred. 

Our engagement letters describe a two-pronged approach to the 

foreclosure review. The first prong consists of a meticulous review 

of a large number of files. We selected a large portion of these files 

based on known risk factors—for example, the commencement of 

foreclosure proceedings after the issuance of a stay in bankruptcy— 

and the remainder according to well-established statistical methods. 

Consistent with the requirements of the consent orders, we review each of the selected files with an eye to numerous specific 

questions relating to compliance with applicable State and Federal 

laws, the reasonableness of fees and penalties, and the accuracy of 

servicer processing of borrower requests for loan modifications. 

Thus far, we have been seeking to gain a comprehensive and statistically rigorous understanding of the file characteristics associated 

with financial injury. Depending on what we learn, we may undertake further review of file population segments based on those 

characteristics. This could potentially lead us to review tens or 

even hundreds of thousands of additional files. 

The second prong of our approach to the foreclosure review is an 

outreach effort, intended to afford every in-scope borrower an opportunity to request an independent review of his or her foreclosure 

file. Through a combination of direct mail, advertising, and free 

media, we are trying to let all in-scope borrowers know about the 

review opportunity and encourage those who believe they may have 

been injured to request a review. This outreach launched on November 1st and is now ongoing. 

The file review and outreach efforts each have strengths and 

weaknesses, but in combination they represent a powerful ap-
26 

proach to accomplishing the objectives of the foreclosure review. If 

we miss any borrowers who have been financially injured in our 

file review effort, those borrowers still have the opportunity to 

bring themselves to our attention through the outreach effort. Conversely, if the outreach effort fails to reach portions of the borrower 

population who have been injured, we should learn about that 

through the file review process and be able to take additional steps 

as appropriate. 

The logistics of these reviews are formidable. My team includes 

many former bank examiners, attorneys, and other professionals 

with relevant subject matter expertise. We have also retained our 

own counsel, independent of the servicer, to assist with issues of 

legal interpretation. Like Promontory, our counsel faced careful review of credentials and conflicts. 

Quality control and quality assurance are integral to the success 

of our review, and we have taken care to build them into the design and execution of both the file review and outreach efforts. We 

conduct a mandatory training program for each reviewer and rigorously monitor the quality of their work. 

Mr. Chairman, our redacted engagement letters provide considerable additional detail concerning our approach to this assignment. 

We are proud to contribute what we can to the solution. We will 

do our part to the best of our individual and collective ability. 

I will be pleased to try to answer any questions you or your colleagues may have for me. 

Senator MENENDEZ. Well, thank you all for your testimony. 

There is a lot of ground to cover here so let me start. 

Mr. Alt, who is your client here? 

Mr. ALT. We work at the direction of the OCC, sir. 

Senator MENENDEZ. So who do you consider your client? 

Mr. ALT. I consider my client the OCC. 

Senator MENENDEZ. OK. And who is your fiduciary responsibility 

to? 

Mr. ALT. We take our direction from the OCC. We are fully 

transparent to the OCC. That is to whom we owe our duty. We are, 

in effect, an extension of the agency. 

Senator MENENDEZ. And who pays you? 

Mr. ALT. The servicers pay us. 

Senator MENENDEZ. When the servicers came to you, what did 

they ask you to do? When they were considering you as the entity 

to represent them, what did they ask you to do? 

Mr. ALT. They had questions about our expertise. They had questions about our capacity, about whether this was an assignment we 

were willing to take on. We had discussions about that. It was a 

fairly standard interview process. 

Senator MENENDEZ. Ms. Kenyon, who is your client? 

Ms. KENYON. Our contractual arrangement is with JPMorgan 

Chase. We work at the direction of the OCC. 

Senator MENENDEZ. So you consider your client JPMorgan? 

Ms. KENYON. We are—we consider that we are responsible to all 

of the stakeholders in this process, but our contractual arrangement is with JPMorgan Chase. 

Senator MENENDEZ. Mm-hmm. Who is your fiduciary responsibility to? 
27 

Ms. KENYON. I am sorry, Senator? 

Senator MENENDEZ. Who is your fiduciary responsibility to? 

Ms. KENYON. To be clear, my understanding is that Deloitte has 

a responsibility to work at the direction of the OCC and that 

Deloitte’s work serves an important function for the benefit of borrowers and the public. I am, however, not a lawyer and have been 

advised that as an independent consultant Deloitte does not stand 

in a fiduciary relationship to any party. 

Senator MENENDEZ. So when your client—or, yes, you said it is 

your client—when your client, JPMorgan Chase, came to you and 

they could have chosen anybody, what did they ask you in terms 

of their interest in your representation? 

Ms. KENYON. When they approached us, they asked us if we 

were interested in doing the work, if we felt that we had the expertise in doing the work, if we had the resources to do the work, and 

that was the extent of the conversation. 

Senator MENENDEZ. To either you or Mr. Alt, when they came to 

you, did they suggest that they would love to try to limit the universe of their exposure? 

Mr. ALT. No, sir. 

Senator MENENDEZ. You need to give me a verbal response for 

the record. 

Mr. ALT. Mr. Chairman, there was no suggestion of that. 

Ms. KENYON. Mr. Chairman, the bank is very mindful of the limitations and the representations in our redacted engagement letter 

and has behaved accordingly. 

Senator MENENDEZ. Let me ask you, Mr. Holland, you know, 

homeowner advocates have raised concerns about the complaint 

form being sent to millions of borrowers looking unofficial. Some 

suggest it looks like a scam. There is no logo. There is dense language that many will not understand. I personally went to the Web 

site, which looks very unofficial to me, as well. You state in your 

testimony that the servicers played a role in both developing and 

even approving the complaint form and Web site, which raises concerns about whether they were poorly designed with the intention 

of not having as many homeowners respond to the mailings and appealing. Why were servicers involved in developing these forms to 

begin with? 

Mr. HOLLAND. Again, our position in this program is that of a 

neutral, which is consistent with most of the work that we do. I 

look at the key stakeholders as the independent consultants, the 

OCC, Federal Reserve Board, and the servicers, and the engagement, I guess if you will, by the parties was such that they collaborated and instructed us what to do. We were given essentially the 

format of the forms that were supposed to be printed and mailed. 

Senator MENENDEZ. So you, in essence, just played the role of a 

processor. 

Mr. HOLLAND. Third-party vendor, processor, yes. 

Senator MENENDEZ. So, in essence, you delivered the forms as 

the servicers presented them to you? 

Mr. HOLLAND. Yes, that is correct. 

Senator MENENDEZ. The servicers are the ones who constructed 

these forms, which makes me concerned about whether or not the 

interest was to make it as clear and as useful as possible to achieve 
28 

the goal of informing significantly and in a way that would be helpful to those who might have been injured that there is a potential 

relief here versus doing it in such a way that would limit that. 

Mr. Leonard, let me ask you—you represent the trade organization here—how is it that—do you not think it is a little bit conflicting for the servicers to have devised what it is that they were 

going to send out to everybody who potentially could have a claim 

against them? 

Mr. LEONARD. Mr. Chairman, as you know, this entire—the independent review process is part of consent agreements that these 14 

individual companies signed with their regulator. So the entire 

process was developed with the oversight of the OCC and the Federal Reserve. So the servicers are not directing the process, but 

they are part of the process. 

Senator MENENDEZ. Well, but if they devised the form and that 

is the form that was sent, would you not say they were pretty 

much in control of that? 

Mr. LEONARD. No, because the OCC, the Fed, the independent 

reviewers, it was a collaborative process, but the servicers did not 

make the final—— 

Senator MENENDEZ. Did the servicers submit those forms for approval to the OCC, to your knowledge? 

Mr. LEONARD. I would have to go back and get an answer on 

what the exact step-by-step process was, but the entire process was 

overseen by the regulator. 

Senator MENENDEZ. Are you, either one of you, Ms. Kenyon or 

Mr. Alt, have knowledge about whether or not the servicers received—— 

Mr. ALT. The form in several drafts was submitted to the OCC 

and the Federal Reserve and the final form reflects considerable 

input from both agencies. 

Senator MENENDEZ. OK. So to the extent, then, that we have a 

problem with the nature of the information to the public, you 

would say to me that it goes back to the OCC? 

Mr. ALT. I would say that, at the end of the day, the agencies 

are responsible for approving the form and the form reflects their 

approval. 

Senator MENENDEZ. Now, can both—Ms. Kenyon, can you and 

Mr. Alt tell me unequivocally that your companies are in no way, 

shape, or form in any way affected by the fact that you have or 

may have additional work unrelated to this particular contract 

with the entities that you are ultimately doing the independent 

consultancy for, that that does not affect people’s judgment in any 

way? 

Mr. ALT. Mr. Chairman, speaking for my company, we feel very 

strongly that we are independent and we are trying, and we believe 

are succeeding, in conducting ourselves with a high standard of 

independence. Indeed, we feel that our entire business model depends heavily on our ability to conduct ourselves independently, 

not only in this engagement, but in very many of our engagements. 

Senator MENENDEZ. And you have no concern that should you, 

in a vigorous pursuit of this, according to what you believe the 

OCC’s mandate is to you, that Bank of America, PNC, or Wells 

Fargo might not hire your firm in the future? 
29 

Mr. ALT. Mr. Chairman, our business model is focused very much 

on helping financial institutions understand and resolve regulatory 

issues, and we are successful with that business model in part because of the credibility we enjoy among regulators around the 

world. And we have that credibility, in part, because of the independence that we maintain and our track record of being willing 

to prescribe strong medicine when it is needed. If we were to fall 

short of that standard in this engagement, it would be fundamentally detrimental to our long-term success. 

Senator MENENDEZ. Ms. Kenyon, I have the same set of questions for you. 

Ms. KENYON. Yes, sir. When we attended a meeting in May with 

the interagency regulators, it became very apparent to us that 

independence was very, very critical. We have agreed with the 

bank that, in fact, we would not accept any further engagements 

within the home lending area. The process that we have set up to 

ensure that is if any proposal comes to Deloitte, the partner that 

is responsible for the overall relationship for JPMorgan Chase is 

notified. He also notifies me, and we have, in fact, turned down engagements that have come through so that we do not—— 

Senator MENENDEZ. In the home lending field? 

Ms. KENYON. In home lending. 

Senator MENENDEZ. Now, but that does not preclude Deloitte 

from taking other opportunities from JPMorgan having nothing to 

do with the home lending field? 

Ms. KENYON. If there is any doubt on the proprietary of us accepting any engagement, we clear that with the bank. 

Senator MENENDEZ. Mm-hmm. And you are not concerned that— 

your company is not concerned that your vigorous pursuit of what 

the OCC’s mandate here may cause them not to have the favor of 

JPMorgan in the future as it relates to other non-home ownership 

issues? 

Ms. KENYON. We are very, very mindful of our mandate to maintain independence in this review, and any type of other engagement that we would take would have nothing to do with this engagement or with the matters under the subject area. 

Senator MENENDEZ. Senator Merkley. 

Senator MERKLEY. Well, thank you, Mr. Chair. 

I think there is both a substantive concern about conflicts of interest. There is also a perception issue related to these questions. 

Mr. Alt, you noted that when Promontory was involved in these 

discussions with the OCC, that you submitted a list of potential 

conflicts of interest. Is that a list that you are willing to make public in terms of the parties having full transparency about concerns 

about conflict of interest? 

Mr. ALT. Senator, we provided that list to the OCC and I believe, 

if I recall correctly, the same list appears in our engagement letter 

and has been redacted by the OCC. I cannot provide it to you, but 

I think you should take that up with the OCC. 

Senator MERKLEY. But you would be willing to provide it and 

make that public? 

Mr. ALT. I would have to consult with our counsel and make sure 

that there are not issues. There could be issues relating to other 

confidential matters and supervisory privilege having to do with 
30 

some of our previous engagements that would need to be worked 

through. 

Senator MERKLEY. Mr. Alt, I want to ask you to step outside of 

the issue of independence to the appearance of independence. As 

you noted, you are an expert in the independent advice category. 

That is the business model. If you personally were involved in an 

issue with a firm, if you were involved in a contest over how a 

transaction went down and the other side chose the adjudicator, 

paid the adjudicator, designed the process, designed the form, 

would you consider that to have the full appearance of independence? 

Mr. ALT. Senator, I would agree with you that it raises concerns. 

It raises questions on its face. But I would also say, in my experience, that independence is about practice and not just about appearance and I think it is important to drill down below the level 

of appearance, and understand how the relationship works in fact. 

But I agree with you. It is an issue that is well worth your time 

to explore. 

Senator MERKLEY. Thank you. I appreciate that, because you all 

are bringing huge amounts of expertise which are really necessary 

to get this job done. I would probably have preferred that the OCC 

choose the auditor so that—in each case, the independent reviewer, 

so that there is a third party choosing the reviewer rather than one 

party to the conflict. I think it would send a clear message of independence. 

I want to turn, Professor, to a comment you make in your testimony, in your written testimony but you also gave in your verbal 

testimony, that technical errors like robo-signing should not result 

in any financial harm to borrowers since they would be foreclosed 

upon after the documentation error is corrected. Is it your sense, 

then, that in this process, when a robo-signing error is raised or 

discovered, that there would not be any sort of financial compensation to the party that was incorrectly foreclosed on? 

Mr. SANDERS. Well, my point I was trying to make was that if 

they were supposed to be foreclosed upon anyway, that is, they defaulted on the note and then they went through, received the robosigning thing, were foreclosed upon, and it turns out they can show 

documentation that they had the right to foreclose upon them, then 

what would be the loss to the homeowner if they were foreclosed 

upon anyway? 

Senator MERKLEY. Well, I can tell you that in my State, if the 

law requires a party that initiates a foreclosure to have ownership 

of the mortgage and that that was not followed, that is a pretty significant legal breach. 

But let me turn to Ms. Kenyon and ask, is it your sense that if 

there is a robo-signing issue, that there will not be any sort of financial compensation to a homeowner who was put out of their 

home in a process that was, if you will, not fully legal? 

Ms. KENYON. I am sorry, Senator. I could not hear your question. 

Senator MERKLEY. Do you agree with the Professor that a robosigning mistake should not involve any financial consequences? 

Ms. KENYON. I believe that when we have put together the remediation construct, we are looking—we are mindful and instructed 

to look for direct instances of financial harm. So to the degree that 
31 

the deficiency led to direct financial harm, then we will make remediation appropriately. 

Senator MERKLEY. I do not think that quite answered the question, and let me put it, if you were in a home that was illegally 

foreclosed on, you would say, well, I was thrown out of my home 

in an incorrect process. But is your evaluation now as a company 

saying that person did not suffer any financial harm and should 

not be compensated? That is your approach to this in terms of the 

impact on the family? 

Ms. KENYON. The objective of the review is to identify borrowers 

who have suffered direct financial injury as a result of the deficiencies—— 

Senator MERKLEY. Is getting thrown out of your home through 

an illegal process direct financial injury in terms of the way you 

have been instructed to approach this issue? 

Ms. KENYON. If, based on counsel, the borrower is removed from 

his home illegally, then there would be possible financial injury 

into that construct. 

Senator MERKLEY. How would you calculate that injury? Based 

on what? 

Ms. KENYON. We have discussed several different ways of calculating that injury. There are many competing views on that, and 

the construct is under approval—the construct is under consideration for the OCC. 

Senator MERKLEY. OK. And Mr. Alt, do you share the Professor’s 

view that a robo-signing error does not involve any financial harm? 

Mr. ALT. The robo-signing scenario is one of the scenarios in 

which the OCC and the Fed have indicated that harm could arise. 

Whether it arises, in fact, is going to be a question that is probably 

determined by reference to other circumstances in the file. 

Senator MERKLEY. So if a family is put out of their home illegally, maybe their rent that they are paying is no more than their 

mortgage payment was, is that a basis you would say they suffered 

no financial harm? I am trying to get a sense of what really—I 

mean, or is it just kind of, well, no, their rent is less than their 

mortgage was, so there is no financial harm. It was an illegal process. They were put out of their home by mistake, but there is no 

harm so there is no compensation. 

Mr. ALT. Well, Senator, I think that you are getting at some of 

the nuances that need to be taken into account in trying to reach 

a determination of whether harm has occurred. I think, as Ms. 

Kenyon has alluded to, we are waiting for guidance from the OCC. 

All of the independent consultants are waiting for guidance from 

the OCC and the Federal Reserve that will help all of us understand, we hope, how to evaluate harm and what sort of remediation 

is appropriate in situations of exactly this type. 

Senator MERKLEY. Will the details on those analyses be conveyed 

to homeowners so they can evaluate whether they should spend the 

time pursuing this process? In other words, are we saying to homeowners, here is another wild goose chase. You are not going to get 

compensated for a robo-signing mistake, so do not even ask unless 

you can show you were thrown into a homeless shelter and were 

robbed or something of that nature. Or are people just going to 

apply thinking that they are now getting a third-party compensa-
32 

tion for harm knowing that the harm to their family of illegally 

being thrown out of their house was huge distress, maybe a divorce, the children had to change schools, they are in complete disarray. Should a person even bother responding to this form without 

the sort of information about whether there is actually an intention 

to compensate for the challenges that they faced? 

Mr. ALT. My colleagues and I are very committed to trying to 

find financial injury where it has occurred so that people can receive appropriate remediation. We believe that is important work, 

and I hope very much that this process will not prove to be a wild 

goose chase for people that have been injured in that way. 

Senator MERKLEY. Thank you. 

Senator MENENDEZ. Thank you. 

I just have one or two other questions and then we will let you 

all go. 

I have read some questionable job ads that have appeared and 

I wonder about the qualifications of some of those who are being 

hired to do these interviews, not interviews, these reviews. So can 

you tell me what steps you have taken to have the right people 

conduct these reviews? What is the background, the expertise of 

people conducting these reviews so that all of us up here in judgment of whether or not this is a process that ultimately there can 

be confidence in can feel that we have got the right people with the 

right backgrounds doing the review that for many people may be 

the single most important decision made in their life? 

Mr. ALT. Senator, our projects have hundreds of people working 

on them, and they work in a wide range of capacities and those capacities require a wide range of skills and backgrounds. And some 

of those jobs are truly clerical and require little or no experience 

of any kind and others require many years of subject matter expertise. They may require advanced professional degrees—— 

Senator MENENDEZ. I understand there is a whole team, but let 

me maybe hone in on my question. 

Mr. ALT. Please. 

Senator MENENDEZ. So I file an appeal and now my case is, because it was one of your people who—one of the companies on 

which you are providing the independent consulting on, and it now 

goes to someone. I am not talking about the clerical staff who puts 

the paperwork together. I am talking about what is the qualification of the core individuals sitting in judgment as to whether I 

have a valid claim. 

Mr. ALT. So in our approach, we have a pyramidal structure, as 

you would find in many organizations, and at the lower level, you 

would typically find people that will have had some experience in 

some facet of the mortgage business, and they will have gone 

through a mandatory training program and their work at the lowest level will be guided by assistance—— 

Senator MENENDEZ. How long is that mandatory training program? 

Mr. ALT. It is a week of classroom training and then a week with 

somebody sitting beside you and helping you understand how to operate our system and apply the rules. And their work will be overseen by multiple levels of people with, as a general rule, progressively higher amounts of experience in subject matters, which 
33 

means there is a very active quality control and quality assurance 

program because we want to make sure that we get it right. 

Senator MENENDEZ. So the core of the individual making this 

judgment is someone who has some background in the mortgage 

business and has got 2 weeks of training? 

Mr. ALT. Senator, that is a characterization of the very lowest 

level of our organization, but you should not have the view that 

that is who is doing all the work. All of that work is—— 

Senator MENENDEZ. Could you submit to the Committee what 

the structure is? 

Mr. ALT. It is described in the engagement letter that has been 

made public. 

Senator MENENDEZ. The entire structure that you are referring 

to? 

Mr. ALT. Yes, Senator. 

Senator MENENDEZ. And who is engaged at those different levels 

of the structure? 

Mr. ALT. I will have to go back and refresh. I am not sure whether our engagement letter—— 

Senator MENENDEZ. OK. Well, that would be important, because 

just knowing the structure without knowing who is actually reviewing my file—— 

Mr. ALT. Fully understood. 

Senator MENENDEZ.——is important. 

Mr. ALT. Senator, I should also have mentioned that we have, in 

addition to the file review pyramid that I described, we also have 

a separate quality assurance group which is composed exclusively 

of experienced subject matter experts, and they randomly sample 

all of the work. They report directly to me. And in that way, we 

keep very tight control over the quality of the work that we are 

doing—— 

Senator MENENDEZ. Ms. Kenyon, what is your process? 

Ms. KENYON. Senator, we have not hired externally for this 

project. We have staffed it solely with Deloitte resources to this 

point. When we look for resources, we, especially at the senior levels, we have identified people with prior mortgage banking experience, experience in controls and procedures work, people who have 

backgrounds and familiarity with financial institutions and processes as well as experience dealing with financial assets. 

When our staff comes on board, we subject them to a 3-week 

training process, again, similar to Mr. Alt’s structure, and I also 

described in my testimony, we have segregated and organized our 

group into teams. The more junior resources execute the procedures. There are managers and senior managers who review those 

executed procedures. And in addition, I have organized a very large 

partner group to oversee specific subject areas. 

Senator MENENDEZ. So it is the same question I asked Mr. Alt. 

So at the core, who is reviewing my file? I filed an appeal. Who is 

reviewing my file? Forgetting about the clerical universe that puts 

the paperwork together, who is reviewing my file? Give me the essence of that person’s background. 

Ms. KENYON. That is a lower level resource who has had training 

and is given specific—— 

Senator MENENDEZ. What is the period of time of that training? 
34 

Ms. KENYON. At least 3 weeks for this very specific project in the 

procedures that we have crafted. And then that work is reviewed 

by two levels of staff and then it goes through our quality assurance process. It is overseen generally by a partner, as well. 

Senator MENENDEZ. And when you say it is overseen by two levels of staff, first of all, what is the nature of that staff that reviews 

it and what is the extent of their review? Is that a checklist? What 

is the extent of their review? 

Ms. KENYON. The extent of their review is that they will take a 

specific number of files, look at the procedures that are performed, 

look in particular for any apparent exceptions that have been 

found, and double-check the quality of the work. 

Senator MENENDEZ. Let me ask you both, is there going to be 

any direct borrower contact between your operation and the homeowners? Or is it whatever they submit, that is the end all and be 

all? 

Mr. ALT. We do not anticipate any direct borrower contact at this 

time. 

Senator MENENDEZ. OK. So how is it—is that the same with you? 

Ms. KENYON. That is correct. 

Senator MENENDEZ. So how is it possible to fully evaluate a 

homeowner’s claim fairly without communicating with the homeowner, particularly if proof of their claims, you know, they may 

have not known how to substantiate their claims? They may have 

made a very valid claim and you may be looking for substantiation 

of that claim, especially for homeowners who do not have a counselor or an attorney to guide them through the process and do not 

really know what the proof is. How do you—how are you going to 

make that judgment? Is the judgment going to be, well, I read their 

narrative and there is nothing to back up their narrative, so, therefore, sorry, we do not think you qualify? 

Mr. ALT. If it is our view that more information is necessary in 

order to understand the complaint that is being made, we have the 

ability to direct the servicer to request that information from the 

homeowner, or former homeowner. 

Ms. KENYON. The same is similar for us, Senator. The other 

thing that I would point out is when the homeowner makes a 

claim, we are comparing the claim against the processes and procedures that we have developed for the foreclosure file review. So, in 

effect, we are reviewing the bank’s determination the first time 

around. If there is need for additional information, then again, as 

we said, we will work through the appropriate parties to get that. 

Senator MENENDEZ. Do you envision yourself frequently asking 

the servicers to get additional information? 

Mr. ALT. I do not yet know the answer to that, Senator. The 

process is fairly recently launched, and at this point, we are still 

waiting for many of the files. 

Senator MENENDEZ. Having listened to Ms. Williams describe 

that the overwhelming universe that responded, responded in a 

narrative form about what they thought was happening to them, 

I thought very much that they provided all of the substantial information to back up that narrative, and without that, it is very difficult to judge their claim, it would seem to me, because if you take 

the claim and if the claim through the narrative might lead to the 
35 

belief that, yes, there is a possibility, but I do not see the back-up 

for this, then it would almost be impossible to judge that claim 

without getting additional information, which means engaging the 

servicers. 

Mr. ALT. I think you raise a real possibility, Senator, and you 

could very well be right, but we will have to see. 

Senator MENENDEZ. Let me ask you, housing counselors have 

been at this a long time, and unlike some of you who in this particular case, not in terms of your companies and its expertise, but 

in this particular exercise are fairly new to it and could use that 

perspective and information, what provisions are being made by 

you to work with housing counselors who are assisting borrowers? 

Is there any? 

Mr. ALT. Senator, we—our work here is really—our ability to 

talk about it publicly is really at the discretion of the OCC. The 

enforcement process, the supervisory process, is subject to legal restrictions. It is very difficult for us to engage directly with housing 

counselors unless the OCC wants to. I think it would be—I welcome the input of the housing counselors. I do believe they bring 

useful expertise. So that sort of transparency seems desirable to 

me. But I think the question is perhaps better directed to the OCC. 

Ms. COHEN. Excuse me, Mr. Chairman—— 

Senator MENENDEZ. Yes. I was just going to turn to you next. I 

was not forgetting about you. 

Ms. COHEN. I just wanted to—— 

Senator MENENDEZ. I wanted to lay a foundation here of what 

I guess is the operation, which is why we invited you. We agreed 

not to speak about your specific clients, but I do want to get a 

sense of your operation, how you are going about this. So I was 

going to turn to you. I will listen to whatever it is that you wanted 

to say, but I wanted to ask you a broader question. Has what you 

have heard here today assuaged your original statement in any respect? 

Ms. COHEN. Thank you for your question, Mr. Chairman. The 

specific response I wanted to make is that we met with the OCC 

recently, with Ms. Williams. We asked for input. We asked for a 

meeting with the consultants. We were told that that may not be 

possible, and we were also told that the decision to do that is not 

theirs but is the decision of the consultants. 

Your broader question is about whether I feel more comfortable 

now than I did before I came in the door and I would say, definitely 

not. Most of what we heard today underlines the role that the 

servicers have in driving the process, the vacuum that the consultants are operating in, and the absolute exclusion of the most important stakeholders in the process, the homeowners. We really appreciate your focus on them today. 

Senator MENENDEZ. I want to dwell for a moment on your first 

part. You were told by the OCC that it may not be possible for you 

to engage in a conversation with the consultants and it was the 

consultants’ decision to do that, not the OCC’s? 

Ms. COHEN. That is correct. 

Senator MENENDEZ. Well, let us presume that is right for the moment, since we have you here. Is there any reason why, assuming 

the OCC says it is OK for you to do it, that you would not do it? 
36 

Mr. ALT. If I can—if the OCC is comfortable and I can have that 

conversation without getting into confidential supervisory information, I imagine we can have a conversation. But it is hard for me 

to envision how we can do that. 

Senator MENENDEZ. Well, could there not be broad elements, 

that housing counselors have wide experiential factors, they have 

seen some reoccurring realities. Bringing those reoccurring realities 

to your attention would be helpful in your review, I would think. 

Mr. ALT. Yes, Senator, absolutely, but the—I only work with 

one—well, I work primarily with one servicer and my firm works 

with three. If the housing counselors want input at a policy level, 

which is what I believe I hear you asking about, I do not work at 

the policy level. I work at the level of these individual servicers to 

execute the policy that is—— 

Senator MENENDEZ. Well, maybe my question is ill put. So housing counselors have an experiential factor that they have seen A, 

B, and C overwhelmingly take place that we would consider reasonable elements—let us say the OCC considers elements of harm, 

maybe 1 of the 20 examples, but they are done in a certain way. 

Giving you an insight as the independent consultant that is reviewing the files of those who make a claim with that background, 

would it not give you something to be looking at based upon the 

fact that there is a wide number of cases in which A, B, or C took 

place? 

Mr. ALT. As I said earlier, Senator, I fully accept that the housing counselors have value to add here and I think their input could 

be very useful. 

Senator MENENDEZ. Well, we will have to talk to the OCC because this is unacceptable to hear that they say it may not be possible, it is up to you. You tell me the OCC is the one that has to 

decide. So we are going to put everybody in the room and figure 

it out. 

Ms. COHEN. Mr. Chairman? 

Senator MENENDEZ. Yes. 

Ms. COHEN. There is something in my testimony about the engagement letters. They appear to have been done through the General Counsel’s office at the servicers and then with the consultants, 

and it appears to us that that was done to create an attorney-client 

privilege between the servicers and the consultants. I do not know 

if that is related to this, but it is something that seems to us like 

it is related. 

Senator MENENDEZ. Well, we will get to it. 

Finally, Dr. Sanders, I have great respect for your work, but I 

may have gotten this wrong. I may have understood you wrong in 

your testimony. Is your testimony that the potential economic costs 

outweighs the right of remedy for an individual? 

Mr. SANDERS. No, that is not what I was saying. What I was saying—— 

Senator MENENDEZ. I am relieved. 

Mr. SANDERS. No. I was saying that this is a very expensive process for the servicers and if there are damages to borrowers uncovered, by all means, that is what we should be doing. But what I 

am saying is that in terms of more steps, do we keep repeating this 

process over and over again? I am hoping this works very fine— 
37 

Senator MENENDEZ. So you are not criticizing this process as 

something that is undesirable or unwanted. You are saying that 

after this process is consummated, that you do not believe there 

should be any other iteration of it? 

Mr. SANDERS. Well, no, not quite. What I am saying is I hope 

this solves everyone’s angst, and we solve these types of problems. 

People receive remedies if due. What I am saying is that this is not 

costless to the banks and servicers. It is quite expensive. So if this 

solves it, I just want to be—— 

Senator MENENDEZ. That is very true. It is not costless to them. 

Neither was it costless to the individuals who may have been falsely brought into a process in which they were unjustly made the determination. Obviously, no one entered into consent agreements because they were holier than thou and had no harm committed upon 

anyone because they would have never agreed to such a consent 

agreement. So it just seems to me that there is a universe here of 

people who were harmed, and at the end of the day, they deserve, 

clearly, relief. I think it is easy to suggest that when you are not 

one of the persons harmed, it is very easy to say this has a cost. 

When you are one of the persons harmed, that is pretty significant. 

Mr. SANDERS. Mm-hmm. 

Senator MENENDEZ. With thanks to all of you for your testimony, 

the record will stay open for 1 week. Other Members of the Committee may ask questions in writing. We urge all of you to answer 

the questions as expeditiously as possible. 

And with the thanks of the Committee for all of your testimony, 

this hearing is adjourned. 

[Whereupon, at 4:31 p.m., the hearing was adjourned.] 

[Prepared statements, responses to written questions, and additional material supplied for the record follow]: 
38 

*Statement Required by U.S.C. § 250: 

The views expressed herein are those of the Office of the Comptroller of the Currency and 

do not necessarily represent the views of the President. 1 Eight national bank servicers were examined by the OCC: Bank of America, Citibank, 

HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. The OTS also examined four Federal savings association servicers and two holding companies: Aurora Bank, FSB; 

EverBank (and the thrift holding company, EverBank Financial Corp.); OneWest Bank, FSB 

(and its holding company IMB HoldCo LLC); and Sovereign Bank. On July 21, 2011, regulatory 

responsibility for Federal savings associations transferred from the OTS to the OCC under the 

Dodd-Frank Wall Street Reform and Consumer Protection Act. Consent orders taken by the OTS 

prior to the transfer against Federal savings associations remain in effect and enforceable by 

the OCC. Consent orders taken by the OTS against thrift holding companies remain in effect 

and enforceable by the Board of Governors of the Federal Reserve System. 2See ‘‘Interagency Review of Foreclosure Policies and Practices’’ (http://www.occ.gov/newsissuances/news-releases/2011/nr-occ-2011–47a.pdf), April 13, 2011. 

PREPARED STATEMENT OF JULIE L. WILLIAMS 

FIRST SENIOR DEPUTY COMPTROLLER AND CHIEF COUNSEL

OFFICE OF THE COMPTROLLER OF THE CURRENCY * 

DECEMBER 13, 2011 

Chairman Menendez, Ranking Member DeMint, and Members of the Subcommittee, I appreciate the opportunity to appear before you this afternoon. My testimony provides information on the status of the OCC’s implementation of enforcement actions that direct the country’s largest mortgage servicers to correct deficient 

and unsafe or unsound mortgage servicing and foreclosure processing practices and 

to provide remediation to borrowers who were financially harmed by those practices.1

The OCC appreciates the Committee’s concerns regarding transparency and accountability throughout this process and my testimony provides up-to-date information in three main areas. First, I describe the independent foreclosure review process required by our enforcement actions, which will provide financial remediation 

to borrowers financially harmed by servicing and foreclosure process defects identified in our enforcement actions. Second, I describe other comprehensive actions 

under way required by our actions to correct deficient and unsafe or unsound practices in mortgage servicing and foreclosure processing. Third, I summarize initiatives stemming from the foreclosure crisis that will affect mortgage servicing standards and practices and enhance protections for borrowers in other important respects. 

I. Background 

Before addressing these three areas, it is useful to provide a brief background. 

In the fall of 2010, following reports of irregularities in the foreclosure processes 

of several major mortgage servicers, the OCC directed the largest national bank 

servicers to conduct self-assessments to identify problems related to foreclosure 

processing. Concurrently, the OCC, the Board of Governors of the Federal Reserve 

System (FRB), the Federal Deposit Insurance Corporation, and the Office of the 

Thrift Supervision (OTS) coordinated efforts to conduct ‘‘horizontal’’ examinations of 

foreclosure processing at 14 large federally regulated mortgage servicers during 

fourth quarter 2010.2

The examinations evaluated controls and governance over bank foreclosure processes, including compliance with applicable Federal and State law. Examiners evaluated bank self-assessments and remedial actions, assessed foreclosure operating 

procedures and controls, interviewed bank staff, and conducted an in-depth review 

of approximately 2,800 borrower foreclosure cases in various stages of foreclosure, 

spanning the 2009–2010 period. Examiners focused on foreclosure policies and procedures, organizational structure and staffing, third-party management, quality control and audits, accuracy and appropriateness of foreclosure filings, and loan document control, endorsement, and assignment. When reviewing individual foreclosure 

files, examiners checked for evidence that servicers were in contact with borrowers 

and had considered alternate loss mitigation efforts, including loan modifications. 

In general, the examinations found the loans in the sample were seriously delinquent. However, the examinations also found critical deficiencies in foreclosure governance processes, document preparation processes, and oversight and monitoring of 

third parties. These deficiencies constituted unsafe and unsound banking practices, 

which also resulted in violations of certain laws, regulations, or rules. All servicers 

exhibited similar deficiencies, although the number, nature, and severity of deficiencies varied by servicer. 
39 

3See http://www.occ.gov/topics/consumer-protection/foreclosure-prevention/independent-review-foreclosure-letters.html. Some proprietary and personal information was redacted from the 

engagement letters prior to their release. Examples of redacted information include: names, titles, and biographies; proprietary systems information; references to specific bank policy; fees 

and costs associated with the engagement; and descriptions of past work performed by the independent consultants. 

The sample of foreclosures reviewed as part of the interagency examination provided a basis for enforcement action; however, it is important to recognize that, due 

to the limited number of files that were reviewed, this process could not have identified the universe of borrowers who might have been financially harmed by those deficiencies. 

On April 13, 2011, the OCC, the FRB, and OTS announced the issuance of cease 

and desist orders against each of the 14 servicers subject to our respective jurisdictions, and two service providers reviewed as part of the examinations. Crucial components of these enforcement actions are processes to identify borrowers who suffered financial injury as a result of the practices identified in the orders, and to provide financial remediation to them through an independent foreclosure review process. 

II. Independent Foreclosure Review 

The consent orders required the servicers to retain independent consultants to 

conduct comprehensive independent reviews of foreclosure activities in 2009 and 

2010. The scope of work to be undertaken by the independent consultants was set 

out in engagement letters between each servicer and its consultant. The OCC reviewed these letters and required changes to ensure compliance with the intent of 

our orders and a level of consistency across the servicers. The OCC accepted the letters in late September, and made them publicly available on November 22, 2011.3

Since the acceptance of the letters in September 2011, the independent consultants have refined and adjusted processes, procedures, and methods outlined in the 

letters in consultation with OCC staff. In many cases, some details of the processes 

being implemented differ from those described in the letters because of subsequent 

direction from the OCC. Most notably, the OCC required changes to ensure a uniform and coordinated claims process among the servicers. 

The independent consultants retained by each servicer to conduct these reviews 

of national banks and Federal savings associations are: 

• AllonHill, LLC, for Aurora Bank; 

• Clayton Services, LLC, for EverBank; 

• Deloitte & Touche, LLP, for JPMorgan Chase; 

• Ernst & Young, LLP, for HSBC and MetLife Bank; 

• Navigant Consulting, Inc., for OneWest; 

• PricewaterhouseCoopers, LLC, for Citibank and U.S. Bank; 

• Promontory Financial Group, LLC, for Bank of America, PNC, and Wells Fargo 

Bank; and 

• Treliant Risk Advisors, LLC, for Sovereign Bank. 

The OCC required independence of the consultants and the law firms hired by the 

consultants. During the selection process, we rejected some proposed consultants 

and law firms to prevent conflicts of interest. We focused particularly on situations 

where consultants and law firms may have previously expressed positions on the 

issues on which they would be called upon to express independent judgment in the 

foreclosure review process. To formalize our expectations for independence from the 

servicers, the OCC required engagement letters to contain specific language stipulating that consultants would take direction from the OCC and prohibiting servicers 

from overseeing, directing, or supervising any of the reviews. The OCC specifically 

required each consultant to: 

• Comply with requirements of the order and conduct each foreclosure review as 

independent from any review, study, or other work performed by the servicer 

or its contractors or agents with respect to the servicer’s mortgage servicing 

portfolio or the servicer’s compliance with other requirements of the consent 

order. 

• Ensure its work under the foreclosure review would not be subject to direction, 

control, supervision, oversight, or influence by the servicer, its contractors, or 

agents. 
40 

• Require immediate notification to the OCC of any effort by the servicer, directly 

or indirectly, to exert any such direction, control, supervision, oversight, or influence over the independent consultant, its contractors, or agents. 

• Agree that the independent consultant is solely responsible for the conduct and 

results of the foreclosure review, in accordance with the requirements of article 

VII of the order. 

• Pursuant to the monitoring, oversight, and direction of the OCC: 1) promptly 

comply with all written comments, directions, and instructions of the OCC concerning the conduct of the review, and 2) promptly provide any documents, 

work papers, materials or information requested by the OCC, regardless of any 

claim of privilege or confidentiality. 

• Agree to provide regular progress reports, updates and information concerning 

the conduct of the foreclosure review to the OCC, as directed. 

• Conduct the review using only personnel employed or retained by the independent consultant to perform the work required and not to employ services 

provided by the servicer’s employees, contractors, or agents unless the OCC provides written approval. 

• Adhere to requirements with respect to communication with the servicer, which 

provide for the independent consultant to use documents, materials, or information provided by the servicer, and to communicate with the servicer, its contractors, or agents, to conduct the review. Within these limits, agree that servicer’s 

employees may not influence or attempt to influence determinations of the consultant’s findings or recommendations. 

• Agree that legal advice needed in conducting the review shall be obtained from 

the outside law firm whose retention to advise the independent consultants has 

been approved by the OCC and not to obtain legal advice (or other professional 

services) in conducting the review from the servicer’s inside counsel, or from 

outside counsel retained by the servicer or its affiliates to provide legal advice 

concerning the order, or matters contained in the order. 

• Require the servicer to agree that if the OCC determines that the consultant 

has not fully complied with the standards for independence, the OCC may direct the servicer to dismiss the consultant and retain a successor consultant. 

These standards and oversight by the OCC are aimed at ensuring that the end 

result of the review, the findings and recommendations of the independent consultants, will be the product and opinion of those consultants, not of the servicers, their 

directors, their managers, or their attorneys. 

The independent foreclosure review process includes two components—a coordinated claims process that will review cases based on borrowers’ requests, and a 

‘‘look-back’’ review that will examine cases identified by the independent consultants. 

The Coordinated Claims Process 

The coordinated claims process provides the opportunity for borrowers to request 

a review of their case if they believe they suffered financial injury as a result of 

errors, misrepresentations, or other deficiencies in foreclosure actions pertaining to 

their primary residence, between January 1, 2009, and December 31, 2010. For any 

financial injury that the reviews identify, the consent orders require financial remediation. 

On November 1, 2011, outreach efforts began to inform ‘‘in-scope’’ borrowers of the 

review process. As described below, these efforts are multi-faceted, and we are continuing to make adjustments to improve the scope and effectiveness of the borrower 

outreach efforts. 

To be ‘‘in scope’’ and eligible for review, a borrower’s loan must have been active 

in the foreclosure process between January 1, 2009 and December 31, 2010; the 

property must have been the primary residence; and the loan must have been serviced by one of the servicers below: 

America’s Servicing Company 

Aurora Loan Services 

Bank of America 

Beneficial 

Chase 

Citibank 

CitiFinancial 

CitiMortgage 
41 

Countrywide 

EMC 

Everbank/Everhome 

GMAC Mortgage 

HFC 

HSBC 

IndyMac Mortgage Services 

Metlife Bank 

National City 

PNC 

Sovereign Bank 

SunTrust Mortgage 

U.S. Bank 

Wachovia 

Washington Mutual 

Wells Fargo 

A loan is considered active in the foreclosure process if: 

• The property was sold due to a foreclosure judgment. 

• The loan was referred into the foreclosure process, in which case the borrower 

may have been notified in writing, but was removed from the process because 

payments were brought up-to-date or the borrower entered a payment plan or 

modification program. 

• The loan was referred into the foreclosure process, but the home was sold or 

the borrower participated in a short sale or chose a deed-in-lieu-of-foreclosure 

action. 

• The loan was referred into foreclosure and remains delinquent but a foreclosure 

sale has not taken place. 

To inform borrowers of the coordinated claims process, the OCC has required direct 

mail, a Web site, a toll-free number, advertising, and other outreach. 

Direct mail began on November 1, 2011, with an integrated claims processor, 

which all servicers are using, starting the process of mailing a request for review 

form to more than four million borrowers with instructions on how to fill out and 

return that form to request an independent review. The form walks borrowers 

through examples of situations that would be likely examples of financial injury, but 

it also allows borrowers to simply tell their story. The crucial objective is to get as 

much information as possible into the pipeline for an independent foreclosure review. Borrowers must return the form by April 30, 2012. 

The direct mail effort includes use of address tracing methods to locate borrowers 

who lost their home to foreclosure. If an address is not current, the integrated 

claims processor will run the borrower data through a national change-of-address 

database to find a current address. Returned mail will be processed through a thirdparty consumer database using information from credit bureaus, public records and 

registrations, utilities, phone number databases, etc., to determine most likely current addresses. Mail will be processed three times in an attempt to determine the 

most likely address. As of December 9, less than 5 percent of mailings have been 

returned undeliverable, and secondary addresses have been found for 57 percent of 

those where the tracing process has been completed. 

As of December 9, 2011, more than 2.7 million letters have been sent, nearly 

15,000 claims forms have been received, and the rate of completed forms returned 

for processing has increased significantly each week so far. 

A Web site—www.IndependentForeclosureReview.com—and toll-free phone number—1–888–952–9105—were also launched on November 1, 2011. Both provide information about the review process. Assistance is available from the toll-free number Monday through Friday from 8 a.m. to 10 p.m., and Saturday from 8 a.m. to 

5 p.m. (Eastern time). As of December 9, the Web site has been visited 280,643 

times since its launch, an average of 7,385 visits per day. During that same period, 

the toll-free number has received 48,679 calls, an average of 1,281 per day, and over 

3,317 callers have requested forms to be sent to them. 

The outreach effort also will include print and online advertising. The print advertising includes full-page advertisements in widely read national publications (e.g., 

Parade Magazine, People, TV Guide). Additional publications that serve minority 

and underserved audiences also are being identified. The presently proposed print 
42 

advertising outlets have a combined circulation in excess of 60.5 million. The audience and reach of these advertisements include saturation in geographic and demographic sectors most affected by foreclosure. The first advertisements will appear in 

January. 

The online advertising includes purchasing keywords (e.g., ‘‘foreclosure review’’) on 

major search engines (e.g., Google, Bing) to allow people to find information about 

the review more easily. By purchasing keywords associated with the foreclosure review, these efforts will redirect significant numbers of people to the independent 

foreclosure review Web site. 

In addition to the mailings, Web site, phone number, and advertising by the 

servicers, other OCC outreach efforts include making housing counselors and community organizations aware of the independent foreclosure review through our electronic communications network and discussions with these groups. The announcement of the kickoff of the foreclosure reviews and the subsequent release of the interim report were distributed to more than 32,000 subscribers to our email information service. This electronic distribution network will be used to share additional 

communications about these reviews with interested community and consumer organizations as well as others who subscribe to this service. 

The OCC is working with a number of public interest organizations involved in 

housing counseling to explain the foreclosure review process, and we have undertaken an ongoing dialogue with a number of groups regarding their concerns about 

the scope and effectiveness of the outreach program. These conversations have included constructive comments and suggestions, and will result in improvements to 

the outreach program. The outreach program is a work in process, and we continue 

our dialogue with these important organizations. 

The OCC has also determined to offer a series of public service announcements 

in January 2012 which will include both print and radio spots in English and Spanish. The print items will be distributed to more than 7,000 local newspapers and 

publications. The 30-second radio items will be distributed to more than 6,500 small 

radio stations throughout the country. Spanish items are distributed to more than 

700 Spanish-language newspapers and 500 Spanish-language radio stations. The 

public service items will highlight the toll-free number, the Web site, eligibility, and 

the deadline for action. Based on OCC’s experience with similar public service placements, we expect the items to appear in radio and print more than 1,200 times in 

40 states during January, February, and March. 

‘‘Look-Back’’ Reviews 

In addition to the coordinated claims process, a ‘‘look-back’’ file review supplements the coordinated claims process to further identify deficiencies, errors, or misrepresentations that may have caused financial injury. In October, the independent 

consultants began selecting files for reviews, in accordance with plans contained in 

engagement letters submitted to, and accepted by, the OCC. 

The consent orders allow the consultants to use sampling and other tools to identify certain types of files for review. Guidance from the OCC described methods and 

controls to ensure that samples are representative of the in-scope mortgages. The 

engagement letters contain descriptions of the statistical basis for the sampling 

methods used as approved by the OCC. 

Some segments require 100 percent review, including cases involving the 

Servicemembers Civil Relief Act (SCRA), certain bankruptcy cases facing foreclosure 

in 2009 and 2010, cases referred by State or Federal agencies, and reviews requested through the coordinated claims process described above. With respect to 

SCRA cases, I would like to offer particular thanks to the Defense Manpower Data 

Center of the Department of Defense and the Department of Justice (DOJ). We 

reached out to both to explore how to effectively identify servicemembers whose 

cases should be reviewed as part of the 100 percent review. The result of that collaboration is that processes have been developed that will enable the names of all 

identified in-scope borrowers for each servicer to be batched-checked against 

servicemember information relevant to the in-scope period. This is an invaluable 

step to ensure that all eligible servicemembers are included in the 100 percent file 

review. 

Mortgages in the sampling population may be segmented based on characteristics 

that include geography, third-party attorney, types of borrower history in paying 

mortgages, prior customer complaints, and participation in modification programs, 

such as the Federal Home Affordable Modification Program (HAMP). The segments 

and sizes of the samples selected for review were determined by the consultants, 

based on guidance from the OCC and in consultation with the servicers, but not determined or dictated by servicers. 
43 

In some cases, sampling may be appropriate at the outset, but initial results may 

lead to more in-depth review. These second-level reviews are subject to OCC oversight to ensure they are appropriately structured and implemented. The OCC expects the consultants to assess the results of the ongoing reviews continuously to 

identify potential ‘‘pockets’’ or systemic instances of financial harm and adapt the 

review plan accordingly. The tolerance for error is low—reliability, or confidence 

level, should not be less than 95 percent. 

During the ‘‘look-back’’ reviews, the independent consultants must assess: 

• Whether the foreclosing party had properly documented ownership or was otherwise a proper party to the action; 

• Whether the foreclosure was in accordance with applicable State and Federal 

law; 

• Whether the foreclosure sale occurred when a loan modification or other loss 

mitigation request was under consideration, or when the loan was performing 

in accordance with a trial or permanent loan modification, or when the loan had 

not been in default for a sufficient period to authorize foreclosure; 

• Whether, for any nonjudicial foreclosure, the foreclosure sale and post-sale confirmations were in accordance with the mortgage loan and State law requirements; 

• Whether a borrower’s account was charged only fees or penalties permissible 

under the terms of the loan, applicable State and Federal law, and were reasonable and customary; 

• Whether the frequency of fees assessed was excessive under the terms of the 

loan or applicable State and Federal law; 

• Whether the requirements of HAMP and proprietary loss mitigation programs 

were followed; and 

• Whether any errors, misrepresentations, or other deficiencies identified in the 

review resulted in financial injury to any borrower or mortgagee. 

As of December 9, more than 56,000 files are actively under review. 

Financial Injury and Remediation 

When independent consultants find errors, misrepresentations, or other deficiencies, their next steps are to determine whether financial injury occurred and to 

recommend remediation when it does. Financial injury is defined as monetary harm 

directly caused by a servicer error. Examples of financial injury identified in joint 

OCC–Federal Reserve guidance that was provided to the independent consultants 

include, but are not limited to, the following: 

1. The borrower was not in default pursuant to the terms of the note and mortgage at the time the servicer initiated the foreclosure action. 

2. The servicer initiated foreclosure or conducted a foreclosure sale in advance of 

the time allowed for foreclosure under the terms of the note and mortgage or 

applicable State law. 

3. The borrower submitted payment to the servicer sufficient to cure the default 

pursuant to the terms of the note and mortgage, but the servicer returned the 

payment in contravention of the terms of the note or mortgage, State or Federal law, or the servicer’s stated policy covering payments when in default. 

4. The servicer misapplied borrower payments, did not timely credit borrower 

payments (including failure to properly account for funds in suspense), or did 

not correctly calculate the amount actually due from the borrower, in contravention of the terms of the note and mortgage, State or Federal law, investor requirements, or the servicer’s stated policy covering application of payments. 

5. The borrower paid a fee or penalty that was impermissible. 

6. A deficiency judgment was obtained against the borrower that included the assessment of a fee or penalty that was impermissible. 

7. The servicer placed an escrow account on the mortgage and the placement resulted in monies paid by the borrower into escrow in contravention of the 

terms of the note or mortgage, State or Federal law, or the servicer’s stated 

policy covering escrow accounts. 

8. The servicer placed insurance on the mortgage and the placement resulted in 

monies paid by the borrower toward insurance in contravention of the terms 

of the note or mortgage, State or Federal law, or the servicer’s stated policy 

covering placed insurance. 
44 

9. The servicer miscalculated the amount due on the mortgage and secured a 

judgment against the borrower for an amount greater than the borrower owed. 

10. A borrower’s remittance of funds to a third party acting on behalf of the 

servicer was not credited to the borrower’s account. 

11. The borrower was performing under the terms of an approved trial loan modification or an approved permanent loan modification, but the servicer proceeded to foreclosure in contravention of the terms of the modification offered 

by the servicer to the borrower. 

12. A borrower was denied a modification in contravention of the terms of the 

governing modification program or the servicer’s stated policy covering modifications. 

13. There is evidence that the borrower provided or made efforts to provide complete documentation necessary to qualify for a modification within the period 

such documentation was required to be provided by the governing modification program and the servicer denied the loan modification in contravention 

of the terms of the governing modification program or the servicer’s stated 

policy covering modifications. 

14. The servicer initiated foreclosure or completed a foreclosure sale without providing adequate notice as required under applicable State law. 

15. The servicer foreclosed on or sold real property owned by an active military 

servicemember in violation of SCRA. 

16. The servicer did not lower the interest rate on a mortgage loan entered into 

by a military servicemember, or by the servicemember and his or her spouse 

jointly, in accordance with the requirements of SCRA. 

17. The servicer failed to honor a borrower’s bona fide efforts to redeem a sale 

under applicable State law during the redemption period. 

18. The borrower was protected by the automatic stay under the bankruptcy code 

and a court had not granted a request for relief from the automatic stay or 

other appropriate exception under the bankruptcy code. 

19. The borrower was making timely pre-petition arrearage payments required 

under an approved bankruptcy plan and was current with their post-petition 

payments. 

20. The borrower purchased a payment protection plan; was or should have been 

receiving benefits under the plan; and those benefits were not applied pursuant to the contract. 

21. The servicer was not the proper party, or authorized to act on behalf of the 

proper party, under the applicable State law to foreclose on the borrower’s 

home, and this resulted in or may result in multiple foreclosure actions or 

proceedings. 

22. The servicer failed to comply with applicable legal requirements, including 

those governing the form and content of affidavits, pleadings, or other foreclosure-related documents, where such failure directly contributed to: (a) the 

borrower paying fees, charges, or costs, or making other expenditures that 

otherwise would not have been paid or made; or (b) the initiation of a foreclosure action or proceeding against a borrower who otherwise would not have 

met the requirements for initiating such an action. 

If the independent consultants determine that financial injury occurred as a result of errors, misrepresentations, or other deficiencies, they will develop recommendations for remediating that injury. In addition to providing guidance in the 

form of 22 scenarios where financial injury might be present, we are also considering guidance that will clarify expectations as to the amount and type of compensation recommended for certain categories of harm. Any such baseline expectations 

would not, however, override the independent judgment of the independent consultants. Rather the objective would be to help ensure remediation recommendations 

are consistent across the 12 OCC-supervised servicers for similarly situated borrowers who suffered similar harms. The independent consultants will always have 

the flexibility to take account of the facts and circumstances of individual borrowers 

to arrive at compensation tailored to the borrower’s individual situation where the 

independent consultants determines a different amount of compensation is appropriate. 

The reviews are expected to take several months to complete. However, independent consultants and servicers have implemented a process to escalate the review of borrowers’ cases where foreclosure sale is imminent. The independent consultants and servicers have identified loans that have been scheduled for near term 
45 

foreclosure sale. Requests for review from in-scope borrowers in those cases are subject to special processes: prioritized review by the independent consultant and concurrent review by the servicer focused on rapid identification of bases to postpone 

the foreclosure action. To assure speed and consistency in the servicers review, we 

plan to provide direction on minimum criteria for this review. 

III. Other Actions Required by OCC Consent Orders 

In addition to the independent foreclosure review, our consent orders direct other 

work to correct unsafe and unsound practices in mortgage servicing and foreclosure 

processing. Work includes efforts to correct deficiencies in mortgage servicing activities, oversight and management of third-party service providers, activities related 

to Mortgage Electronic Registration Systems (MERS), management information systems, risk assessment and management, and compliance oversight. 

Mortgage Servicing 

The consent orders require servicers to correct deficiencies in mortgage servicing. 

Plans submitted by the servicers include: 

• Measures to ensure that staff members handling loss mitigation and loan modification requests routinely communicate and coordinate with staff members 

processing foreclosures on the borrowers’ properties; 

• Deadlines for responding to requests for loan modifications and other communications from borrowers as well as deadlines for making final decisions on loan 

modification requests; deadlines must be at least as responsive as the timelines 

under HAMP; 

• An easily accessible and reliable single point of contact established for each borrower throughout loan modification and foreclosure processes; 

• A requirement for written communications to each borrower identifying the single point of contact and specifying how a borrower can communicate with the 

contact; 

• A requirement that each single point of contact have access to data necessary 

to provide borrowers with timely, accurate, and complete information about the 

status of their loan modification requests and foreclosure cases; 

• Measures to ensure that staff members are trained adequately about handling 

mortgage delinquencies, loss mitigation, and loan modifications; 

• Procedures and controls to ensure that, before a foreclosure sale occurs, a final 

decision regarding a borrower’s loan modification request (either on a trial or 

permanent basis) is communicated in writing to the borrower within a reasonable period and explains the reasons why the borrower did not qualify for the 

trial or permanent modification; 

• Procedures and controls to ensure that, when a loan has been approved for 

modification on a trial or permanent basis, no foreclosure or further action preceding foreclosure occurs, unless the borrower defaults on the terms of the trial 

or permanent modification; 

• Policies and procedures to enable borrowers to submit complaints about the 

loan modification process, denial of modification requests, the foreclosure process, or foreclosure activities that impede the pursuit of foreclosure prevention 

options, as well as a process for making borrowers aware of the complaint procedures; 

• Procedures for promptly considering and resolving borrowers’ complaints, including a process for timely communication of the resolutions; 

• Policies and procedures to ensure that payments are credited promptly; that 

payments, including partial payments to the extent permissible under the terms 

of applicable legal instruments, are applied to scheduled principal, interest, and 

escrow before fees, and that any misapplication of borrowers’ funds is corrected 

promptly; 

• Policies and procedures to ensure that timely information about foreclosure prevention options is sent to borrowers in the event of delinquencies or defaults, 

including plain language notices about loan modifications and foreclosures; 

• Policies and procedures to ensure that servicers properly maintain and track 

documents related to foreclosures and loan modifications, so that borrowers are 

not required to resubmit the same documents already provided, and that borrowers are notified promptly of the need for additional information; and 

• Policies and procedures to consider loan modifications or other foreclosure prevention activities with respect to junior lien loans, and to factor the risks associated with such junior lien loans into loan loss reserving practices. 
46 

Each servicer has established policies and procedures for providing single points 

of contact to assist borrowers throughout the loan modification and foreclosure processes. Actions include the establishment of procedures for communicating information about the single points of contact to the borrowers including direct ways to 

reach these contacts; creation of training programs to instruct single points of contact about their responsibilities; establishment of specific organizational structures 

to perform these duties; and the creation of standard communication strategies for 

conveying information to and from borrowers. Servicers are required to initiate processes for establishing single points of contact and supporting procedures by the end 

of 2011. 

All servicers have implemented controls to prevent ‘‘dual tracking’’ of loans to ensure no foreclosure or further legal action relating to foreclosure occurs when a borrower’s loan has been approved for modification on a trial or permanent basis. Specific actions related to ‘‘dual tracking’’ vary from servicer to servicer but include review at designated points before the foreclosure sale, enhanced communication between loss mitigation and foreclosure processing staff, and development and use of 

matrices or checklists to ensure appropriate holds are placed on further foreclosure 

processing when appropriate. 

Third-Party Management 

The consent orders require servicers to improve oversight of third-party service 

providers that support mortgage servicing and foreclosure activities. The servicers 

submitted plans in July and work is under way to establish processes for appropriate due diligence in evaluating the qualifications of potential third-party service 

providers before entering into new contractual arrangements. The plans also provide 

for regular reviews of third-party service providers and assessment of their performance based on qualitative standards for competence, completeness, and legal compliance rather than standards based solely on the volume of foreclosures processed or 

the speed of processing. Additionally, the plans provide for the secure custody and 

accuracy of records transferred to these third parties during the foreclosure process. 

Specific actions vary from servicer to servicer. Examples of actions include: 

• Assessing risks associated with third-party activities to determine specific levels 

of oversight and activities based on identified risks. 

• Establishing new policies, or enhancing existing policies, for oversight of third 

parties. 

• Enhancing due diligence in assessing the capabilities of potential third parties. 

• Establishing oversight committees to monitor the practices and activities of 

third parties, to implement processes to assure the quality of their work, and, 

if necessary, to terminate underperforming or noncompliant third parties. 

• Creating procedures to track complaints about third-party activities and performance. 

• Scheduling and conducting onsite audits and quality assurance processes of 

third parties. 

• Including language in service contracts with third parties setting specific work 

standards. 

• Periodically assessing the performance of third-party service providers, including attorneys and law firms providing foreclosure counsel, and the discontinuation of servicing contracts and agreements when appropriate. 

• Improving management information systems used by third parties to ensure accuracy of records contained in, and transmitted by, those systems. 

MERS 

The consent orders require servicers to ensure appropriate oversight and controls 

of their activities with respect to MERS and compliance with MERSCORP’s membership rules, terms, and conditions. Servicers’ action plans submitted in July required, at a minimum: 

• Processes to ensure that all mortgage assignments, endorsements, and all other 

actions with respect to mortgage loans serviced or owned by the servicer out of 

MERS’ name are executed only by a certifying officer authorized by MERS and 

approved by the servicer; 

• Processes to ensure that the servicer maintains up-to-date corporate resolutions 

from MERS for all servicer employees and third parties who are certifying officers authorized by MERS, and up-to-date lists of MERS certifying officers; 

• Processes to ensure compliance with all MERS requirements and with the requirements of the MERS Corporate Resolution Management System; 
47 

• Processes to ensure the accuracy and reliability of data reported to 

MERSCORP, including monthly system-to-system reconciliations and daily capture of all reports of problems with registrations, transfers, and status updates 

on open-item aging reports; and 

• An appropriate MERS quality assurance work plan and annual independent 

tests of the control structure of the system-to-system reconciliation process, the 

error correction process, and adherence to the servicer’s MERS Plan. 

Work is under way to implement these plans and includes: 

• Incorporating MERS into servicers’ third-party oversight programs, including 

periodic review, quality assurance, and independent audits. 

• Enhancing controls and standardizing processes for executing mortgage assignments by MERS certifying officers. 

• Establishing training, certification, and assignments and endorsements related 

to MERS. 

• Improving processes for controlling data quality. 

• Creating and executing quality assurance work plans to ensure accuracy and 

compliance with MERS-related procedures. 

• Establishing periodic—in some cases daily—reconciliations of key reports and 

data to ensure compliance with MERS requirements and prompt resolution of 

discrepancies. 

• Increasing the number of staff members dedicated to overseeing MERS-related 

activities. 

Corrective actions to enhance oversight and controls of activities related to MERS 

are expected to be in effect by the end of the first quarter of 2012. 

Management Information Systems 

The consent orders require the servicers to improve management information systems that support mortgage servicing and foreclosure processing. Each servicer has 

submitted a plan for the operation of its management information systems for foreclosure and loss mitigation to ensure the timely delivery of complete and accurate 

information to permit effective decisionmaking regarding foreclosure, loan modification, or loss mitigation. The plans include descriptions of systems used by servicers 

for foreclosure and loss mitigation purposes. They also include timetables for 

changes or upgrades necessary to monitor compliance with legal requirements, servicing guidelines of Government-sponsored enterprises (GSE), and requirements of 

the consent orders. Improvements to management information systems will ensure 

accuracy of records and provide staffs working on foreclosures and loss mitigation 

efforts access to necessary and timely information provided by the borrowers. Work 

is under way and includes: 

• Consolidation of mortgage servicing platforms. 

• Standardized and automated workflows to assist personnel with loan modification and foreclosure decisions and processing. 

• Development of standardized reporting and improved quality controls. 

• Implementation of case management software to provide better access to single 

points of contact interacting with borrowers. 

• Periodic audits. 

• Evaluation of requirements and documentation to ensure that management information systems meet the needs of stakeholders from mortgage servicing, loss 

mitigation, foreclosure processing, and MERS-related activities. 

• Escalation and enhanced reporting to executives and boards of directors. 

Enhancing management information systems is a continuous process. Substantive 

improvements have been made and will continue throughout the next year. 

Risk Assessment and Risk Management 

The consent orders require the servicers to assess risks posed by their mortgage 

servicing operations and develop plans to manage those risks. Servicers have conducted their assessments and developed specific action plans to effectively mitigate 

or manage identified risks on an ongoing basis. Work on those plans is under way 

and includes: 

• Conduct periodic third-party audits or self evaluation of risks associated with 

mortgage servicing and foreclosure processing. 
48 

• Conduct periodic assessment of risks and develop action plans to reduce risks 

from specific functional areas, including loan modifications, disposition of bankowned real estate, bankruptcy, and compliance with SCRA. 

• Strengthen policy and internal guidance concerning foreclosure and loss mitigation. 

• Identify specific individuals or groups accountable for compliance and operational risk associated with mortgage servicing and foreclosure practices. 

• Integrate key processes to ensure consistency of policy and procedures related 

to foreclosure and loss mitigation activities. 

• Establish additional training associated with foreclosure and loss mitigation 

risks. 

• Develop and report key indicators to support monitoring and evaluating risk. 

• Use compliance testing on a regular basis. 

Implementation of risk management plans is expected to be in effect during the 

first quarter of 2012. Assessment and monitoring will be an ongoing servicer activity. 

Compliance Committees, Compliance Programs 

The consent orders require a number of actions to ensure compliance with the orders and with applicable laws and regulations. As a result during the third quarter 

of 2011, the servicers set up compliance committees responsible for the development 

and implementation of compliance programs, action plans, policies and procedures, 

and strengthened operating processes to correct the deficiencies cited by the enforcement actions. At a minimum, each committee includes three members of the institution’s boards of directors. The compliance committees are also responsible for reporting actions required by the enforcement orders, and for taking corrective action for 

any ongoing or repeated noncompliance. 

The consent orders required comprehensive action plans to address compliance. 

Servicers submitted those plans in July, and work is under way to implement the 

plans. Plans addressed financial and personnel resources, organizational structure, 

and specific controls to ensure the affidavit, declarations, and notarization processes 

comply with applicable laws and regulations. 

Actions vary by servicers and include: 

• Changed management and leadership to ensure accountability and clarify responsibilities for mortgage servicing, foreclosure, and loss mitigation. 

• Changed reporting structures to centralize oversight of mortgage servicing, foreclosure, and loss mitigation functions. 

• Increased number of personnel responsible for conducting audits and dedicated 

to ensuring compliance, as well as for mortgage servicing, foreclosure, loss mitigation, and information technology supporting these functions. 

• Implemented training programs for signers of sworn documents and notaries to 

emphasize the personal knowledge required and specific requirements of State 

law. 

• Increased training requirements for customer assistance specialists, single 

points of contact, and compliance personnel. 

• Brought previously outsourced preparation of sworn documents in-house. 

• Created or revised templates for sworn documents to conform more closely with 

State and local laws, in judicial and nonjudicial foreclosure states. 

• Implemented quality control processes to ensure proper completion of sworn 

documents, including, at some servicers, real-time monitoring by dedicated 

quality assurance staff. 

• Established foreclosure referral checklists to verify loss mitigation efforts, bankruptcy status, and the borrower’s status related to the SCRA. 

• Established dedicated units to specialize in SCRA and to correct SCRA-related 

issues. 

• Established testing of loan modification denials, sworn document completion, 

and regulatory compliance, as part of quality control initiatives to verify compliance with loan modification program requirements, GSE loan servicing guidelines, and Federal laws including SCRA and bankruptcy. 

• Established periodic evaluations by senior managers of policies, staffing, and 

functional performance related to mortgage servicing, foreclosure, and loss mitigation. 
49 

As work continues to improve compliance controls across the servicers, the OCC 

expects the servicers to complete the implementation of new processes, policies, and 

enhanced controls during the first part of 2012. 

IV. Other Efforts to Enhance Mortgage Servicing Standards and Practices 

While the actions taken under our consent orders are significant, there are a variety of other efforts, stemming from the foreclosure crisis, that are underway at the 

Federal and State levels that will affect mortgage servicing standards and practices 

and enhance borrower protections. The following summarizes some of those efforts. 

Interagency Effort to Establish Uniform Mortgage Servicing Standards 

Staff from the OCC, FRB, Federal Deposit Insurance Corporation, Consumer Financial Protection Bureau (CFPB), and other participating agencies are working to 

develop proposed national standards to address all aspects of mortgage servicing. 

Ideally, key requirements would be in the form of enforceable regulations, supplemented with compliance guidelines that can be used to fill in details and provide 

illustrations of practices that comply with the regulatory standards. The objective 

is to achieve rigorous, uniform ‘‘rules of the road’’ for responsible servicer conduct. 

It is vital that any standards that the agencies adopt apply to, and are implemented 

by, all firms engaged in mortgage servicing—not just federally regulated depository 

institutions—and that there is strong oversight of all servicers’ compliance. 

Other Federal and State Attorneys General Settlement Activities 

For well over a year, the OCC has been in regular communication with the DOJ 

and other Federal agencies regarding our foreclosure-related enforcement actions 

and how those actions relate to other Federal and State enforcement and settlement 

activities that may pertain to the types of activities covered by our orders. For example, we discussed with the DOJ how the detailed action plans required by the 

orders, particularly for mortgage servicing and foreclosure procedures, had the potential to synchronize with the terms of the settlement under discussion with the 

same mortgage servicers, State attorneys general, DOJ, and certain other Federal 

agencies. On June 13, 2011, the OCC, the FRB, and the OTS announced a 30-day 

extension of certain timelines under the orders—at the request of the DOJ—to facilitate that process of coordination of servicer actions. We continue a constructive 

dialogue with the DOJ on all these subjects. 

Changes in Federal Law: Dodd-Frank Act 

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) 

has several provisions that affect mortgage servicing. It amended the Truth-inLending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) and 

granted authority for these and other ‘‘enumerated consumer protection laws’’ to the 

CFPB on July 21, 2011. 

The amendments to TILA require periodic notices to borrowers disclosing information related to the servicing of the loan and prohibit fees for providing a statement 

of balance or for modifying a high cost mortgage; impose requirements for establishing and disclosing escrow accounts for a variety of mortgages; and require timely 

payoff notices and payments be credited on the date of receipt. The amendments to 

RESPA regulate the force-placement of hazard insurance, and require timely response to borrower complaints, contact information for the owner or assignee of the 

mortgage; and compliance with ‘‘any obligation found by the [CFPB] to be appropriate to carry out the consumer protection purposes of [RESPA].’’ The Dodd-Frank 

Act also requires the Secretary of the Department of Housing and Urban Development (HUD) and the Director of the CFPB, in consultation with the Federal banking agencies, to create a database with information on delinquent loans and foreclosures. Finally, the Dodd-Frank Act authorizes the CFPB to issue regulations that 

identify as unlawful ‘‘unfair, deceptive, or abusive’’ practices in connection with 

mortgage servicing. 

Changes in GSE Guidelines 

In addition to these new requirements under Federal laws, Fannie Mae and 

Freddie Mac announced two initiatives related to servicing that could have widespread impact. The first, announced with the Federal Housing Finance Agency 

(FHFA) and HUD in January 2011, would lead to new compensation structures that 

determine how servicers of single-family loans in mortgage-backed securities pools 

are paid. This initiative would align compensation structures with the objective of 

improving service for borrowers, providing flexibility in servicing nonperforming 

loans, and promoting liquidity in the mortgage securities market. On September 27, 

2011, at the direction of the FHFA, the GSEs’ issued a discussion paper, ‘‘Alter-
50 

native Mortgage Servicing Compensation,’’ setting forth a series of potential approaches and inviting public comment. 

The second GSE initiative, announced in June, is to develop uniform policies for 

servicing delinquent loans that will enhance and streamline outreach to delinquent 

borrowers and establish performance-based monetary incentives for compliance. 

Under these guidelines, which largely took effect October 1, 2011, a foreclosure will 

not be permitted on a mortgage owned or guaranteed by Fannie Mae or Freddie 

Mac until the servicer has conducted a formal review of the borrower’s eligibility 

under all available foreclosure alternatives, including loan modifications, short 

sales, and deeds in lieu of foreclosure. Servicers will be expected to continue to help 

these borrowers qualify for a foreclosure alternative. Given the significance of the 

GSEs to the mortgage market, these new standards will act as the catalyst for conforming changes nationwide. 

V. Conclusion 

The consent orders issued by the OCC, the FRB, and the OTS in April were significant steps toward ensuring this country’s mortgage servicing industry operates 

in a safe and sound manner and borrowers are treated fairly. As a result of these 

actions more than four million borrowers involved in the foreclosure process in 2009 

and 2010 have the opportunity to receive free, independent reviews of their cases. 

Where wrongful financial injury is identified, our consent orders require remediation. We expect to issue a report on the results of the independent foreclosure review at the conclusion of that effort. In addition to the independent foreclosure review, other efforts required by our orders are well under way to correct deficiencies 

in mortgage servicing and foreclosure processing that our examiners identified in 

their reviews during the fourth quarter of 2010. Much of the work to correct identified weaknesses in policies, operating procedures, control functions, and audit processes will be substantially complete in the first part of 2012; other initiatives will 

continue through the balance of 2012. OCC examiners provide ongoing oversight to 

this process and will continue to monitor efforts to ensure compliance with our consent orders. 

I appreciate the opportunity to appear before the Subcommittee this afternoon, 

and look forward to addressing your questions. 
51 

Helping Homeowners Harmed by Foreclosures: 

Ensuring Accountability and Transparency in Foreclosure Reviews 

Written Testimony 

of 

Alys Cohen 

National Consumer Law Center 

also on behalf 0 f 

Americans for Financial Reform, California Reinvestment Coalition, COlnlnunity Legal Services of 

Philadelphia, Connecticut Fair Housing Center, Consumer Action, Consumers Union, Empire State 

Justice Center, Financial Protection Law Center, Housing and Economic Rights Advocates, Legal 

Aid Center of Southern Nevada, Inc., Legal Aid Society of Milwaukee, Inc., Michigan Foreclosure 

Task Force, National Association of Consumer Advocates, National Council of La Raza, National 

COlnlnunity Reinvestment Coalition, National Fair Housing Alliance, National People's Action, 

Neighborhood Economic Development Advocacy Project, North Carolina Justice Center, 

Woodstock Institute 

Before the United States Senate Subcommittee on 

Housing, Transportation, and Community Development of the 

United States Senate Committee on 

Banking, Housing, & Urban Affairs 

Dec. 13,2011 
52 

Table of Contents 

I. Introduction ............................................................................................................................................. 1 

II. The Mortgage Servicing Consent Orders Are Vague and Weak, Setting the Stage for an 

Inadequate Foreclosure Review Process ........................................................................................................ 6 

III. The Foreclosure Review Process Is Ineffective, Fails to Target Key Foreclosure Problems, 

and Does Not Protect Homeowners from further Harm ........................................................................ 11 

A. The Process Allows Wrongful Foreclosures During the Review Process .................................. 11 

B. Outreach to Homeowners Is Fatally Flawed .................................................................................. 13 

C. The Foreclosure Review Contracts and Materials Omit Many Typical Types of Harm, 

Steering Homeowners to a Narrow Review ............................................................................................ 16 

D. The Analysis of Homeowner Claims and Files Will Be Performed in a Vacuum ................. 20 

E. Remedies Likely Will Compromise Homeowner Rights While Providing Uncertain and 

Inadequate Compensation ............................................. ,"' ..... , .. ,"'., ... ," .... ' .. "."", .. ,"'." ... ,",.,",.,.".,." ..... ,.24 

F, The Process Is Primarily Supervised By an Agency Characterized by Bias toward Lenders and 

Servicers over Borrowers and Homeowners ................................................................. : ......................... 27 

IV, Servicers Have Incentives to Ignore Directives to Modify Loans ....................................... " ...... 29 

A. Interest and Principal Advances to Investors ................................................. " .. " .... " ................... ,31 

B. Fee Advances to Third Parties ......... " ..... ""." ................. " ....................... " .... " .. " ........ " ...... " .. " ....... 33 

C. Fees Are a Profit Center for Servicers ..... " ..... " ....... " .... " ...... " .................. "" .... "" ..................... " .... 34 

V. The CfPB Should Have Responsibility for the Reviews and National Servicing Standards 

Should Be Implemented To Fill the Continuing Void in Servicing Regulation ..................................... 35 

VI. Conclusion ........... , .. , .".,.,,, ..... , ...... ',., "" ., .. , .,'" .',.".,.".", ....... ",., ... , ....... ' , .. , ... ,',',' .. ""', .... , ... , .... , .. ",.,, .... 3 7 

Exhibit A: OCC Notice and Request for Review"" ... "."" .. "" ..... "." .... "."."" ...... "" .. "" .. "" .. " ... " .. 39 

Exhibit B: Regulator Scenarios of Financial Injury ..... " .. " ................ " ....................... " ............ " ... " . .47 

Appendix A: Organizations on Whose Behalf Testimony Submitted ............. " ............................ 54 
53 

I. Introduction 

Chairman Menendez, Ranking Member DeMint, and members of the Subcommittee, thank 

you for inviting me to testify today regarding the mortgage servicing consent orders being 

implemented by the federal bank agencies. 

I testify here today on behalf of the National Consumer Law Center's low-income clients. 

On a daily basis, NCLC' provides legal and technical assistance on consumer law issues to legal 

services, government, and private attorneys representing low-income consumers across the country. 

I also testify here today on behalf of Americans for Financial Reform, the California 

Reinvestment Coalition, Community Legal Services of Philadelphia, the Connecticut Fair Housing 

Center, Consumer Action, Consumers Union, the Empire Justice Center, the Financial Protection 

Law Center, the Housing and Economic Rights Advocates, the Legal Aid Center of Southern 

Nevada, Inc., Legal Aid Society of Milwaukee, Inc., the Michigan Foreclosure Task Force, the 

National Association of Consumer Advocates, the National Council of La Raza, the National 

Community Reinvestment Coalition, National Fair Housing Alliance, National People's Action, the 

Neighborhood Economic Development Advocacy Project, the North Carolina Justice Center, and 

the Woodstock Institute. 

I The National Consumer Law Center, Inc. (NCLC) is a non~ptofit Massachusetts Corporation, founded in 1969, 

specializing in low-income consumer issues, "lith an emphasis on consumer credit. On a daily basis, NCLC provides 

legal and technical consulting and assistance on consumer law issues to Jegal services, government, and private attorneys 

representing low~incomc consumers across the country. NCLC publishes a series of eighteen practice treatises and 

annual supplements on consumer credit laws, including Tntt/! In l..ending (6fh ed. 2007) and Cost o/C:r-edit: Regulation, 

Preemption, and Indullry Abuses (3d ed. 2005) and Fom/omm (2d ed. 2007), as well as bimonthly newsletters on a range of 

topics related to consumer credit issues and low~income consumers. NCLC attorneys have written and advocated 

extensively on all aspects of conswner law affecting l(}w~income people) conducted training for thousands of legal 

services and private attorneys on the law and litigation strategies to deal predatory lending and other consumer law 

problems, and provided extensive oral and written testimony to numerous Congressional committees on these topics. 

This testimony was written by .-\lys Cohen, Staff Attorney, and Diane E. Thompson, Of Counsel. Information on the 

other organizations on whose behalf this testimony is submitted mar be found in ;\ppendix A. 
54 

I have worked as an attorney in the area of sustainable mortgage lending for almost fifteen 

years. I have spent the last eight at NCLC providing technical assistance, training, and policy 

guidance to attorneys, housing counselors, policymakers, and others. In my role at NCLC, I have 

focused primarily on mortgage lending and servicing, and have spent the last several years following 

and advocating for mortgage servicing regulation. I have followed closely regulatory developments 

in mortgage servicing, including the April consent orders and the November roll out of the 

foreclosure reviews. 

In the face of a foreclosure crisis of unprecedented proportions, the regulatory response has 

been staggeringly inadequate. The consent orders and foreclosure reviews leave unaddressed 

egregious violations of law by the servicers and fail to provide any meaningful redress for wronged 

homeowners. The current process is opaque, leaves too much control in the hands of the 

servicers-the firms that created the mess in the first place-and threatens to strip further rights 

from homeowners. Given the numerous shortcomings in the process and the potential that 

homeowners will be injured by the current implementation of the consent orders, we recommend 

that the Consumer Financial Protection Bureau take over the process of implementing the orders.' 

The CFPB is in a better position to balance the needs of fmancial institutions with those of 

homeowners facing foreclosure. The banking agencies have established a process that repeatedly 

favors banks over homeowners. That process cannot be permitted to continue. 

2 This action was brought as a safety and soundness enforcement action by the OCC1 not under its UDAP jurisdiction. 

\v'hilc these unfair and deceptive practices are certainly not conducive to safety and soundness, in this case the root 

conduct under scrutiny is clearly the unfair practices, and the aces failure to invoke that jurisdictlon in this context can 

only be seen as an effort to protect the large banks from the supervisory oversight of the CFPB. 

2 
55 

The foreclosure crisis, the worst this nation has ever known, is not even half over. 1 

Homeowners, neighborhoods, and cities across the country face the economic and emotional toll 

occasioned by soaring rates of vacant and abandoned properties. This widespread pain is not evenly 

distributed: communities of color face disproportionately high rates of foreclosure and ensuing 

vacancies.4 Frustration and anger on the ground have been growing, as demonstrated by the 

December 6'h Occupy movement's day of action focused on defending foreclosure-related 

evictions.' 

Government intervention in this crisis has been narrow and mostly unsuccessful. While the 

Home Affordable Modification Program (HAMP) established the beginnings of a framework for 

appropriate and sustainable loan modifications, only a fraction of eligible homeowners have 

obtained access to this program, largely due to unaddressed serv-tcer noncompliance.' Half of the 

government funding for the Emergency Homeowners Loan Program (F.HLP), the program to aid 

unemployed homeowners, has been returned to the Treasury unused,' and the refl11wcing program, 

HARP, leaves out homeowners who are in default-the ones who need assistance the most-while 

also excluding those homeowners, mostly seniors, who have managed to maintain equity in their 

1 Debbie Gruenstein Bocian, et at, Ctr for Responsible Lending, u,1 Ground, 2011 (Nov. 2011), allailabk at 

lill,p~:lr:.\YJl'*Qn.ablclendi!Jgj2~.mm~kn.diD.gLn;'5,gAX.dLJlt44.;JifJ .. &S.L.Gr9.1ill.d~.lL.u.df (ftoding at least 2.7 

million mortgages loans originated between 2004 and 200B ended in foreclosure, u1th almost 4 million more home 

loans originated during the same period are at serious nsk; estimating that the crisis Vlill continue for another five to ten 

years). 

-.l- Bocian) supra 3 (while most of those who have lost their homes arc white, African-American and Latino borrowers 

have been disproportionately affected. Approximately one fourth of these horrowers have lost their home to foreclosure 

or are seriously delinquent. while this figure is just under 12 percent for white borrowers) .. -\cross the country, low- and 

moderate-income netghborhoods and neighborhoods Vlith high concentrattons of minorities have been hit especially 

hard . 

., Justin Elliot, OCCJlpy'} Next Frontier. Foreclosed Hamel. Salon.com, Nov. 30, 2011. 

(, Paul Kiel, Secret DGfJ Show ForedoJure IPatfhdag Doutt'! Bark or Bite, Pro Publica, Oct. 4, 2011 (noting that fewer than 

800,000 have received loan modifications, fewer than 1 in 4 who have applied, and detailing rampant noncompliance by 

G!\L\C that has gone mostly unaddressed by the Treasury Department), lJtJatlabJe at 

http:// \V'WW. propublica.org/ article/ secret -docs-on-foreclosure-wa tchdog/ single. 

7 Cara Buckley, U.S. Mortgage-Aid Program Is Shutting Down, With Up to $500 Million Umpmi, NY. Times, Sept. 29,2011 at 

.\20. 

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56 

homes. Nearly five years into the crisis we still have no plan for principal reductions for the over 

one in four, or nearly 15 million, households that are underwater.' Only now is the Federal Housing 

Finance Agency considering a proposal to allow no-interest periods in Chapter 13 bankruptcy 

payment plans, which would provide principal reductions for some homeowners in bankruptcy. 111is 

plan, if adopted, will make a substantial difference to many homeowners, but cannot on its own help 

enough of them. The FHFNs servicing alignment initiative (SAl) in many ways is a step back from 

the standards established under HAMP. Although the FHFA's SAl establishes a better process for 

reviewing homeowners for modifications prior to initiation of foreclosure, it establishes stiff 

penalties for slowing the foreclosure once it has started, even where a homeowner has requested a 

loan modification.9 The SAl's new standard loan modification is more expensive and less sustainable 

than HAMP modifications and perpetuates practices from the unsustainable lending that caused the 

crisis in the first place. 1U Although efforts continue by the state Attorneys General to hold the big 

servicers accountable," any ultimate results at the state level are necessarily of limited reach. 

Nationwide enforcement and mortgage servicing standards are essential to stopping the onslaught of 

unnecessary foreclosures. 12 

'Jill Simmons,Home Val.es Flat in the Third,Quarteron Slow Road to Housing Market Bottom Zillow Blog (Nov. 7, 2011), 

http://\\.''\v\\'-Jilluw,corn/hlo?/'"JOll {1·lr' Ihl.l11)1': vaJueslW.L1QJbird._Qllli..ili-:'.I.1llLdow nHd· to housil1l' m:!I.kKLhotfom,'. 

:\ccordmg the U.S. Census 2009 .. -\merican Housing Survey, Mortgage Characteristics, Table 3~15. available at 

hI1p:/ /W'.\"\\'X(,lbtl$,gO\' !honsin{: /ah$/d;wl.l ah<2(109.h1ml, there are approximately 50,300,00 owner-occupied properties 

with mortgages on them; 28.6% of 50,300,000 is 14,385,800., 

9 S" Fannie Mae SVC-2011-0SR (Sept, 2, 2011); Freddie Mac Guide Bulletins 201 1-11 (Implementation Requirements), 

2011· 16 (Standard Modification. He also Guide Chapter B6S, Workout Options), 2011-17 (Post Referral Solicitation 

Requirements), & 2011-19 (Update), 

10 For example. the current modification interest rate is 5%. Fannie Mae, Announcement SVC-2011-08R at 28 (Sept. 2. 

2011), although the current Freddie :rvlac primary mortgage market survey rate is 4%. See \V"\'v\v.frl'.:l .. iIel1:uccom,. 

Similarly, the front-end DTI may reach 55%, Fannie "iae, """nnouncement SYC-2011-0SR at 27 (Sept 2, 2011), far in 

excess of the 31 % front-end DTI that has supported fL-\MP loan modifications \vith low redefault rates .. 

I! Gretchen Morgenson, N,Y. Times, A1.asJachHsettJ SueJ Fipe A1qjor Banks OIJer Forerkmmr Pratlices, Dec, 2, 2011 at B 1. 

12 \Xlhile certain minor .improvements to mortgage servicing were included in the Dodd-Frank Wall Street Reform and 

Consumer Protection Act, Pub, 1.. No, 111-203, 124 Stat 13 76 0 uly 21, 2010), the key factors driving servicers to 

prioritize foreclosures over modification have not been addressed in any forum. 

4 
57 

The latest submission in the list of ineffective and potentially harmful responses to the 

foreclosure crisis is the joint aee and FRB action against the nation's major mortgage servicers. 

The orders themselves are vague and weak, and the foreclosure review-the centerpiece of the 

actions and the tool geared to homeowner remedies-is unlikely to prevent or reverse wrongful 

foreclosures or to provide sustainable solutions going forward. The lack of transparency and input 

into the process undermines public confidence as well as outcomes. To the extent homeowners do 

participate in the process, there remains the possibility that servicers will use the process to strip 

homeowners of their legal rights. The orders and the foreclosure reviews provide, at best, little 

more than window dressing for business as usual, even though business as usual has left us in the 

worst foreclosure crisis in our nation's history and the worst economic crisis since the Great 

Depression. 

The orders do not remove the need for national servicing standards. The standards adopted 

by the aee and FRB permit the servicers wide discretion in creating their own servicing standards 

to suit their own purposes. These standards, moreover, apply only to a select group of servicers, 

lack significant enforcement or oversight mechanisms, and, outside of a narrow time window, 

provide no relief for homeowners injured by violations. In their blessing of dual track, the orders 

represent a step backwards from existing standards under HAMP and the FHFA SAl, and the lack 

of transparency shelters servicers in their abuse of homeowners. 

The stakes are high, especially in light of the disgraceful history of servicer noncompliance, 

even with specific and explicit rules. Servicers do not believe that the rules that apply to everyone 

else apply to them. This lawless attitude, supported by financial incentives and too often tolerated 

by regulators, is the root cause of the wrongful foreclosure of countless American families. Whether 

5 
58 

servicers' errors are the result of intentional wrongdoing or mere incompetence, the result is the 

same: homeowners, investors, and the communities we all live in suffer, while servicers continue to 

profit. This process encourages the servicers to perpetuate abuses unchecked while hiding behind a 

fig leaf of reform and accountability. It is time to transfer oversight of all consumer protection 

actions involving servicers to the CFPB, as Congress intended in enacting the Dodd-Frank Act. 

II. The Mortgage Servicing Consent Orders Are Vague and Weak, Setting the Stage for 

an Inadequate Foreclosure Review Process 

On April 13, 2011, the federal banking agencies announced enforcement actions against 

mortgage servicers and other firms relating to problems with foreclosures." The OCC is now 

overseeing the majority of the servicers implementing the consent orders, while the Federal Reserve 

is supervising four. 14 On November 1, 2011, the OCC and FRB announced the initiation of an 

outreach process to homeowners eligible for foreclosure reviews by the consultants. Although there 

is some variation between the agencies, and from servicer to servicer, the individual processes share 

major flaws. 

The consent orders and the foreclosure review process as enunciated to date lack the rigor 

and breadth to ensure that homeowners arc protected during the review process. The process may 

also be affirmatively harmful. Homeowners could be required to waive their rights in exchange for 

any available relief. Homeowners may be discouraged from pursuing other avenues of saving their 

homes by their misplaced reliance on this process. If so, homeowners could ultimately lose their 

homes in exchange for the uncertain and limited compensation provided under the foreclosure 

reviews. 

13 S fl?, f.g., h.'-4~.)}:~~;£,gQ.yj"n£w::;-j~ :,\rnJJf£JiLru::..\~~.:I,d~1iK:il.20 11 ! !l!:.Q£~ -20 11:::.17",1.110).1. 

14 .~lthough the ace and the FRB are both implementing consent orders against mortgage servicers, the ace has 

released substantially more information. Our comments will focus on the information currently available, and thus are 

based primarily on materials released by the OCe. 

6 
59 

Many of the deficiencies in the foreclosure review process being undertaken by the 

consultants have their origins in the consent orders. While the agencies could improve the process 

despite the orders, and could even re-open the consent orders, the process as it exists has substantial 

unaddressed weaknesses. The process cannot produce fair and equitable relief sufficient to address 

the scale of the crisis. 

The time limit on eligibility may disparately impact communities of color. The 

reviews are time limited: they focus only on 2009 and 2010. Abuses occurring before or after this 

time will not be looked at. Because the subprime foreclosure wave came first, the review may 

disproportionately exclude low-income homeowners and homeowners of color, who were more 

likely to have received subprime loans. 

Necessary detail is lacking. The consent orders provide no guidelines on loss mitigation 

or on evaluations for core servicing abuses, including application of payments, assessment of fees, or 

force-placed insurance. The lack of detail allows the servicers, the perpetrators of the illegalities 

recognized by the banking agencies in issuing the consent decrees, to control the independent 

review process and obscure many violations. In combination, the lack of detail and the unusual 

deference extended to the servicers undercut the possibility of meaningful change going forward. 

Dual track is affirmed. The agencies fail to address "dual track"-the simultaneous 

processing of a loan modification and a foreclosure-in any effective way. The persistence of dual 

track has led to countless unnecessary and expensive foreclosures. Although the agencies purport 

to address dual track, the orders only stop a foreclosure when a homeowner has already obtained a 

trial or permanent loan modification. This result is probably dictated by contract law and is 

certainly not a far-reaching reform of current practice. The establishment of a foreclosure stop once 

7 
60 

a modification has been entered into is a commonplace part of how modifications arc administered 

currently; if you are paying on your loan, then you should not be subject to foreclosure. (Of course, 

servicers often fail even at trus basic step). A foreclosure stop after a loan modification agreement is 

entered into does not end dual track, but blesses it, allowing an evaluation for a loan modification to 

occur simultaneously with the foreclosure. Tbe result always is financial harm to homeowners and 

often wrongful foreclosure. 

The orders do not even require a stop to foreclosures during the consultants' review process. 

Thus, a homeowner could be under review for the servicer's wrongful initiation of foreclosure, and 

the servicer could even ultimately be found to have wrongfully initiated foreclosure, and there would 

be no requirement to stop the foreclosure, leaving the homeowner a victim of wrongful foreclosure. 

The failure to provide for a foreclosure stop during review makes a mockery of any suggestion that 

the foreclosure review process will make homeowners whole. This result is so obviously wrong that 

few homeovmers are likely to anticipate it; many homeowners may believe that, having submitted 

their claim form, they will not be dispossessed of their homes until a decision has been made as to 

the legality of the servicers' action. This is one of many ways that the foreclosure review process 

may exacerbate the harm already suffered by homeowners. 

Significantly, in failing to require that the review be completed before the foreclosure sale, 

and that foreclosure actions be halted during the pendency of the review, the agencies have taken a 

gigantic step backward from existing standards under HAlvIP and the FHF 1I.'s SAl. Despite the 

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61 

limitations of both HAMP and the FHF A's SAl," neither permits a home to be sold at foreclosure 

while under review. 'The agencies' foreclosure review process condones that result. 

The orders lack transparency and accountability. The consent orders have no 

provisions for transparency in their implementation. The agencies have not committed to reporting 

the results of the reviews or providing information about the compensation provided homeowners. 

Periodic reports broken down by the state, race, income level, and property value of the 

homeowner, as well as by servicer and consultant are essential. The public is entitled to know how 

many homeowners are contacted, how many respond, what violations are found, and how much 

compensation is provided. Congress, affected homeowners, and the public at large cannot have 

confidence that the process is fair, consistent, and provides affected borrowers with adequate 

compensation absent transparency. Without transparency, there cannot be accountability for 

promises of an improved performance in the future. 

There are no meaningful provisions for accountability. Servicers may not face any penalties 

for violations. The orders fail to provide directly for either bankruptcy or foreclosure court judges 

to enforce their terms, leaving homeowners at the mercy of the consultants' review. In many cases, 

the "project leads" of the foreclosure reviews are the servicers' own general counsel office.'" 

Homeowners have no express right to enforce these agreements. The agencies have 

referred to this process as a supervisory action. Such actions often remain non-public and solely in 

the purview of the regulator. This process, however, asks millions of homeowners to submit 

1, Neither J-ir\fi'fP nor S_\1 require the crucial step of a general stop to foreclosures already initiate. See generallY The Need 

for National MOl1gllge ServicingStanihrds: Hearing Before the S. SlIbmmm .. on HOIIJ .• Tramp., & Cm;y. Dev .• 112th Congo 31-35 

(2011) (written testimony of Diane E. Thompson, Of Counsel. Nat'l Consumer Law Center) (discussing weaknesses of 

the FHF,-\ 's SAl); Problems in Mortgage S eroicing/rom i\1od~ji(a/ilJn to [<oredo.J/Ire: [ learing Bifore the S. Comm. on Banking. [lolli. & 

Urban AJlairJ, ll1th Congo 3-5, 8-17 (2010) (\\ITitten testimony of Diane E, Thompson, Of Counsel, Nat'l Consumer Law 

Center) (discussing failures ofH..A.MP).when a modification is beIng reviewed. 

16 See FranCIne ~v1cKenna, ace FomiOJHre Review Disclomres Still DisoppoJltt, Am. Banker, Dec. 6,2011 (nottng that many 

of the servicers assert attorney-cbent privilege in the engagement letters with the independent consultants). 

9 
62 

personal information (and potentially waive all legal rights) in exchange for possible but indefUlite 

compensation. Homeowners cannot rely solely on the outcome of a secret, vague process to ensure 

they do not lose their homes. Nor should they be asked by servicers-who already have been found 

to have committed wrongdoing-to waive all rights in exchange for compensation unlikely to 

provide relief commensurate with the harm done. 

The orders could interfere with state enforcement actions. While the Federal Reserve 

and the FDIC clearly stated that these actions in no way are intended to interfere with the actions 

currently underway by the U.S Department of Justice and the state Attorneys General, the OCC has 

not made such a statement. The OCC's history of seeking to interfere with state enforcement of 

consumer protection laws does not inspire confidence that the agency will allow the work of the 

Attorneys General to go forward unimpeded. As discussed further below, during the years leading 

up to the current foreclosure crisis, the OCC aggressively tried to block state enforcement actions 

that could have dealt effectively with many of the industry practices that arc wreaking havoc upon 

the American public today.17 'These consent orders appear to continue that pattern of attempting to 

block effective action at the state level, while permitting abusive practices by federally-regulated 

institutions to continue unchecked. 

Millions of homeowners have been victimized by the fraudulent and abusive practices of 

mortgage servicers whose staff are trained for collection activities rather than loss mitigation, whose 

infrastructure cannot handle the volume and intensity of demand, and whose business records are a 

mess. The federal agency consent orders and the associated foreclosure reviews do not begin to 

adequately address these issues. They do not provide the accountability and rigor required to right 

17 Set Ill.F. 

10 
63 

this foreclosure crisis. To the extent these consent orders embolden servicers in their illegal 

activities and encourage homeowners to believe that the servicers are in fact subject to meaningful 

oversight, the foreclosure review process will afftrmatively harm homeowners. 

III. The Foreclosure Review Process Is Ineffective, Fails to Target Key Foreclosure 

Problems, and Does Not Protect.Homeowners from Further Harm 

The foreclosure review process is fatally flawed. Every aspect errs on the side of bank 

comfort over accountability. Many of these problems could have been prevented if the acc and 

the FRB had not followed a hasty and closed process but had incorporated recommendations from 

homeowner stakeholders. Restoring credibility would require new supervision and a fresh approach. 

A. The Process Allows Wrongful Foreclosures During the Review Process 

Homeowners flling claims under the foreclosure review process will be expecting a fair 

review and appropriate compensation. At a minimum, they are not expecting to lose their homes 

while they are waiting for long-needed help. Unfortunately, their homes are not protected. 

The review process does not limit a servicer or consultant's actions regarding foreclosures, 

including sales, during the review process. The acC's FAQs state in part: 

The submission of a request for review form will not automatically postpone further 

foreclosure processing. However, the borrower will receive expedited attention where a 

foreclosure sale is imminent. This review will involve a case-by-case assessment of the 

borrower's individual circumstances and any legal requirements to determine if a foreclosure 

sale may be postponed or halted if the facts warrant." 

While some homeowners may be lucky enough to find out their sale has been stopped or their case 

has been escalated during the review, even these minimal standards arc not publicly available and 

thus are subject to abuse and inconsistent application. Because foreclosure halts arc not clearly 

18 FrequentlY AJked QUeJtiOflf Rtgarding the Tnterageno' Foredofllre En/{)rcement ActioflJ, Office of the Comptroller of the 

Currency, available at http://www,Qcc.treas.gov/topics/ consumer-protection/ [oredos·ure~prevention/ foreclosurefags.html. 

11 
64 

available, additional wrongful foreclosures may actually occur during the review. Those wrongful 

foreclosures may not be remedied at all. Moreover, a foreclosure sale that was not imminent or 

even scheduled at the time of the submission of a claim may become so during the review of the 

claim. How will the independent consultants know when a foreclosure sale is imminent when the 

servicers do not even always know themselves? 

.:. A Washington state woman, who was current under a temporary payment agreement, 

received an eviction notice. The servicer's representative told the woman, when she called, 

that she was mistaken at best, and a liar at worst, and that there was no foreclosure action 

against her. Nonetheless, the purchaser of the property succeeded in evicting the family, 

who are now living in an apartment and have lost nearly $200,000 in equity . 

• :. A California family was foreclosed on after IUgh-level executives at the bank assured the 

homeowner's attorney that the foreclosure sale would be stopped . 

• :. Another California family has spent two years unwinding a foreclosure sale that happened 

while they were making payments under a temporaty forbearance agreement. It took 

multiple phone calls to the servicer before the servicer acknowledged that the sale had 

occurred, albeit Hin error." 

This policy highlights the acC's broader promotion of foreclosures over loss mitigation. The 

consent orders only call for a stop to a foreclosure where a homeowner already has obtained a 

modification. As described above, this turns the whole notion of ending dual track on its head." 

Modification reviews will be faster and more accurate, and modifications will be more affordable 

and easier to obtain for homeowners, if the foreclosure process stops during modification reviews. 

In contrast to that approach, implemented in HAMP,"O the aee has now expanded its prioriti7.ation 

of foreclosures over loss mitigation into the foreclosure reviews currently underway.21 

I~ .lee II. 

20 H~-\MP requires that loan modification reviews, or significant outreach~ occur hefore a foreclosure is. initiated and that 

no foreclosure sale happen while a review is pending. H~'\1\1P unfortunatel does not require a full stop to a foreclosure 

once it has been initiated, only a halt to the sale. 

2! :\dding insult to injury, the ace continues to describe its policy as addressing "dual track," while perpetuating the 

exact harm that occurs when foreclosure and loss mitigation are parallel rather than serial. 

12 
65 

Homeowners should be guaranteed that their homes will not be sold at foreclosure while their 

ftles are being reviewed. TIlls policy should be mandated and enforced by the agencies and made 

transparent to homeowners. Additionally, homeowners seeking modifications may be subject to 

wrongful foreclosure because the consent orders and reviews do not require that modifications be 

provided, even where appropriate and money-saving for investors, only that evaluations be done. 

Moreover, modification reviews appear to be explicitly required only for junior liens." 

B. Outreach to Homeowners Is Fatally Flawed 

Outreach to homeowners began directly on November 1,2011, with press releases released 

by the oee and the FRB and letters sent to homeowners (at least those who are still in their 

homes). Problems with this process include the form itself, which is complex, nllsleading and 

intinlldating, the linllted outreach being done, the short time frame, language access issues, barriers 

to participation for homeowners with counselor or attomey representatives, and concems about 

adverse consequences from participating. A copy of the letter and application form is attached as 

Exhibit A. This process is broken. Such a travesty cannot be allowed to continue. 

Homeowners' advocates cannot access the fonns. We have received reports that 

counselors and others working with homeowners cannot obtain access to the forms. Getting third 

party authorizations processed to allow that access has been difficult. No apparent effort has been 

made to facilitate this process. 

The outreach materials are not readable. Both the cover letter and the form appear to 

have been written by lawyers for lawyers. An analysis of the documents under the Flesch-Kincaid 

grade level test indicates that both are written at an intermediate college reading level. (Indeed, 

because the form and letter consist of relatively short paragraphs, the Flesch-Kincaid grade level test 

22 Office of the Comptroller of the Currency, I.terim Sialur fup,r/: F,,.,c/,rH,"-fulal,d C,nren! Ordm 10-11 (Nov. 2011). 

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66 

may actually overstate the readability of the form and letter).l.3 Best practices reguire outreach 

materials written at no more than an eighth grade reading level. 

Homeowners are likely to mistake the outreach materials for a foreclosure rescue 

scam. The outreach materials refer consumers to "IndependentForeclosureReview.com." The 

name, "independent foreclosure review," sounds like something dreamed up by a foreclosure rescue 

scammer. Indeed, SIG TARP, the eFPB, and Treasury have recently reminded consumers to be 

wary of unknown organizations that contact them, promising help in obtaining a modification." 

The dot com website address is another red flag. Information about the servicer and the 

government oversight is buried in the body of the text. Neither the consultants hired by servicers 

nor Rust Consulting, the flttn engaged by the ace to oversee the outreach, are known entities to 

homeowners or their advocates. The multiplicity of private consultants involved raise further 

skepticism: surely the servicer, the consultant hired by the servicer, and Rust Consulting cannot all 

be legitimate sources of information? The lack of transparency and accountability increases 

consumer mistrust. 

The OCC FAQ is misleading. For example, the ace FAQ says that the claims process 

accords "additional rights." According to the FAQ, homeowners may still pursue other forms of 

legal action." Yet the ace has failed and refused to forbid waiver of legal rights. Se,."icers, in fact, 

are free to prevent homeowners from enforcing any claims. 26 

23 According to om run of .:Microsoft Word's grammar check tool, the Flesch-KIncaid grade score is 14.2 for the ace's cover letter and 13.5 for the fonn. 

2" Consumer Fraud .r\,lert: Tips for Avoiding r.lortgage Modification Scams, 

http://www.sigtarp.gov / pd f/ Consumer_Fraud_.~lert .pd f. 

25 See Office of the Comptroller of Currency, Frequently Asked Questions Regarding the Interagency Foreclosure 

Enforcement .Actions, "Can I contest the remedy I am given?" (Nov. 22} 2011)) 

http:// www.occ.treas.gov/topics / consumer-protection / foredosure~prevention/ foredosure- faq s.h tmL 

26 See IIlE 

14 
67 

The discussion of financial injury is confusing and misleading. The FAQ, the letter, 

and the form all have a limited list of examples of how fmancial injury is deflned. 27 Homeowners are 

unlikely to know the answers to technical questions, such as if their amounts due were calculated 

correctly. Homeowners are not told that they will be reviewed only for those injuries they identify or 

that they can obtain a general review by not specifying any fmancial injury. This perverse process 

penalizes homeowners who make a good faith attempt to identify the flnancial injury they suffered 

and encourages an arbitrarily narrow review. 

The required certification will chill homeowner participation. Section 4 of the 

application form requires the homeowner to certify that all the information is truthful, and that 

"knowingly submitting false information may constitute fraud." Homeowners are unlikely to bave 

the information or skills to determine, for example, whether "fees charged ... were inaccurately 

calculated, processed, or applied."" The servicers' sloppy documentation," the limited information 

provided most homeowners,"! and the difflculty of interpreting even the information that is 

provided make it difflcult for consumers to know what tbose charges are, and whether or not they 

are legitimate." 

Homeowners are also asked to certify they understand that the)' can "separately submit 'a 

qualifIed written request' relating to the servicing" of their mortgage under the Real Estate 

Settlement Procedures Act, that the independent review agent is not authorized "to act as an agent 

27 Seegen"alfy Ilte. 

28 See ace Request for Review Form at 1} attached as Exhibit .-\., 

29 See, e.g., In re Nosek, 363 B.R. 643 (Bankr. D, rvfass. 2007) (detailing failure of service! to account for borrower's 

payments); In re Gorshtein, 285 B,R. liB (Bankr. S.D. N.Y, 2002) (rejecting servicers' "dog ate my homework" excuses 

for faulty accounting tha.t led to certification of default by homeowners when there was none). 

'" See, ,.g., Maxwell v. Fairbanks Cap. Corp.,(ln" Maxwell), 281 B.R. 101 (Bankr. D. Mass. 2002) (reporting limited 

information provided homeowner, housing counselor, and homeowner's attorney over two year period, such that It was 

impossible for the homeowner to deterriline the payoff amount; finding that the sen'icer I'rcpeatedly fabricated the 

amount" due). 

31 Jee, e.g., In re Stewart, 391 RR. 327 (Bankr. E.D. La. 2008) (determining that broker price opinion fees were 

overcharged, performed on the wrong property, and not reviewed by the service!). 

15 
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to receive a 'qualified written request' on behalf of [the] servicer," and that a "qualified written 

request" must be submitted separately to their servicer at a special address. Very few people in this 

country could honestly certify that they understand that. 

The outreach is limited. Required forms are available only in English and assistance is 

only available in Spanish and English. The media used for outreach may not reach communities of 

color. 

The OCC requires the use of paper documents, complicating document tracking and 

mandating delay. The form is only available by mail; there is no mechanism for homeowners to 

submit the review request or supporting documentation electronically. The servicers' inability to 

keep track of paper documents has undermined the best loss mitigation efforts. The oee, in 

implementing the foreclosure review process, has deliberately ignored existing best practices. 

The time to submit claims is compressed. All claims must be submitted by April 30, 

2012. This gives five months only for outreach and claims submission. Experience with EHLP and 

HAMP demonstrates that this is insufficient time. 

Many of these problems could have been avoided if the outreach process had been vetted 

with groups that deal with homeowners regularly. 

C. The Foreclosure Review Contracts and Materials Omit Many Typical Types 

of Harm, Steering Homeowners to a Narrow Review 

The consent orders and the documents connected with the foreclosure reviews take a 

constricted view of the harm caused by servicer abuses. 'tbey fail to cover all foreseeable economic 

damage in the definition of fmancial injury and omit common examples of significant fmancial harm 

to consumers. The claim form itself is confusing and suggests that the definition of fmancial harm 

is even more limited than it is. Because the process places the burden on homeowners to identify 

16 
69 

the harm, these omissions willlikcly result in inadequate compensation for homeowners. Such an 

outcome will be compounded if a homeowner is required to waive legal rights in exchange for the 

weak remedy. 

The engagement letter released by the aee contains the most detailed information we have 

as to the applicable definition of financial harm. This detailed list of twenty-two scenarios, attached 

as Exhibit B, omits the most common types of financial injury caused by servicer malfeasance in the 

foreclosure process. For example, servicer delays are widespread. Almost 89% of housing 

counselor in a national survey report that servicer processing delays are tbe most common barrier to 

obtaining a modification.3Z Servicer delays in processing and approving a modification cost 

homeowners thousands of dollars in additional interest and fees that is then rolled into the principal 

balance. 

+:+ In one case from Wisconsin, a servicer's two year delay in converting a temporary 

modification to a permanent modification resulted in additional interest charged to the 

homeowner of nearly $43,000. 

+:+ A New York family, upon finally receiving an offer for a permanent modification, found 

themselves faced with a bill for over $9000 in foreclosure related fees and costs . 

• :+ A Brooklyn homeowner's principal balance more than tripled, mostly due to the imposition 

of fees and costs, in the three years her servicer delayed in resolving a wrongful foreclosure 

after she attempted to payoff her loan. 

Nor does the list provided in the engagement letter include the cost of being placed improperly 

in a proprietary modification and thus losing the benefitS of HAMP, including the homeowner 

incentive payments. Similarly, while some review documents suggest that the difference in payments 

between a more expensive modification and the one the homeowner qualified for should count as 

financial injury, this is not among the examples listed in the engagement letter. 

)2 National Housing Resource Ctr Survey, Dec, 2011. 

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70 

More fundamentally, nothing in the materials suggests that financial injury will be measured 

broadly enough to compensate homeowners for all economic injury. For example, HAMP 

modifications have significantly lower redefault rates than similar proprietary modifications." The 

increased risk of redefault is a quantifiable economic harm, but it does not appear compensable 

under the GCC metric. 

The focus is on financial harm writ narrowly. No provision is made for any of the foreseeable 

consequences of a wrongful foreclosure. The cost of credit and insurance are driven by credit 

scores: a wrongful foreclosure can easily cost a homeowner thousands of dollars annually just on 

these two fronts. Employers and landlords also both rely on credit scores; a wrongful foreclosure 

can result in lost jobs and difficulty locating alternative housing. Homeowners spend time and 

money trying to unravel wrongful foreclosures: the need to send notarized documents by overnight 

mail repeatedly to the servicer by itself can result in hundreds of dollars of out-of-pocket expenses. 

Children who suffer dislocation due to foreclosure may lose educational opportunities and 

experience poor health. Families are often torn apart by a foreclosure; no compensation is offered 

for any of the psychological and social damage done by a wrongful foreclosure. This narrow 

definition of financial harm is at conflict with long settled and well-established rules about available 

damages and undermines homeowners' rights." It will leave many homeowners uncompensated for 

harm they have suffered at the servicers' hands. 

Worse, the shrunken definition of fmancial injury may result in many homeowners being unable 

to pursue their claims for full compensation from the servicer elsewhere. This result could happen 

H See Office of the Comptroller of the Currency, aee iV!ongage At,tric,. Ripon: DiJi'iomre of National Bank and PederalThriji 

Mongage Loan Data, S,,"ndQuaner 2011,40 Oune 2009) 

H See, e.g., DeGolyer v. Green Tree Servicing, L.L.c., 662 S.E.2d 141 (Ga. Ct. App. 2008) (holding that former 

homeowner may maintain claim for mental anguish as wen as other damages in action for wrongfu1 foreclosure), 

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71 

either because the servicers demand explicit waivers or because courts or other agencies defer to the 

OCe's cramped definition of harm. Unless homeowners remain free to pursue claims against the 

servicer for a wider array of damages, homeowners will be left uncompensated by this process and 

without redress against the servicer. 

The agencies have not protected homeowners' rights to bring these claims outside of the 

foreclosure review process. If the servicers require waiver of homeowners' legal rights in exchange 

for limited relief under the settlement, as they may in order to protect their own interests, the 

fmancial injury occasioned by the consent orders could far exceed the compensated fmancial injury 

under the consent orders. 

The homeowner claim form takes an even narrower view of what constitutes financial harm. 

Instead of the twenty-two non-exclusive scenarios listed in the engagement letters from the OCC, , 

the homeowner claim form lists a bare twelve categories, with a fmal question permitting 

homeowners to list other ways they were fmancially injured. Homeowners are not offered guidance 

as to whether they should check all the applicable boxes. Indeed, the section on the form for 

identifying the fmaneial harm is described as "background," downplaying its importance. The more 

prominent "examples" of fmancial harm listed on the first page of the form imply an even narrower 

range of harms under review. The examples are all focused on completed sales, complicated 

calculations, or express protections for servicemembers or homeowners in bankruptcy. Many 

homeowners who have been fmancially harmed fall outside of these categories. 

The process leaves the burden on the homeowner to identify compensable harm, without much 

guidance. Homeowners will often not know whether or not the fees charged were illegal. They are 

unlikely to have full access to the servicer's records. Few homeowners possess the accounting savvy 

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72 

or legal expertise to identify illegal fees included in a deficiency judgment, illegal force-placed 

insurance, or botched escrow accounts, to give a few examples from the OCC's list. Homeowners 

unrepresented by counsel or a competent housing counselor (which, given the lack of funding for 

housing counseling or legal services, will be most homeowners completing these claims forms) are at 

the mercy of the consultants to identify the financial harm. Yet the consultants are unlikely to 

identify financial injury not specified by the homeowner. The consultants will only review for the 

financial harm the homeowner identifies, unless the homeowner identifies no fmancial harm. If the 

homeowner identifies no fmandal harm, then, and only then, will the consultants do a general 

review to attempt to identify the fmandal harm suffered by the consumers. Whether that more 

general review, by consultants with limited experience with residential mortgage files, relying on the 

cramped definition of financial harm promulgated by the OCC, will produce a fair and 

comprehensive review is an open question. 

D. The Analysis of Homeowner Claims and Files Will Be Performed in a 

Vacuum 

lbe review of homeowner claims and files cannot provide meaningful results. The 

consultants will be relying on very limited, incomplete, and biased information-the servicer 

databases and files, as well as internal servicer reports, which arc riddled with errors and missing 

paperwork. The claims forms from homeowners cannot adequately supplement the servicers' files, 

due to the problems in the outreach process" and the lack of funding for assistance to homeowners 

by housing counselors or legal services attorneys in completing these forms. The agencies have 

neither required homeowner interviews nor mandated that information supplied by the homeowner 

be given equal weight with the servicer's records. Implicitly, the agencies have discouraged 

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73 

homeowners from providing any detailed infoffi1ation of servicer wrongdoing: a general review of 

the servicer's misconduct will only be performed when the homeowner provides no information as 

to the servicer's malfeasance; in order to obtain a general review of the servicer's records, then, the 

homeowner must remain mum as to what the homeowner knows. 

The lack of information from homeowners has led to failed supervision for many years. 

Omitting the homeowner's perspective is like reading every third page of a novel. Nothing we now 

know about the consultants or their staff suggests they will have the wherewithal to supply the 

missing pages, or the inclination to do so. 

The review process excludes homeowners while servicers retain significant control and 

input. Neither the agencies nor the consultants have included homeowner advocates in the design or 

implementation of the review. Instead, the entire program design and implementation is one-sided, 

filtered through the information and perspective of the servicers, if not entirely under their control. 

As described in a recent news report: 

After the consultants have reviewed the loan files, they will write up their findings in a 

report, which will be turned over to regulators and the servicer of the loan but not to the 

borrower. Based on that report, the servicer will put together a report of its own on how it 

will compensate the borrower. Once regulators approve that plan, the servicer will send the 

borrower the findings of the review, including details on what compensation, if any, the 

borrower will receive. 16 

Notably, homeowners may not even then be informed as to what rights they will be asked to waive 

in exchange for limited compensation. Homeowners in this process are left entirely dependent on 

the senriccrs' munificence. 

"Paul Kie!, Flaw, Jeopardize N,w Attempt 10 IMp Ilomeowners, Pro Publica, Nov. 4, 2011, 

http://www. propu blica.orgl articlel flaws-jeopardize-new-attempt- to-help-homeowners. 

21 
74 

The sampling process also appears to have been heavily influenced, if not completely 

determined, by the servicers. The sampling approaches seem to vary widely by servicer and state. 

Although the servicers were not allowed to "dictate" the sample sizes and segments, they were 

consulted in the design." Indeed, the consultants' sampling design is heavily dependent on 

information supplied by the servicers: 

In determining sample segmentation and assessing whether particular foreclosures 

cases or groups of cases require higher degrees of review, the servicers will use a 

variety of information available from the servicers. Such information includes 

internal reports or reviews, as well as information obtained through litigation or 

other means, that identified credible evidence of error, misrepresentations, or other 

deficiencies with the potential to cause financial injury." 

One wonders who determines what "credible evidence" of fmancial harm is: could it be that the 

consultants and the oee are relying on servicers to identify the evidence of the servicers' own 

wrongdoing? The oeC's approach ignores the history under HAMP, where compliance officials 

have reported that they routinely receive no mote than 50% of the documents and information they 

request from the servicer." The servicers should not be in the position of gatekeeper when their 

own compliance is at stake. ~) 

Finally, consulting firms who come to this review primarily with an industry-oriented point 

of view and a business model reliant on repeat engagements from the very servicers for whom they 

are doing reviews arc unlikely to discern, or have an incentive to discern, the types of 

noncompliance intended to be discovered by the process. Typical problems that homeowners and 

their advocates see with HAMP noncompliance or fee abuses are unlikely to be apparent without 

n Office of the Comptroller of the Currency, Interim Status Report: Foreclosure-Related Consent Orders 9 (Nov. 2011) 

:'8 Office of the Comptroller of the Currency, Interim Status Report: Foreclosure-Related Consent Orders 9 (Nov. 2011) 

39 Paul Kiel, Ser:ret Dot's Show ForedoJure Watchdog Donn't Bark or Bife, ProPublica, Oct. 4, 2011, 

Francine McKenna, ace Foreclosure Review Disckuures Jtill Disappoillf, Am, Banker. Dec. 6, 2011 (noting that many 

of the servicers assert attorney-client privilege in the engagement letters with the indept:ndent consultants). 

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75 

proper training ot consultation. Although some common servicer etrors, like income calculation," 

should be ascertainable by the consultants, the history of HAMP oversight is not promising. For 

example, Treasury found that Freddie Mac's first reviews of servicers under HAMP were 

"inconsistent and incomplete."" Even later reviews by Freddie accepted impermissible reasons for 

denial under HAMP." If Freddie, which was involved in the design of HAMP from its inception, 

fails to recognize improper loan modification denials under HAMP, industry consultants with 

limited HAMP experience are likely to make many more mistakes. 

Many of the common, improper reasons for denial require substantial, specialized expertise 

to identify. Some examples that cost homeowners significant money include baseless claims that the 

investor will not allow a modification, improper NPV analyses, and failure to provide a modification 

to divorced spouses and surviving family members in contravention of the Gam St Germain Act . 

• :. A servicer represented to a California attorney that a pooling and servicing agreement 

forbade all modifications, when, in fact, the Pooling and Servicing Agreement specifically 

provided for modifications in the event of the borrower's default. The servicer epresentative 

in that case went so far as to'provide the homeowner's attorney with an electronic copy of 

the relevant sections of the PSA from which the clause permitting modifications in default 

had been excised and a comma replaced with a period . 

• :. After over a year and involvement of an attorney, one Ohio homeowner found out that his 

loan modification had been denied because the servicer had used the wrong property value 

in calculating the NPV test. Instead of using the value elsewhere reflected in their servicing 

records, the servicer used a value much higher than the property's actual value, which made 

it look, falsely, like the investor would profit more from a foreclosure than a loan 

modification. 

,U Making Home Affordable Program Performance Report through July 2011, at 19-38 (describing rates of income 

calculation error at several servicers). 1ne core question when a homeowner applies for a loan modification is whether 

current income makes the current loan terms unaffordable and whether that same income can support a modified 

payment Improper income calculations thus can wrongfully deny homeov.rners access to the only help available and thus 

result in unnecessary home loss. 

·fl Paul Kie1, Semt DOCJShow Foreclomre W"atchdog Doesn't Bark or Bite, ProPublica, Oct. 4, 2011, 

lllt}):! /\.\"\t·\li·rropublj(.\.orp/arlid~r('t doc-:;·on .. foreclosurc watchdov! s.in@k, 

-13 Paul I<.tel, Se?'ret DOG Show Foredo-mre W/ato'hdog Doesn't Bark or Bite, ProPublica, Oct. 4,2011, 

hrrp:/ /\\'V."\\'.propubhc).,)rp /articic/"ccrd doc:; on·foredosuf't' "\v,uchdop ! "irWle. 

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76 

.:. One California advocate reports that his client suhmitted his wife's death certificate no fewer 

than six times he fore the servicer processed the widower's application for a loan 

modification. 

None of these errors are simple to identify, even hy industry participants with long experience. 

Recent joh postings for personnel to conduct these reviews only decrease confidence in this process; 

the consultants arc not hiring staff with the credentials and experience to identify adequately the 

harm.44 

Without truly independent consultants, who have access to deep expertise on loan 

modifications and full, detailed information from homeowners, the foreclosure review process is 

unlikely to produce meaningful results or even minimally acceptahle accuracy in its conclusions. 

Moreover, this process papers over prohlems endemic to the servicing industry-sheltering servicers 

from accountahility while giving the appearance that justice has been done. 

E. Remedies Likely Will Compromise Homeowner Rights While Providing 

Uncertain and Inadequate Compensation 

A process that hegins with limited, confusing, and misleading outreach, proceeds through a 

narrow approach to finding and defining harm, and concludes with a one-sided review of partial 

information cannot produce meaningful remedies. Accordingly, this process is unlikely to provide 

widespread redress for servicer foreclosure ahuses. Too few homeowners are likely to submit claims 

and those who do are unlikely to have enough information to be able to adequately describe harm 

they may have actually suffered. Reliance on servicer paperwork withour consumer interviews will 

further foreclose opportunities for a meaningful review. For homeowners considering taking the 

time and trouhle to suhmit a claim, there are two key questions: what is the possible cost and what 

is the possible benefit? The agencies have steadfastly refused to answer these questions. 

<14 Jee Adam Levitin, Robosigning 2,0: l\lortgage Foreclosure File Reviewers, Credit Slips Blog, Oct 9,2011, 

http://www.creditslips.org/crcditslips/2011/10/robosigning2.html#more. 

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77 

Without full transparency from the agencies, homeowners and their advocates cannot 

reliably assess the risk of participating in this process. However, there are at least two ways that 

participating in this process could harm homeowners. Nothing in the process as currently designed 

protects homeowners from the servicers using the foreclosure reviews to scam homeowners into 

unwittingly surrendering their rights or personal information that the servicer could use against 

them. 

First, the servicer could use the updated contact information to collect an otherwise 

uncollectible deficiency judgment. Homeowners are given no assurance that information they give 

to the consultants will not be used against them by the servicers. Instead, for the chance of getting 

some uncertain potential benefit they are asked to provide current contact information to an entity 

that may have already engaged in illegal collection tactics with them. Servicers should not be able to 

use the foreclosure review process-a process proclaimed to serve the purpose of providing 

compensation to wronged homeowners--to obtain collection information on homeowners. The 

agencies must not sanction this classic and sleazy bait-and-switch collection technique. 

Second, the servicers could require that homeowners waive some or all of their current or 

future legal rights in exchange for receiving any compensation. The agencies have so far ceded the 

issue of waiver to the servicers themselves. Servicers, left to their own devices, will likely choose to 

impose rhe most expansive waiver possible. It only makes good business sense as a profitmaximizing move. Indeed, servicers have routinely sought to extract overbearing waivers from 

homeowners in exchange for routine loan modifications or even for the promise of a review for a 

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78 

loan modification. 45 Unless the Congress or the agencies intervene, we should expect that servicers 

will require homeowners to waive all rights to challenge future wrongdoing by the servicer, as well as 

to seek additional compensation for the harm done by the servicer, regardless of how inadequate the 

compensation paid under the foreclosure review process is. 

The failure to protect agains t waiver on the part of homeowners is particularly absurd when 

juxtaposed with the failure to stop foreclosures.'" Homeowners are being asked to sign a blank 

check with respect to their rights in exchange for the possibility of receiving an undetermined 

amount of money, as decreed by an industry consultant hired by the servicer with little to no 

experience in evaluating wrongful foreclosure cases, using an undisclosed temphtte for measuring the 

harm. At the same time, servicers are permitted to proceed with foreclosure, up until the moment 

that the same industry consultant the servicer has hired determines that the foreclosure is wrongful. 

Servicers are asked to surrender no rights. In fact, the foreclosure stop standard embodied in the 

consent orders is looser than existing guidance under HAMP and from the FHFA. In other words, 

the process as implemented by the oee extends servicers' discretion at the expense of 

homeowners' existing rights. 

A sustainable and equitable compensation scheme necessarily requires that homeowners 

retain thell rights to protect themselves later against unsustainable loans. No homeowner should 

lose her right to defend herself against a foreclosure based on a small payment from the servicer. A 

waiver of rights will preclude homeowners from sustaining long-term homeownership in the face of 

continuing servicer abuses. Permitting servicers to extract waivers from homeowners is 

.IS See. e.g., Pruen;in,-~ HomeownerJ'hip: ProgresJ Needed to Prevent Force/oil/rex: Hearing Bfjore the S, Comm. 011 Bankin!,; HaUl. & 

Urban AjjiJirJ, 111 th Congo 22 (2009) (,,'titten testimony of Diane E. Thompson, Of Counsel, Nat'} Consumer Law 

Center) 

'" J" generally IIlA 

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79 

fundamentally at odds with any consumer protection purpose. The ace and FRB's failure to 

prohibit waivers requires transfer to an agency with a consumer protection purpose, the CFPB. 

F. The Process Is Primarily Supervised By an Agency Characterized by Bias 

toward Lenders and Servicers over Borrowers and Homeowners 

While the consent orders and foreclosure reviews are a joint regulatory effort to some extent, 

they are driven by the agency with the most servicers under its jurisdiction, the ace. The acc has 

released the most information on the process and was the agency that arranged to have briefIngs 

provided to stakeholders, such as housing counselors and consumer groups. (It should be noted that 

these briefmgs were carried out by an industry group, the Financial Servicers Roundtable-an 

approach that only raises additional questions about bias in the process.) 

The ace's record in siding with banks over consumers (and the states that seek to protect 

them) raises serious questions about whether the agency will promote a process that meets the needs 

of homeowners. From 2000 to 2004, the acc worked with increasing aggressiveness to prevent the 

states from enforcing state consumer protection standards against national banks. For example, the 

acc openly instructed banks that they "should contact the acc in situations where a State offIcial 

seeks to assert supervisory authority or enforcement jurisdiction over the bank,»" and warned states 

that national banks need not comply with state laws.'" The ace's efforts culminated in 2004. when 

the agency adopted a regulation preempting all state laws unless their effect on national bank powers 

~10fficc of the Comptroller of the Currency, Interjl,retive 

2002·9 (Nov. 25,2002» (viewed June J 9,2009, 

2003 oee Ltr. LEXIS 11) . 

. iASee, e,g" Office of the Comptrol1er of the Currency, Preemption Determination and Order, 68 Fed. Reg. 46,264,46,264 

( .... ug. S, 2003). 

27 
80 

was "only incidentaL"" The regulation allows national banks to ignore state laws regarding 

licensing, terms of credit, disclosure and advertising, solicitations, billing, and other topics. 

The OCC also asserted that the subsidiaries of national banks and federal thrifts-though 

they are creatures of state law, are not banks, and do not have a federal charter--can ignore state law 

to the same extent that their parents can.Sf) The Supreme Court upheld this regulation in 2007.51 

This exercise of preemption authority by the oee and other federal banking agencies has limited 

the scope of what state actors can do to contain the current crisis. 

The preemption of state laws in the mortgage arca by the federal agencies is a significant 

cause of the current crisis. Bank domination was heaviest in the most dangerous, nontraditional 

interest-only and payment-option adjustable rate mortgage (ARM) markets: they held 51% of the 

total market in 2006.'2 Though these loans were nominally made to homeowners with prime-level 

credit scores, the loans were toxic.51 Overall, in 2006, national banks, federal thrifts, and their 

operating subsidiaries were responsible for over $700 billion of the riskiest loans." 

Many of the large servicers are national banks, whose primary regulator is Oec." 

Unsurprisingly, then, many of these servicers are often unresponsive to state regulators or 

"12 CF.R. §§ 7A007(c), 7.4008(e), 7.4009(c)(2). 

"'12 CF.R. § 7.4006 (OCC). 

51 Watters v. Wachovia Bank, N.A., 127 S. Ct. 1559 (2007). 

52 Lauren SaWlciers, Nat'l Consllmer L Ctr., Preemption and Regulatory Reform: Restore the State's Traditional Role as 

"First Responder" 13 (Sept. 2(09). 

53 See, e.g., .,r\llen J. Fishbein & Patrick Woodall, Consumer Federation of ~.-\merica) Exotic Dr Toxic? ~-\n Examination of 

the Non-Traditional Mortgage Market for Consumers and Lenders (May 2006), available at 

hnp~ji~~:~.\".~{;~ll~.hlJl\~.rft~Li.l1Vip.Ji~:J~~!ill.LI~t1K_-"\.J.0..n~o.\f,/LJ.\rV.Q.uQ5..("~(l..;.p~i.f; Mortgage Lending ~form: A Comprehensive 

RcIJiew of the Cumnt Mortgage SYftem, H, S ubromm. Fin. Institution! (/ltd Consumer Credit, II. Fin. Sen/leu Comm.) at 7 -1 0 (Mar. 

11, 2009)(statement of Margot Saunders, Of Counsel, Nat'1 Consumer L. Ctr.) (describing dangers of payment-option 

adjustable ratc mortgages). 

5~Laurcn Saunders) Nat'l Consumer L. Ctr., Preemption and Regulatory Reform: Restore the State's Traditional Role as 

"First Responder" 13 (Sept. 2009). 

:,5Six of the top ten semcers in 2009 were national banks, whose primary regulator was the Office of the Comptroller of 

the Currency. Those six are Bank of America, \X'ells Fargo, Chase, Ctti, U.S. Bank, and PNC Mortgage. Numbers 11 

28 
81 

enforcement agencies. The resulting gap demands an aggressive, consumer-oriented regulator. 

Unfortunately, the OCC has not demonstrated, in this process or in its history, that it is willing or 

able to play that role. The OCC has not been a fair broker between the interests of homeowners 

and banks. 

The OCC's latest preemption preserving position only bolsters this conclusion. The OCC 

blatantly ignored Congress's directive in the Dodd-Frank Act that it can only pteempt state laws if it 

determines, on a case-by-case basis upon a review of a particular state law, that substantial evidence 

on the record of the proceeding shows that a particular state law would prevent or significantly 

interfere with the bank's exercise of its powers. Instead, the OCC re-promulgated its sweeping 

preemption regulations with barely a superficial effort to comply with Dodd-Frank." 

The OCC's failure to make this process transparent, its unwillingness to forbid waivers, and 

its reliance on industry insiders and the servicers themselves all demonstrate that the OCC remains 

inimical to the interests of homeowners. 

IV. Servicers Have Incentives to Ignore Directives to Modify Loans 

The OCC continues to let the servicers drive the bus. As discussed above, the OCC neither 

mandates that first liens be considered for loan modifications nor that, if such loans are considered 

for a modification, that a modification be offered where the investors would benefit. 57 Given the 

weight of servicer incentives, there is no reason to believe that such a toothless rule will result in 

improved outcomes for either homeowners or investors. Instead, the agencies' approach will allow 

and 12 on the 2009 list, HSBC and Metlife, are also national banks. I Inside Mortgage Finance, The 2010 Mortgage 

Market Statistical Annual 174 0isting top 50 mortgage servicers in 2009). 

;676 Fed. Reg. 43,549 Ouly 21, 2011). See Comments of Consumer Organizations Regarding the OCe's 

Implementation of the Dodd-Frank Preemption Provisions, June 27,2011, available at 

http://\\'\\'W.nclc.oq)/mngl's Iptlf/prcrmptlnn ,'{lee prCl:mptlon.commcnr':;·(J 2,7 ! i.pdf. 

':.7 Office of the Comptroller of the Currency, Interim Status Report: Foreclosure-Related Consent Orders 9 (Nov. 

2011). Seegen"al,&IIL-\. 

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82 

servicers to continue to choose for themselves a loan modification or a foreclosure, without regard 

to the interests of homeowners or investors. 

All of the various attempts to address the foreclosure crisis have failed in part because they 

do not grapple with the misaligned incentives of servicers." The existing incentive structure has 

resulted in foreclosures that are costly to both investors and homeowners, but not to servicers. 

Without significant enforcement mechanisms for the consent orders, servicers' incentives will 

continue to encourage them to proceed with a foreclosure instead of modifying the loan. This 

incentive structure is one reason that the dual track system, and the OCC's acquiescence in its 

continuance, is so pernicious. 

Once a loan is in default, servicers must choose to foreclose or modify. A foreclosure 

guarantees the loss of future income, but a modification will also likely reduce future income, cost 

more in the present in staffl11g, and delay recovery of expenses. Moreover, the foreclosure process 

itself generates significant income for servicers." 

For servicers, the true sweet spot lies in stretching out a delinquency without either a 

modification or a fmal foreclosure sale. Income from increased default fees and payments to 

affiliated entities can outweigh the expense of fmancing advances for a long time. This nether-world 

status also boosts the monthly servicing fee and slows down servicers' largest non-cash expense, the 

amortization of mortgage servicing rights, since homeowners who are in default are unlikely to 

58 Cj, ,.g., A/t,mative Mungag' S,rv,?ing Comp,.!ation Dimmio. Paper, Fed. Hous. Fin. Agene)' (Sept. 27, 2011)(discussing 

problems with current senricing compensation model). 

59 ;\ fuller treatment of servicer mcentives may be fOWld in Diane K Thompson, Foreclosing fl.1odiji(ations: I low Jeroicer 

IncMtivu Discourage lAm' A1odijications, 86 Wash. L. Rev, 755 (2011) .• -\.n earlier version of this work is available at Diane 

E. Thompson, Nat'l Consumer L Center, \Xlhy Servicers Foreclose \X'hen They Should Modify and Other Puzzles of 

Servicer Behavior (Oct. 2009). available at http://l,v\\w.o< k'0f)' !i:<Slws/9cncnl·-mor1ya~e "C!Yl( 111;J-P(}l!( ),-al1<1h 'ii" h!mL 

See a/,o Adam Levitin & Tara Twomey, Mong"g' Smndl/g, 28 Yale J. on Reg. 1 (2010). 

30 
83 

prepay via reflnancing,60 Finally, foreclosure or modification, not delinquency by itself, usually 

triggers loss recognition in the pool, Waiting to foreclose or modify postpones the day of reckoning 

for a servicer. But delay can cost a homeO\vner the opportunity to obtain a modification, 

Servicers have two main expenses when a loan is in default: advances of principal and 

interest to the trust and payments to third parties for default services, such as property inspections, 

Financing these costs is one of servicers' biggest expenses," Recovery of these fees (but not the 

financing costs) is more certain and often swifter via a foreclosure than a modification, Only when a 

modification offers a faster recovery of advances than a foreclosure, might the financing costs 

incline a servicer toward a modiflcation,"2 

A. Interest and Principal Advances to Investors 

Servicers, under their agreements with investors, typically are required to continue to 

advance interest on loans that are delinquent," Unpaid principal mayor may not be advanced, 

depending on the PSA.'" The requirement for advances usually continues until a foreclosure is 

(,0 See, e,g" Gcwen Fin. Corp" Annual Report (Form 10·K) 30 (Mar, 12, 2009): 

Servicing continues to be our most profitable segment, despite absorbing the negative impact, first, of higher 

delinquencies and lower float balances that we have experienced because of current economic conditions and, second, of 

mcreased interest expense that resulted from our need to fblance higher servicing advance balances. Lower amortization 

of j\·1SRs [mortgage servicing rights] due to higher projected delinquencies and declines in both projected prepayment 

speeds and the average balance oflvISRs offset these negative effects, As a result, income ... improved by $52,107,000 

or 42% in 2008 as compared to 2007, 

" Gcwen fin, Corp" i\nnual Report (Form 10-K) 5 (Mar, 12,2009); Mar)' Kelsch, Stephanie \xlhited, Karen Eissner, 

Vincent Arscott, Fitch Ratings, Impact of Financial Condition on U.S. Residential Mortgage Servicer Ratings 2 (2007). 

62(1 Wen Hsu, Christine Van, Roe1ofSlump, FitchRatings, U.S. Residential Mortgage Servicer Advance Receivables 

Securitization Rating Criteria 4 (Sept. 10,2009) (finding that modifications do not appear ta accelerate the rate of 

recovery of advances, in part because of high rates of redefault). 

63Larry Cordell, Karen Dynan, Andreas Lehnert, Nellie Liang, & Eileen ;"'Iauskopf, Fed. Reserve Bd, Fin. & Ecan. 

Discussion Series Div. Research & Statistical Affairs, The Incentives of Mortgage Servicers: Myths and Reahties 16 

(Working Paper No, 2008-46), 

61Sft, e.g., Oewen Fin, Corp., Jupra note 60, at 4 (advances include principal payments); Brendan], Keane, Moody's 

Investor Services, Structural Nuances in Residential J\iBS Transactions: Advances 4 Oune 10, 1994) (stating that 

Count1)'wide was in some circumstances only advancing interest, not principal). 

31 
84 

completed, a loan modification is reached, or the servicer determines that there is no realistic 

prospect of recovering the advances from either the borrower or the collateral.'" 

Servicers' advances are taken off the top, in full, at the post-foreclosure sale, before investors 

receive anything. 6' If advances of principal and interest payments remain beyond the sale value, 

servicers can usually collect them directly from the trust's bank account (or withhold them from 

payments to the trust)." 

In contrast, when there is a modification, the general rule, announced repeatedly by the 

rating agencies, is that servicers should only recover their expenses from modifying a loan from 

either payments made on the modified loan or principal-only payments to the pool." If servicers 

follow this rule,69 it takes servicers longer to recover their advances post-modification than postforeclosure. 

G5Keane, J'upra note 64, at 3. 

(.6Cordell et a!.. Jupra note 63, at 11; Oewen Fin. Corp., JIIPra note 60 1 at 4 (advances are "top of the waterfall" and get 

paid first); Wen Hsu, Christine Yan, RoelofSlump, FitchRatings, U.S. Residential Mortgage Servicer Advance 

Receivables Securitization Rating Criteria 1 (Sept. 19,2009) (same); Prospectus Supplement. IndyiYfac, rvrns, Depositor, 

IndyMac INDX Mortgage Loan Trust 2007.FLXS, at 71 Gune 27, 2007) [hereinafter Prospectus Supplement, Indy~{ac 

et al.} (servicers repaid all advances when foreclosure is concluded); Letter from Kathy D, Patrick to Co\mtry\\';de Home 

l.,oans Servicing. Oct. 18,2010 (notifying a trust and master service! of breaches in the master scrvicer's performance), 

67Sce, e.g., Oewen Fin. Corp. supra note 60 at 11 ("(l)n the majority of cases, advances in excess of loan proceeds may be 

recovered from pool level proceeds!'); Prospectus Supplement, Indy.Mac et at, mpra note 66, at 71 (permitting principal 

and interest advances to be recovered ftom the trust's bank account); Prospectus, CW.\LT, INC., DeposItor, 

Countrywide Home Loans, Seller, Countrywide Home Loans Sen'icing LP., Master Servicer, Alternative Loan Trust 

2005-J12, Issuer 47 (Oct. 25, 2005) (limiting right of reimbursement from trust account" to amounts received 

representing late recoveries of the payments for which the advances were made). 

68 See, e.g., MONICA PERELMUTER, WtlQtlS SIIMKII& MIDI,'IEL STOCK, STANDARD & POOR'S, (RITERL'I: RI·:\·ISED 

GUIDI'l.INES FOR U.S. R]I.!BS LO.'N ;-'[ODlFIC ITION IN!) CIPlTtlU)XI'ION REIMBURSEMENT .~MOl!NTS 3 (OCL 11, 

2007); Jeremy Schneider & Chuye Ren, Standard & Poor's, Ratings Direct. ~-\nalysis of Loan Modtfications and Serv1cer 

Reimbursements for U.S. Rt-.,ffiS TransactIons with Senior/Subordinate Tranches (Apr. 10,2008). 

(>9 Senricers have tried to bypass this rule, See Jeff Horwitz, A Servit't!r'f Alleged Co~flid Raife! Doubtj' AboHt 'Jkin in the Game' 

ReformJ', Am. Banke< (Feb. 25, 2011). 

32 
85 

B. Fee Advances to Third Parties 

In addition to interest advances, servicers advance expenses associated with default servicing, 

such as title searches, drive-by inspections, or foreclosure fees.'" Taxes and insurance costs are also 

often advanced.7l Some PSAs impose caps on these fee advances.72 

These fee advances mayor may not represent actual out-of-pocket expense to the servicer. 

In many cases, affiliates of the servicer, not true third parties, receive the fees, and the resulting 

profit wipes out any cost of fmancing the advance." 1bese fees may also be marked up: in one 

case, Wells Fargo reportedly charged a homeowner $125 for a broker price opinion when its out-ofpocket expense was less than half that, $50." Such padding more than offsets the cost of financing 

the advance. Force-placed insurance is frequently placed either through an affiliate or in exchange 

for a commission from the insurance company paid back to the servicer-again wiping out any true 

cost and turning the nominal advance into a profit center for the servicer." 

7°Cordell et al., supra note 63 at 17; if. .. >\merican Securitization Forum, Operational Guidelines for Reimbursement of 

Counseling Expenses in Residential Mortgage··Backed Securitizations (\'fay 20, 2008). available at 

hli.p~:1.l£~UJl~ric:!!1,i!~£.l1.!;itlZ:\ tion"iJ:llniuplQ1.d~.dFllC::' / .. _l.'i!~~.Q~lin~J FlJn.ilin.~G u1dcl1!l("~°:J~z.!.L.~~ 2Q.J.llLp.df 

(stating that payments of $150 for housing counseling for homeowners in default or at imminent risk of default should 

be treated as servicing advances and recoverable from the general securitization proceeds). 

71Set, e.g., Oewen Fin. Corp., Iupra note 60 at 4. 

"Marina Walsh, Servicing Performan", in 2007, Mortgage Banking 72 (Sept. 2008). 

7lS" Complaint ~ 15, Fed'l Trade Comm'n v. Countrywide Home Loam, Inc, No. CV-l0-4193 (CD. CaL Jun. 7,2010), 

availabl, al http://www.ftc.gov/os/ caselist/0823205/I00607countrywidecmpt.pdf(allcging that CountrywIde's 

"countercyclical diversification strategy" was built on its subsidiaries funneling the profits from marked~up default fees 

back to Cowltrywide)~ Peter S. Goodman, HomeoJVners and IfIveston i\1t!)/ LoYe, But the Bank Witty, N.V. Times,July 30, 

2009; Peter S. Goodman, l..J.lfrative Feel MC!y Deter Efforts to Alter Troubled Loans, N.Y. Times, July 30, 2009; Letter from 

Kathy D. Patrick to Countrywide Home Loans Servicing, Oct. 18,2010 (notifying a trust and master servicer of breaches 

in the master servicer's performance). Letter from Kathy D. Patrick to Countrywide Home Loans Servicing, Oct. 18, 

2010 (notifying a trust and master servlcer ofbreache.s in the master servicer's performance). 

"In,., Stewart, 391 B.R. 327, 346 (Bankr. E.D. La. 2008), ajJ'd, 2009 WL 2448054 (E.D. La. ,\ug. 7, 2009); see .Iso 

Complaint ~ 18, Fed'ITrade Comm'n p, Countrywide. Jupra note 73 (alleging a subsidiary of Countrywide routinely marked 

up property preservation fee~ by 1 OOCI/O); Jeff Horwitz, TieJ to In.ruffrs GUIld Land lvlortgage Sen;i~-ers in ,Hon Trouble: Force~ 

Pklt'~d Polices ImpoJe Costr on Both Homeown!?r, Invertor, .-\m, Banker, Nov. 10,2010 (reporting on fee markups in forceplaced insurance). 

75 See, e.g., Jeff Honvitz) Ties to Insurers Could Land Mortgage Servicers in l\1ore Trouble: Force-Placed Polices Impose 

Costs on Both Homeowner, Investor, Am. Banker, Nov. 10,2010, 

33 
86 

C. Fees Are a Profit Center for Servicers 

Most PSAs pcrmit servicers to retain fees charged delinquent homeowners. Examples of 

these fees include late fees" and fees for "default management" such as property inspections." The 

profitability of these fees can be significant." Late fees alone constitute a significant fraction of 

many subprime scrvicers' total income and profit." 

Servicers can collect these fees post-foreclosure before the investors receive any recovery.'o 

This guaranteed recovery of fees strongly favors foreclosures over modifications that waive fees, 

including HAMP," and encourages servicers to delay foreclosures in order to maximize the number 

76See, e.g.) Prospectus, C\VALT, INC., Depositor, Countrywide Home Loans, Seller, Countrywide Home Loans Servicing 

L.P., Master Servicer, Alternative Loan Trust 2005·)12, Issuer 56 (Oct. 25, 2005) ("In addition, generally the master 

servicer or a sub-service! win retain all prepayment charges, assumption fees and late payment charges, to the extent 

collected from mortgagors). But see Prospectus Supplement, IndyJ\tlac et at, mpra note 66at S-11 (late payment fees ate 

payable to a certificate holder in the securitization). 

nse!!, e.g., Prospecrus Supplement, IndyMac et aI., supra note 66 at S-73: 

Default ,Management Services 

In connection with the servicing of defaulted Mortgage Loans, the Servicer may perform certain default management 

and other similar services (including, but not limited to, appraIsal services) and may act as a broker in the sale of 

mortgaged properties related to those Mortgage Loans, The Servicer will be entitled to reasonable compensation for 

providing those services, in addition to the servicing compensation described in this prospectus supplement. 

"See In re Sieivarl, 391 B.R. 327,343, n.34 (Bankr. E.D. La. 2008) ("\:Vbile a $15.00 inspection charge might be minor in 

an individual case, if the 7.7 million home mortgage loans Wells Fargo services are inspected just once per year, the 

revenue generated will exceed $115,000,000.00."), aJj'd, 2009 \'V'L 2448054 (E.D. La. ,-\ug. 7, 2009); Complaint ~ 15, Fed'i 

Trade Comm'n v, ('ounll)'wide, mpra note 73. 

79 S ee, e,g., Oewen Fin. Corp., mpra note 60, at 34 (revenue from late charges reported as $46 million in 2008 and made up 

ahnost 18%/ of Ocwen's 2008 servicing income); Kurt Eggert, Limiting Abuse and Opportunism ky Mortgage S ervi("frs, 15 

Housing PoYy Debate 753, 758 (2004); Gretchen t..1orgenson, Dttbiou.r Fees Hi! Borrowers in Foredosurex, N,Y, Times (Nov. 

6,2007) (reporting that Countrywide received $285 million in revenue from late fees 1I1 2006)_ 

805ft'. c' ... f!', Prospectus Supplement, Chase Funding Loan Acquisition Trust, Mortgage Loan Asset-Backed Ceniftcates, 

Series 2004.AQ1, at 34, Gune 24, 2004), aVaI'IaM al 

http://\\'\\·w.H'c VOY /Ard-uve:::./edfar/d;H~3{l9 /{JOtlt}9Su 116!l~lnO;U12 /f()tu::~4h:;.txj· ("[l1he Servicer 'Will be entitled 

to deduct from related liquidation proceeds all expenses reasonably incurred in attempting to recover amounts due on 

defaulted loans and not yet repaid, including payments to senior lienholders, legal fees and costs of legal action, rcal 

estate taxes and maintenance and preservation expenses."); Letter from Kathy D. Patrick to Countrywide Home Loans 

Servicing, Oct. 18,2010 (notifying a trust and master service! of breaches in the master servicer's performance). 

8ISCt' Manuel Adelino, Kristopher Gerardi, and Paul S, Willen, Fed. Reserve Bank of Boston, \Vhy Don't Lenders 

Renegotiate More Home Mortgages? Redefaults, Self-Cures, and Securitizations 6 (pubUc Pol'y Paper No. 09-4, July 6, 

2009). available atht1p;'!I\nD.~-Jm.sJd,?".Q!)u~~.r~"~nill.n1.c.Pll.d~~!.1\J2L.j!.p.!J.pJl~!..t,.lllif. (HIn addition, the rules by which 

servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify."). Under the 

Department of the Treasury's Home "",ffordable lvfodification Program, servicers are required to waive unpaid late fees 

for eligible borrowers, but aU other foreclosure related fees, includ1ng, presumablYI paid late fees, remalIl recoverable and 

34 
87 

of fees charged." In a self-perpetuating cycle, the imposition of fees makes a foreclosure more 

likely, by pricing a modification out of a homeowners' reach." 

In addition to pre-foreclosure fees, servicers arc usually entitled to recover the costs of 

selling the home post-foreclosure, before investors are paid.'" The sometimes substantial fees paid to 

servicers in foreclosure tend to be invisible to investors." 

The agencies in these consent orders have not made even a superficial attempt to grapple 

with these misaligned incentives. Instead, the oee proposes that servicer requirements to evaluate 

homeowners for loan modifications be further diminished through a process left nearly entirely to 

the control of the servicers. 

V. The CFPB Should Have Responsibility for the Reviews and National Servicing 

Standards Should Be Implemented To Fill the Continuing Void in Servicing Regulation 

The dismal beginning of the agencies' foreclosure review process, the questionable history of 

the lead agency, and the masses of unanswered questions as to whether homeowners will actually be 

harmed by this process inevitably point to moving the entire process over to an agency that can 

offer credible implementation. 1be eFPB, as the agency with a mandated consumer protection 

focus and general supervisory authority over servicers. is the obvious choice. Given the fatal flaws 

in the foreclosure review process, originating in the consent orders themselves, the eFPB must 

are capitalized as part of the new principal amount of the modified loan. S (Ie Home ;\ffordable Modification Program, 

Supplemental Directive 09·01 (£\pr. 6,2009). 

82Peter S. Goodman, Lural/t!c Fees J\1qy Deter EJJorh to Alter Troubled Loans, N.Y. Times,July 30) 2009 ("So the longer 

borrowers remain delinquent. the greater the opportunities for these mortgage companies to extract revenue-fees for 

insurance, appraisals, title searches and legal services."). 

B3 See Katherine Porter, Mifb,havior and lvliftak, in Bankmptcy Mortgage ClaimJ. 87 Tex. L. Rev. 121 (2008) ; Jones ,. Welh· 

Fallo f 10m, Mortg. (/n re Janel), 366 B.R. 584 (Bankr. ED. La. 20(7), affd IFelis Fa/:go ,. Jon,,", .,91 B.R. 577 ,595 (dIversion" 

of mortgage payments to cover inspection charges led to increased deficiency and imperiled bankruptcy plan). 

!HSee, e.g" Prospectus Supplement, IndyMac et aL, mpra note 66 at S-73 (noting that the servicer is entitled to retain the 

costs of managing toe REO property. including the sale of the REO property). 

!6Peter S. Goodman. I...IIcratiw Fees AIq)' Deler Effbrts t() Aile,. Troubled LoanJ, NY. Times,July 30, 2009, 

35 
88 

undertake a top-to-bottom review of the entire process in order to protect consumers from harm 

and restore rationality to the foreclosure process at the affected servicers. 

As demonstrated, the existing consent orders and foreclosure review process are inadequate 

to the foreclosure crisis. Even if improved, they would still not cover the entire market and their 

ability to protect homeowners facing foreclosure is uncertain. National servicing standards must be 

established so that the ongoing travesty of foreclosures without reasonable loss mitigation is 

replaced with a system where incentives are aligned and homeowners, communities, and investors 

are no longer at the mercy of servicers still focused only on lining their own pockets. 

To restore rationality to our markets we must take the following steps: 

.:. Eliminate the two-track system. Homeowners should be evaluated for a loan 

modification before a foreclosure is initiated or continued, and that evaluation (and 

offer of a loan modification, if the homeowner qualifies for a loan modification) 

should be completed before any foreclosure fees are incurred. Such a requirement 

could be imposed by legislation or by regulation . 

• :. The failure to offer loan modifications to homeowners, where doing so is predicted 

to save the investor money under the Net Present Value test, must be made a clear 

and absolute defense to foreclosure, in both judicial and non-judicial foreclosure 

states . 

• :. Net Present Value tests for modifications should be standardized and made public. 

.:. Loan modifications for qualified homeowners facing hardship, including those in 

bankruptcy, should be permanent, affordable, assumable, and available without any 

waiver of a homeowner's legal rights. Where appropriate, principal reduction should 

be prioritized and available in a modification as well through bankruptcy . 

• :. Homeowners denied a loan modification should receive a written servicer 

communication documenting the NPV inputs, any relevant investor restrictions and 

efforts to obtain an exception, and the appeal process. Appeals should be processed 

before a foreclosure commences or continues . 

• :. Homeowners should be provided with access to full documentation of any investor 

restrictions, as well as all servicer attempts to procure a waiver, upon any denial 

based on investor guidelines. 

36 
89 

.:. Servicers must be required to seek, and investors should be encouraged to grant, 

waivers of any restrictions prohibiting modifications . 

• :. Homeowners must be provided the tools to focus servicer attention on resolving 

individual cases . 

• :. Quality foreclosure mediation programs should be funded in every community to 

provide an opportunity to resolve disputes outside of litigation . 

• :. Funding for legal services lawyers and housing counselors representing homeowners 

facing foreclosure must be increased to allow our adversarial justice system to 

function as designed . 

• :. Principal reductions should be mandated where they return a net benefit to the 

investor and also should be permitted in bankruptcy courts . 

• :. Fees to servicers must be limited to those both reasonable and necessary for them to 

carry out their legitimate activities. Default-related fees should not remain an 

unconstrained profit center for servicers . 

• :. Force-placed insurance should be replaced by a default reliance on replacing or 

continuing the existing coverage at a reasonable price . 

• :. Transfer notices and periodic statements should be used to increase servicing 

transparency . 

• :. Application of payments and use of suspense accounts should be fair and reasonable . 

• :. Foreclosure documentation and notice standards should be established . 

• :. A national system for assisting un'employed homeowners should be established. The 

Emergency Homeowner Loan Program (EHLP) must be made permanent and 

properly funded and implemented. 

National standards must be a floor, not a ceiling, so states can play the traditional role of legal 

laboratories to further protect homeowners, investors, and corrununities. 

VI. Conclusion 

Thank you for the opportunity to testify before the Subcommittee today. The foreclosure 

crisis continues to swell. Servicers have exacerbated the crisis, as they profit from foreclosures. 

The federal banking agencies overseeing the consent orders and foreclosure reviews have failed the 

37 
90 

public and the homeowners who need assistance to stop avoidable foreclosures. As the process 

stands now, it threatens homeowners with the loss oflegal rights without meaningful compensation. 

It rolls back the clock on hard-won servicing improvements under Hi\MP. The entire process 

should be moved over to the new Consumer Financial Protection Bureau. The CFPB must be given 

the opportunity to review this process from scratch and implement a program that is fair, honest, 

and accountable. National servicing standards should be established to prevent further malfeasance 

by the servicing industry and create a level playing field for honest actors. Together, these measures 

would save many homes and stabilize the market. We look forward to working with you to address 

the economic challenges that face our nation today. 

38 
91 

Exhibit A: OCC Notice and Request for Review 

39 
92 

Independent Foreclosure Review 

compensation or other remedy, 

Please re~pond by 

Loan Number: 

Reference Number: 

Property Address: 

You are receiving this notice because the above property is or was active 

in the foreclosure process between Jalluary 1,2009 and December 31, 2010. 

Si listed habla cspafiol, tenemos representantes que pueden asistirlc en Stl idioma, 

The Board of Governors of the rcdcral Reserve System and the Office of the Comptroller of the Currency 

(federal bank regulators) have required an Independent FOft.'<:losnre Review to identify customers who may 

have heen financially injured as a result of errors, mlsrcpresenlatiom:., or other deficiencies made during the 

foreclosure process. records indicate that your loan may meet the initial criteria: 

Your mortgage loan ~vas active in the foreclosure process beHvcen January 1,2009 and December 31,2010. 

The property was your primary residence. 

If you believe that you rna) have been financially injured. you may suhmit a R.equest for Review Form 

for an Independent Foreclosure Review by a consultant outside of 

The Independent Foreclosure Review will not have llnlmpact on your credit report or any other options you 

may pursue rcJaleJ to your f()rec!osurc. If you filed a complaint about the foreclosure process prior to this 

independent review, you are still eligible to submit a Request for Review Form. 

The Review Process 

Step 1: Review the enclosed Request for Review Form. 

The form describes examples of situations that may have led to finanda! injury during thc foreclosure process. 

Step 2: After reviewing the form, if you believc you may have been financially injured. complete and submit 

a Request for Review Form describing your situation. 

Return the completed form uSing the enclosed prepaid em'c!ope hy April 30,2012. 

You \ylll he sent an acknowlcdgemCtllletter within one week after your request is receiYcd, 

Step 3: Your request will be evaluated to confirm eligibility for the Independent Foreclosure Review. 

If your request meets the e!igihility requirements, it will be reviewed by an independent CQIlsultant. 
93 

Step 4: Your request will be reviewed to determine it' financial injury occurred because of errors, 

misrepresentations, or other deficiencies in the foreclosure process. 

will provide relevant documents along with any findings and recommendations related to your 

request for review to the independent consultant for review. . may be asked to clarify or confirm 

facts and disclose reasons for events that occurred related to the foreclosure process. You could be asked to 

provide additional information or documentation. Because the review process will be a thorough and complete 

examination of many details and documents, the review could take several months. 

The Independeut Foreclosure Review will determine if financial injury occurred as a result of errors, 

misreprcsentations, or other deficiencies in the foreclosure process. You will receive a lettcr with the llndings 

of the review and information about possible compensation or other remedy. 

Your Request for Review Form mnst be postmarked no later than 

30,2012. 

To find answers to your questions about the review process as well as information to help you complete 

the Request for Review Form, visit IndependentForeclosureReview.com or call l-XXX-XXX-XXX 

Monday through Friday, X a.m.-X p.m. ETor Satmclay, X a.m.-X p.m. ET. 

ff you are currently represented by an attorney at law with respect to a foreclosure or bankruptcy case regarding this mortgage, 

please refer this letter to your attorney. 

This notice is being sent at the dlrection of federal bank regulators and does not constitute an attempt to collect a debt or to impose personal 

liabIHty for any obligation, induding, without limitation, any obligation that was discharged, or is subject to an automatic stay in bankruptcy 

~ under Title 11 of the United States Code. 

Esta Informacion es precisa a fa techa de impresion y esta sujeta a camb!Ds sin previa aviso, Tenga en cuenta que e1 testo de la 

correspondencia, documentos legales y notas aclaratorias Ie seran sumlnistrados en Ingles. Le recomendamos que obtenga los servicios de 

un interprete lndependiente para que fe ayude segun sus necesidades. This information is accurate as of date of printlng and is subject to 

change without notice. AI! other communications, legal documents and disclosures wi!! be provided to you in English. We recommend that 

you obtain the services of an independent third party interpreter to assist you as needed, 

Con5ent Qrde,r De,tails 

Pursuant to enforcement actions issued On Apri! 13, 2011, " ' Signed a consent order with the Office of the ComptroHer oithe 

Currency (OCC), the Office of Thrift Supervision tOTS) (independent bureaus of the U,S, Department of the Treasury), or the Board of 

Governors of the Federal Reserve System. As part of this order, the mortgage servicer has hired an independent consultant to independently 

review certain residential foreclosure actions regarding individual borrowers. 

j or their affiliate must make all reasonable efforts to contact potentially affected customers to alert them of their opp<?r1unity to have 

their foreclosure action reviewed. The review will assess whether the customer il'lcurred financia! injury and should rec;eive compensation or 

other remedy due to errors, misrepresentatlons, or other deficiencies in the foreclosure process during the period 1/1/2009 to 121:31/2010. 
94 

Request for Review Form 

It is important thai you complete the form 10 the best of your abiiity; 

all information you provide may be useful. 

If the foreclosure process was active On your primary residence between 

January 1,2009 and December 31,2010, you are eligible to request an Independent 

Foreclosure Review thai may result in compensation Of other remedy. 

If you thiflk you may have been financially injured as a result of errors, 

misrepresentations, or other deflci~ncies nlade dl!rlng the foreclosure process, 

you may complete and submit a Request for Review Form. 

Send this completed form to: 

Independent Review Administrator 

Your form must be postmarked no later than 

April 30, 2012 

To find answers to your questions about the revlew process as well as 

information to heip you complete the Request for Review Form, visit 

IndependenIForec!asureReview.com or call1-XXX-XXX-XXX 

Monday through Friday, X a.m.--X p.m, ET or Saturday. X a,m,-X p,m, ET 

Property address: 

Mortgage loan number: 

Reference number: 

Listed below are examples of 

situations that may have led to 

financial injury. This list does 

not include ali situations. 

action 

was more than you actually owed 

III 

~ The foreclosure action occurred while 

you were protected by bankruptcy 

~ You requested assistance! 

modif,caiion, submitted complete 

documents on 

for a 

sale occurred 

Page 1 of5 
95 

City: 

Phooe(dey) r I I I-ITO-CITO 

Email address: 

PREFERRED MAILING ADDRESS AND TELEPHONE NUMBERS 

This information will be used to contactyolJ throughout the Independent Foreclosure Review process. 

D Check here if same as above 

Mailmg address: 

Ciiy: 

Phone (day) I __ LJ_..J-LJ~J J-C-LIIJ (evening) 

ruling on yOU! b-arKwptcy case when 

Page2of5 
96 

NO 

DYES DNO 

DYES D NO 

If possible, provide dates and details if you believe you were wrongly deded assistance: 

----------------------------

DYES DNO I 

If possible, provide dates, types of fees or charges, and amounts you paid' 

------_._-----

Important note: The questions below are specific to military servic:emembers. If you Of a co"'borrQwer h..IDL~JLQtiL~!L 

ll!.11.mmtarv, go to question 13. 

12, Did you or a co-borrower have your rr:ortgage loan before active: dUlY military service began? DYES DNo 

If YOu responded yes -to question number 12, complete the following: 

Name of servicemember: __________________ _ 

Date active duty began: __ I_L..-

Date active duty ended: __ .j __ I_ OR D Still on active duty as of today 

Page3of5 
97 

may have been finanCially mJured as a result of the mO'\qa"o f"o"lo5'''o 

----------------

-----------------------------------

Page4of5 
98 

1 understand that I haVe the ability to separately submit a "Quaflfled written request" relating to the servidng 

of my mortgage loan under the Real Estate Settlement Procedures Act. If I wish to do so, I should write 

separately to my servlcer in accordance with the instructions below. I understand that the Independent 

Review Administretor is not authorized to act as an agent to receive a "qualified written request" on behalf 

of my servicer. 

By signing this document, I certify that all the informa.tion is truthful. I understand thClt knowingly submitting 

false information may constitute fraud. I affirm that I am the borrower or co-borrower of the mortgage loan on 

the property noted within this document, and i am authorized by all borrower(s) to have my signature grant 

permIssion to proceed with this request for review. 

Signature Date 

Plint:narne 

Mail this completed form to: 

Page50f5 
99 

Exhibit B: Regulator Scenarios of Financial Injury 

47 
100 

pwc 

Exhibit C - oec and FRS Guidance ~ Financial Injury or Other Remediation 

oce and FRB Guidance - Financial Injury or Other Remediation 

The April 13,201 t Consent Orders require the Independent Consultants (ICs) to make certain 

findings in conjunction with the Foreclosure Reviews and to prepare a report of their findings 

("Foreclosure Report"),2 The Consent Orders first require the Ie to make a determination as to 

whether the servicer committed any '-errors, misrepresentations, or other deficiencies" (as defined 

in Section n)~ and second, whether any such errors, misrepresentations, or other deficiencies 

"resulted in financial injury" to the borrower or mOltgageeiowner of the mortgage loan. For this 

purpose, "financial injury" to the bOlTower or the mortgagee is defined as monetary harm directly 

caused by errors, misrepresentations or other deficiencies identified in the Foreclosure Review. 

Monetary harm does. not include physical injury. pain and suffering, emotional distress or other 

non-financial harm or financial injury that did not result as a direct con~equence of errors, 

misrepresentations or other deficiencies identified in the Foreclosure Review. However, 

financial injury does include monies actually expended by the bOITO\\icr or mOltgagee that 

directly relate to the foreclosure action. proceeding, or sale and otherwise would not have been 

required but for the error, misrepresentation or other deficiency by the scrvicer identified in the 

Foreclosure Review. 

The Consent Orders require each institution to submit a plan. subject to approval by the OCC 

and/or FRB, to compensate or remediate financially injured borrowers, based on the findings 

contained in the IC's Foreclosure Report. \Vhile the Consent Orders contemplate compensating 

harmed borrowers who have suffered financial iqjury, the Orders also contemplate remedial 

action other than, or in addition 10, compensation in other appropriate circumstances. A" such, 

for each me reviewed in the Foreclosure Review, the IC must first identify (and include in the 

h)feclosure Repol1) their findings regarding: any serviceI' errOL misrepresentation, or other 

deficiency. The Ie I11H~l then identify (and also inclndc in the Foreclosure RepOli) any financial 

injury that hn ... bt~CIl \.lltfcred by the horrov,/('T as a rc:-.ult uf the identified error. rnisn:pn:'lCntatlllIL 

other dcf!cit'J1l::Y and any financial that may be suffcrc;J by the borrmver ah:-'Cni action hy 

the "'C[\'iCl'f (0 remcduHc ur cure llH~ erfOL or other deficiency. The 

Ie' Foreclosure Report nln'it include recommended to he made andior compcn~ation 

10 he paid by the institution to hOlTO\\Cr" who the Ie has identified havin~ ~ufrerC'd financial 

injury or who may suffer financial iI~jury. 

CITI-EL-00000043 
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The fonowing scenarios rrovide guidance as to what may constitute financial injury that requires 

compensation to the borrower or where other borrower remediation by the scrviccr may be 

required to avoid financial injury. These scenarios arc not exhaustive. and should be viewed as 

setting forth the principles that les should apply when determining financial injury attributable to 

errors, omissions, or other deficiencies by the servicer. The IC's detennination regarding the 

presence or absence of financial injury or whether compensation or other remediation is required 

must, of course, take into account and be based on the specific facts and circumstances 

sUlTounding each borrower's individual casco 

I. Financial Injury Present or Other Remediation Required 

Errors, misrepresentations, or other deficiencies that may result in financial injury and may 

require compensation to the borrower or action by the servicer to remediate or cure the error, 

misrepresentation, or deficiency, include the following. The oee and FRB stress that this list is 

not intended to be exhaustive, but rather contains examples highlighting the principles that the 

ICs should use when assessing financial injury. In these examples, if a sale of the borrower's 

home already has occurred, the IC must determine whether the serviceI' should compensate the 

horrower for financial injury and if any other action by the servicer is required to remediatc or 

cure the error, misrepresentation, or deficiency. If the sale has not yet occurred, the IC must also 

determine whether any payment to compensate for financial injury or other action by the servicer 

is required to rcmediate or cure the error, misrepresentation, Of deficiency. 

I) The borrower was not in default pursuant to the terms of the note and mortgage at the 

time the servicer initiated the foreclosure action. 

2) The scrvicer initiated foreclosure or conducted a foreclosure sale in advance of the time 

allowed for foreclosure under the terms of the note and mortgage or applicable state law. 

3) The honower submitted rayment to the servicer ,>ufficient to cure the default pursuant to 

the tem1" of the note and mortgage, hilt the sCfyicer returned the payment in contravention 

of the tcrm~ of the nnlc or mortgage. "tnte or federal law. or thc 5'cryiccr's stated policy 

~;oycring paymt'nts \vhcn in default. 

4) The ~cniccr misapplied borrower pa:ymcllis. llid not timely credit borrmvcr payments 

(including failure to properly account for funds in ,,>u;.,pcn,>c), or did not cOHL'clly calculate 

the amoHnt actually due from the hOlTo\vcr, in contravention of the terms of the note and 

mortgage, state or federal1aw. investor requirements. or the servicer's stated policy 

covering application of payments. 

The b01T0Wt~r paid fee (11' penalty that \vas impennts~ihle, as defined in Section It 

CITI·EL·00000044 
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6) A deficiency judgment was obtained against the borrower that included the assessment of 

a fee or penalty that was impemlissible. as derined in Section II. 

7) The servicer placed an escrow account on the borrower's mortgage and the placement 

resulted in monies paid by the borrower into escrow in contravention of the terms of the 

note or mortgage, state or federal law, or the servicer's stated policy covering escrow 

accounts. 

8) The servicer placed insurance on the borrower's mortgage and the placement resulted in 

monies paid by the bOll'DWer towards insurance in contravention of the terms of the note 

or ffiOligage, state or federal law, or the servicer's stated policy covering placed 

insurance. 

9) The serviceI' miscalculated the amount due on the mortgage and secured ujudgmcnt 

against the borrower for an amount greater than the borrower owed. 

10) A borrower's remittance of funds to a third party acting on behalf of the servicer (e.g. law 

firm) was not credited to the borrower's account. 

I I) The borrower was performing under the terms of an approved trial loan modification or 

an approved peDnanent loan modification. hut the servicer proceeded to foreclosure in 

contravention of the term.") of the modification offered by the servker to the borrower.") 

12) A bon-ower was denied a modification in contravention of the terms of the governing 

modification program or the :-.ervicer's stated policy covering modifications. 

13) There is evidence that the bOlTO\VCr provided or made efforts to provide complete 

documentation ncet:':-"ary to qualify for a modification within the period sllch 

dnCllmentatloJ1 \\-<lS required to he pro\'iucd 11Y the govt~rnil1g modificatiol1 program and 

the servlct'r denied the loan modificaticll1 contravention of the terms ()f the gC'YCmillg 

modificutiDn plTlgnlm or the ",('rvker'" .,tated policy covering modifications, 

14) The service-I" initiated forcclo:-;urc {)f completed a foreclosure sale without providing 

adequate notke as. required under applicable state law, 

rltt rcqum.-'menl fiJf tlW Independent Cnnc-ultanh. PUL\U:.tnf t(, (hi .. (iuidatl\.'(' in l.:nnnediull \-\\th the- Cl)lh('nt Ol'dt'f 

Re\ k'w. ldl \\\wr~' J 

CITI-EL-00000045 
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15) The servicer foreclosed on or sold real property owned by an active military 

servicemernber in violation of the Servicernembers Civil Relief Act (SCRA). (This 

provision applies to loans originated before the servicemember's active military service 

and prohibits foreclosures and foreclosure sales of such property at any time during the 

bOlTower's period of active military service and for 9 months thereafter, unless an 

exception applies pursuant to the SeRA). 

16) The scrvicer did not lower the interest rate in accordance with the requirements of the 

SeRA on a mortgage loan entered into by a military servicemember. or by the 

servicemember and his or her spouse jointly. (This provision applies where the borrower 

provided written notice of military service pursuant to the SeRA for loans originated 

hefore the bon'ower entered into military service; the effective rate on the loan must be 

lowered to a rate not in excess of 6% per year during the borrower's period of military 

service and for I year thereafter, unless an exception applies pursuant to the SeRA). 

17) The servicer failed to honor a bOlTower's bona fide efforts to redeem a sale under 

applicable state law during the redemption period. 

18) The borrower was protected by the automatic stay under the bankruptcy code and a court 

had not granted a request for relief from the automatic stay or other appropriate exception 

under the bankruptcy code. 

19) The borro\\'cr was making timely pre-petition arrearage payments required under an 

approved bankruptcy plan and was CUlTent with their post-petition payments. 

20) The bOlTower: I) pnrchased a bOITowcr payment protection plan; 2) was or should have 

heen receiving benefits under the plan: and 3) those benefit:-. were not applied pursuant 

to the contract terms. 

21) The ,crvleer wa:., not 1he pWpCf party. or iHlthorilcd to act nn hchalf of the proper party_ 

unda the applkahlc :-..tate !a\v to toreclose on the hnrrO\\(,f'", home and thIS re:,ul!cd in ,)f 

may re:-.ult in multiple rorccl(l~ur(' action'.; or pro(:ccding~. 

22) The <.:el'ylcer failed to comply wirh applicable legal requirements, including those 

governing the form "md content of afIidavits, pleadings or other foreclosure-related 

documents (to include improperly notarized documents or the practice of "roho-signing" 

generally), where such fuilure directly contrihuted to: (1) the horrower paying fces, 

'..'()0t"i, 

CITI-EL-00000046 
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otherwise would not have met the requirements for initiating such an action or 

proceeding. 

II. Other Definitions 

"Certain residential foreclosure actions" - The term "certain residential foreclosure 

actions" means foreclosure actions initiated or completed on owner-occupied.1-4 family 

dwellings by divisions of the institution that process first lien mortgage foreclosures. This 

term includes mortgages secured by indi vidual condominium dwelling units and individual 

cooperative housing units. This term also includes mobile homes, house boats, and other 

owner-occupied dwellings that arc treated as "real estate" or "real property" under applicable 

state law pertaining to foreclosure. 

"Impermissible" - The term "impermissible" as applied to a fee and/or penalty charged to a 

bOlTowcr's account, means a fee or penalty that is anyone or more of the following: 

I) Exceeds the limits established by applicable state law, federal law or the borrower's 

mortgage instmments, including as to type, amount. or sum of fees and/or penalties. 

2) In the case of the OCC Consent Orders, is not "reasonable and customary," or a fee 

that is assessed at an "'excessive" frequency_ The term "reasonable and customary" 

as applied to a fee andlor penalty cbarged to a delinquent bOlTower's. account means 

that institutions may only assess a fee for services actually rendered, and may only 

assess a fee or collect a monetary penalty that does not exceed the lesser of (a) any fee 

limitation or allowable amount for service under applicable state or federal law; (b) 

any published, pre-established fee limitation Of allowable amount fOf the service 

under the guidelines for the applicable government-sponsored enterprise investing in 

the loan or the govemment agency insuring the loan: and (c) the market rate for the 

~crvice (as defincd under the amount or rate that is "customarily charged in the 

market for such fee or penalty" helow). The IeI'm ""excessiveH rnean:-i any that 

exceeds the amount permitted by the borwwt:r' .. loan document..;, 1''1)" applil'ahle "-tatc 

or federal la\\', nr in\c.;;1(1f requirements, Excc~.,ive frequency or a rcc mean~ the :..ame 

or a -;imilar fee th<:lt h more than ncce .... sary ur apprnpriate for compl~tion (If the 

llDderlying service. 

3) In the case of the fRB Consent Orders, is "otherwise unreasonable." A fee or 

penulty is "otherwise unreasonable" ifit was asse~seJ: (a) for the purpose of 

protecting the "culred party'" interest in the illortl!.Jgcd property, and the fcc or 

pl~najt:y a~:-,('.,,\~d at it frequcw.: y llr rate, \\-<b of t!pc for a 

purpo:,-c that f~K1 up! PH1(CI..'t the . s 

CITI-EL-00000047 
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services performed and the fce charged was substantially in excess of the fair market 

value of the service; (c) for service;:; perfonned, and the services were not actually 

performed; or (d) at an amount or rate that exceeds what is customarily charged in the 

market for such a fcc or penalty. and the mortgage instnunents or other documents 

executed by the borrower did not disclose the amount or rate that the lender or 

servicer would charge for such a fee or penalty. 

i) A fcc charged for services perfonned is not "substantially in excess of the fair 

market value of the service" if it exceeds by no morc than 10 percent the 

maximum allowable fee under the "applicable investor guide" or, if there is no 

"applicable investor guide", the guide published by Fannie Mae or Freddie Mac 

that would apply if Fannie Mae or Freddie Mac were the investor. 

ii) A fce or penalty does not ~'exceed" the amount or rate that is Hcustomarily 

charged in the market for sncb fee or penalty" if the fcc or penalty does not 

exceed the maximum allowable fee under the "applicable investor gnide" or, if 

there is no "applicable investor guide", the guide published by Fannie Mac or 

Freddie Mac that would apply if Fannie Mae or Freddie Mac were the investor. 

iii) "Applicable investor guide" means investor guides issued by Fannie Mae, 

Freddie Mac, the Veterans Administration, and the Department of Housing and 

Urban Development. 

"Errors, misrepresentations, or other deficiencies." The terms "errors, misrepresentations, 

Or other deficiencies" means those matters discovered during thc Foreclosure Review as set 

forth in Article V1I(3)(a)-(g) of the OCe's Orders, OTS Order paragraph 16(aj-(g), and 

Paragraphs 3(a)(i)-(vii) of tile Board's Orders. "Errors" includes misealculation of fees or 

other charges, where the total aggregate miscalculated fees or charges applied to the borrower 

exceeds $99.00. 

CITI·EL·00000048 
106 

Appendix A: Organizations on Whose Behalf Testimony Submitted 

Americans for Financial Reform (AFR) is an unprecedented group of national and state 

organizations that have joined together to fIx our financial sector and make sure it's working for all 

Americans. 

The California Reinvestment Coalition (CRC) advocates for the right of low-income 

communities and communities of color to have fair and equal access to banking and other fmancial 

services. CRC has a membership of close to 300 nonproflt organizations and public agencies across 

the state of California. 

Community Legal Services of Philadelphia (CLS) was created by the Philadelphia Bar 

Association in 1966 and is widely recognized as one of the most sophisticated, respected legal 

services programs in the nation. 

The Connecticut Fair Housing Center is a statewide non-profit organization dedicated to 

ensuring that individual choice, and not discrinaination, determines where people live in Connecticut. 

Consumer Action has been a champion of underrepresented consumers since 1971. A national, 

nonprofIt 501(c)3 organization, Consumer Action focuses on fmancial education that empowers low 

to moderate income and limited-English-speaking consumers to fmancially prosper. It also 

advocates for consumers in the media and before lawmakers to advance consumer rights and 

promote industry-wide change particularly in the fields of credit, banking, housing, privacy, 

insurance and utilities. www,consUlner-action,org 

Consumers Union (CU) is an expert, independent, nonprofit organization whose mission is to 

work for a fair, just, and safe marketplace for all consumers and to empower consumers to protect 

themselves. The organization was founded in 1936. 

Empire Justice Center is a New York statewide legal services organization with offices in Albany, 

Rochester, White Plains and Central Islip (Long Island). Empire Justice provides support and 

training to legal services and other community-based organizations, undertakes policy research and 

analysis, and engages in legislative and administrative advocacy, in addition to representing lowincome individuals in a wide range of poverty law areas including consumer law. Empire Justice is a 

steering committee member of New Yorkers for Responsible Lending (NYRL), a statewide coalition 

promoting access to fair and affordable fmancial services and the preservation of assets for all New 

Yorkers and their communities 

54 
107 

The Financial Protection Law Center (FPLC) is a SOlc3 public interest not-for-profit law firm. It 

is devoted to fighting predatory lending and to defending families from foreclosure of predatory 

loans. FPLC is located in Wilmington, North Carolina and works throughout North Carolina and 

occasionally in other states. 

Housing and Economic Rights Advocates (HERA) is a California statewide, not-for-profit legal 

service and advocacy organization. HERA's mission is to ensure that all people are protected from 

discrimination and economic abuses, especially in the realm of housing. We focus particularly on the 

needs of those who are most vulnerable, which includes lower-income people, the elderly, 

immigrants, people of color and people with disabilities. 

The Legal Aid Center of Southern Nevada, Inc. is a private, non-profit (501 (c) (3» corporation 

which is a charitable organi7:ation dedicated to providing free community legal services to those in 

need. We have been providing free legal aid for Clark County's low income residents since 1958. 

The Legal Aid Society of Milwaukee, Inc., was founded in 1916 "to do all things necessary for 

the prevention of injustice." It is one of the nation's oldest, continuously operating, public interest 

law firms. Each year the Society provides free legal services to 8,000 of Milwaukee's most 

vulnerable residents: abused and neglected children, developmentally disabled adults, persons living 

with HIV / AIDS, battered women, immigrants, elderly, prisoners, mentally ill, physically impaired, 

unemployed, and homeless - all of whom are too poor to afford legal counsel. 

The Michigan Foreclosure Task Force represents a close to 200 members, covering a broad array 

of interests engaged in the front lines of foreclosure work in Michigan-from banks to legal 

services, housing counselors to local government. MFTF supports efforts to put resources on the 

front lines of the foreclosure crisis in Michigan to assist homeowners and communities battle against 

foreclosure, vacant homes, and falling property values. 

The National Association of Consumer Advocates (NACA) is a non-profit corporation whose 

members are private and public sector attorneys, legal services attorneys, law professors, and law 

students, whose primary focus involves the protection and representation of consumers. NACA's 

mission is to promote justice for all consumers. 

The National Council of La Raza (NCLR)-the largest national Hispanic civil rights and 

advocacy organization in the United States-works to improve opportunities for Hispanic 

Americans. Through its network of nearly 300 affiliated community-based organizations, NCLR 

reaches millions of Hispanics each year in 41 states, Puerto Rico, and the District of Columbia. To 

achieve its mission, NCLR conducts applied research, policy analysis, and advocacy, providing a 

Latino perspective in five key areas--assets/investments, civil rights/immigration, education, 

55 
108 

employment and economic status, and health. In addition, it provides capacity-building assistance to 

its Affiliates who work at the state and local level to advance opportunities for individuals and 

families. 

The National Community Reinvestment Coalition (NCRC) was formed in 1990 by national, 

regional, and local organizations to develop and harness the collective energies of community 

reinvestment organizations from across the countty so as to increase the flow of private capital into 

traditionally underserved communities. NCRC has grown to an association of more than 600 

community-based organizations that promote access to basic banking services including credit and 

savings, to create and sustain affordable housing, job development and vibrant communities for 

America's working families. 

The National Pair Housing Alliance (NFHA), founded in 1988 and headquartered in 

Washington, DC, is a consortium of more than 220 private, non-profit 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. 

National People's Action (NPA) is a national network of grassroots organizations working to 

advance economic and racial justice. NP A consists of 26 organizations across the country that 

reaches from farmers in rural Iowa to youth in the South Bronx. NPl\ has affiliate organizations in 

14 states with remote network offices in Washington D.C., California, New York and a central 

office in Chicago. 

Neighborhood Economic Development Advocacy Project (NEDAP) is a resource and 

advocacy center that works with community groups in New York City's low and moderate income 

neighborhoods. NEDAP's mission is to promote community economic justice and to eliminate 

discriminatory economic practices that harm communities and perpetuate inequality and poverty. 

NEDAP employs multiple strategies - including community outreach and education, advocacy, 

policy research and analysis, and direct legal services - to ensure that communities have access to 

fair and affordable credit and fmancial services, and to address inequities in the fmancial services 

system. 

The North Carolina Justice Center is the state's leading progressive advocacy and research 

organization. Its mission is to end poverty in North Carolina by ensuring that every household has 

access to the resources, services and fair treatment it needs to achieve economic security. 

56 
109 

The Woodstock Institute is a leading nonprofit research and policy organization in the areas of fair 

lending, wealth creation, and financial systems reform. Woodstock Institute works locally and 

nationally to create a financial system in which lower-wealth persons and communities of color can 

safely borrow, save, and build wealth so that they can achieve economic security and community 

prosperity. Woodstock Institute, now based in Chicago, has been a recognized economic justice 

leader and bridge-builder between communities and policy makers in this field since it was founded 

in 1973 near Woodstock, Illinois. 

57 
110 

PREPARED STATEMENT OF DAVID C. HOLLAND 

EXECUTIVE VICE PRESIDENT, RUST CONSULTING, INC. 

DECEMBER 13, 2011 

Introduction 

My name is David C. Holland. I am an executive vice president based in Rust 

Consulting’s Minneapolis, Minnesota headquarters. Rust Consulting, or ‘‘Rust,’’ has 

been engaged by the servicers to administer certain aspects of the Consent Orders 

for the Independent Mortgage Foreclosure Borrower Outreach project. Since this 

program’s inception, we have worked closely with each of the key stakeholders—the 

servicers, the Independent Consultants, the Office of the Comptroller of the Currency, and the Federal Reserve Board—to ensure that the terms of the Consent Orders, as defined and detailed in our Statements of Work with each servicer, are fully 

carried out. 

Rust provides project management, data management, notification, contact centers, claims processing, and fund distribution, typically in support of large, complex, 

and time-sensitive programs. 

Most often, these services are provided in the context of the settlements of class 

action lawsuits: Rust is one of the country’s largest class action settlement administrators. However, we also provide these basic services in the context of other, similar programs, such as mass torts, data breach responses, product recalls, and an assortment of public sector programs. Rust has handled approximately 3,500 programs 

in all. 

We typically are engaged as a neutral, third party with respect to the issues behind the programs we administer: our clients include both plaintiff and defense law 

firms; businesses of all sizes and spanning many industries; and Government agencies at the Federal, State, and local levels. 

Beginning in June 2011, we were contacted by several individual servicers regarding our interest in and capabilities with respect to this program. Throughout the 

summer, Rust submitted several proposals to servicers according to their own RFP 

processes and eventually we were engaged by all 14 servicers to serve as the single 

administrative provider under the Consent Orders—a decision we believe benefits 

borrowers as well as the parties to the Consent Orders by minimizing points of contact for all involved, streamlining processes and communications, and helping ensure consistency in all aspects of these tasks. 

Responsibilities Under the OCC and FRB Consent Orders 

Broadly speaking, our responsibilities under the Consent Orders are to notify borrowers about this program, to answer their questions, to receive their complaint 

forms, and to handle in- and out-bound mail associated with these general tasks. 

The content of materials involved in this process, such as request for review package 

and complaint forms, Web site text, and telephone scripts, was developed by or with 

the servicers and OCC, and is put into use only after approval of all of those parties. 

A more specific listing of our responsibilities includes the following. 

1. Rust collaborated with the servicers to prepare different plans for various contingencies to ensure appropriate staffing or service levels across our responsibilities, e.g., for staffing our call center with an appropriate number of representatives to meet various situations. 

2. Rust received relevant data comprising the borrower lists from the 14 

servicers. 

3. Rust standardized the formatting of names and addresses of those borrowers 

and arranged for corrections to be made to addresses, when possible, through 

the National Change of Address service. Rust also performed up-front ‘‘skiptracing’’ on the last known addresses for certain borrowers as noted by the 

servicers in their data. 

4. Rust continues to oversee the printing and mailing of request for review packages to borrowers, with this mailing campaign having begun on November 1 

and scheduled to conclude the series of weekly mailings on December 27. We 

continue to follow up with additional mailings on-request or as better addresses are received. 

5. Rust has arranged for publication of media notices according to a media plan 

prepared by the parties. These advertisements will increase the likelihood 

that any borrowers who did not receive a notice via direct mail could hear 

of and participate in the program. These advertisements will begin running 

in January 2012. 
111 

6. Rust established a call center to take incoming calls from borrowers with 

questions about the program, their eligibility for it, or their options under it. 

We have been answering calls since November 1. Borrowers’ requests for complaint forms may be placed through this call center, with Rust fulfilling those 

requests. 

7. Rust established an informational Web site to provide basic information about 

the program to the public. 

8. Rust has established separate Post Office boxes for each servicer to handle 

inbound mail related to the Consent Orders. 

9. Upon receipt of complaint forms, Rust sends borrowers acknowledgement of 

receipt. 

10. Rust images, data captures, and forwards submitted complaint forms to 

servicers and ICs. 

11. To facilitate the processing of those forms that are not signed, Rust follows 

up with the associated borrowers by sending deficiency letters requesting they 

sign and resubmit their forms. 

12. Rust receives and handles other inbound mail. 

• With mail sent by Rust to borrowers but returned by the U.S. Postal Service as undeliverable, Rust attempts to find better addresses and, whenever 

possible, to re-mail the notices to those new addresses. 

• With mail not categorized as undeliverable or as completed complaint 

forms, Rust processes according to agreed-upon procedures, attempting to 

link the information to a specific borrower and complaint file. 

13. Rust provides comprehensive daily statistical reporting on the activity and 

service levels related to the previously listed activities to the associated parties, including the servicers, the ICs, and the OCC and the FRB. 

14. Rust may be asked to follow up on complaints in some manner not yet defined, per the servicers’ future needs and instructions. 

PREPARED STATEMENT OF PAUL LEONARD 

VICE PRESIDENT, HOUSING POLICY COUNCIL OF THE FINANCIAL

SERVICES ROUNDTABLE

DECEMBER 13, 2011 

Chairman Menendez, Ranking Member DeMint, and Members of the Committee, 

my name is Paul Leonard and I am Vice President of Government Affairs for the 

Housing Policy Council of the Financial Services Roundtable. I thank you for the 

opportunity to testify regarding the Independent Foreclosure Review process. 

The goal of the reviews is to assess whether an eligible borrower incurred financial injury and should receive compensation or another remedy due to servicer errors, misrepresentations, or other deficiencies in the foreclosure process on their primary residence in 2009 and 2010. Everyone involved in this process—the residential 

mortgage loan servicers, consultants and the regulators—has the desire to get it 

right. 

Importantly, these independent reviews supplement other ongoing measures the 

industry has underway to help identify and assist at-risk homeowners. 

I would like to make five main points about the Independent Foreclosure Review 

effort: 

• First, the reviews are designed to determine if errors in the foreclosure process 

caused financial injury to borrowers. 

• Second, the reviews of the borrower information are independent of the 

servicers, as verified by the joint regulators. 

• Third, the review process includes a robust outreach campaign that includes direct mail, paid advertising and other steps to reach potential eligible borrowers. 

• Fourth, it will take time to receive and complete the reviews, as the outreach 

efforts just began November 1. 

• And fifth, the information provided to the regulators on the Independent Foreclosure Reviews throughout the process is intended to be comprehensive and 

complete. 

All involved fully appreciate the importance of this process, and are working to 

ensure the reviews are conducted exactly as prescribed. In this spirit, the servicers 

have specifically followed the direction within the consent orders. They have worked 
112 

closely with the regulators to create a consistent process for eligible borrowers to 

be contacted and have an opportunity for a thorough, independent review of their 

foreclosure case. Additionally, the servicers have added senior leadership and internal staffing to successfully execute this effort for the benefit of their respective borrowers. 

Equally as important, the experience and information gained through the reviews 

will be used to further strengthen industry practices. 

While much of the public focus has been on the outreach campaign, it is important to note that the Independent Foreclosure Review actually contains two components: 

• a borrower complaint process that enables eligible borrowers who believe they 

may have been financially injured in the foreclosure process to request an independent review of their files, and 

• a required file look-back of a valid statistical sampling of borrower accounts, including a review of 100 percent of borrowers with certain characteristics—like 

those who may have been eligible for protection under SCRA. 

Eligible borrowers—as described previously—must meet one of four conditions 

during the applicable timeframe: 

• Their primary residence was sold due to a foreclosure judgment. 

• Their mortgage loan was referred into foreclosure, but was removed from the 

process because payments were brought up-to-date or the borrower entered a 

payment plan or modification program. 

• Their mortgage loan was referred into foreclosure, but the borrower sold the 

home or participated in a short sale or deed-in-lieu. 

• Or, their mortgage loan was referred into foreclosure, remains delinquent at 

this time and has not gone to foreclosure sale. 

Industry-wide, the joint regulators determined that the population eligible for reviews includes about 4 million borrowers. This does not mean all of these borrowers 

were financially harmed. This is simply the total universe of borrowers eligible for 

review. 

At the direction of the regulators and under the consent orders, a robust public 

education campaign to inform borrowers about the borrower complaint process has 

been launched. It includes direct mail, national paid advertising, and earned media. 

Servicers also are working to inform nonprofits and consumer advocates about the 

process to further help borrowers. 

For both borrower complaints and the statistical sampling look-back, the servicers 

will provide the necessary files—including all data and documents—to enable the 

independent consultants to determine if a borrower suffered financial injury. The 

regulators provided 22 potential financial injury scenarios. Here are three examples: 

• There is evidence that the borrower did everything the modification agreement 

required, but the foreclosure sale still happened. 

• The servicer initiated foreclosure or completed a foreclosure sale without providing adequate notice as required under applicable State law. 

• Or, inaccurate fees may have been charged or mortgage payments were inaccurately calculated, processed or applied. 

The review process is underway. To ensure the process is operating effectively, 

senior leaders from the participating servicers and their regulators are meeting frequently—often daily—to discuss the details of what is occurring and to cooperatively 

institute continuous improvements in order to make the Independent Foreclosure 

Reviews successful. The servicers are fully cooperating with their regulators ensuring all information provided is comprehensive and complete. 

This is an unprecedented undertaking that has required multiple residential 

mortgage loan servicers, consultants and the regulators to develop a consistent process for the review effort, while maintaining the independent nature of the reviews. 

And as I mentioned earlier, it takes place alongside other important work underway to help borrowers facing financial hardships to avert foreclosure—including 

many borrowers who are a part of the eligible population for reviews. Ultimately, 

we believe these collective efforts will address concerns about the foreclosure process 

and will increase borrower confidence. Thank you for the opportunity to speak today 

and I will be glad to answer any questions you have. 
113 

HelPING HOMEOWNEERS HARMED BY FORECLOSURES: ENSURING 

ACCOUNTABiLITY AND TRANSPARENCY iN APPEALS 

DECEMBER 13, 2011 

Anthony B. Sanders 

Distinguished Professor of Real Estate Finance, George Mason University and Senior Scholar, 

Mercatus Center at George Mason University 

United States Senate Committee on Banking, Housing, and Urban Affairs-Subcommittee on Housing. 

Transportation. and Community Development 

Chairman Menendez, Ranking Member DeMint, and Members of the Subcommittee, thank you for inviting 

me to testi/)' today. My name is Anthony B. Sanders. I am the Distinguished Professor of Real Estate 

Finance at George Mason University and senior scholar at the Mercatus Center. I was previously director of 

asset-backed and mortgage-backed securities research at Deutsche Bank and the co-author of 

"Securitization" (along with Andrew Davidson) as well as many housing finance and housing market 

publications. 

MARKET CONDITIONS AND THE MORTGAGE MARKET 

We are all painfully aware that home prices declined precipitously during from its peak in 2006/2007 

resulting in a 32.5% decline (see Figure 1).' Owner's equity in household real estate fell 53.8% from its peak 

in 2006 (see Figure 2). While house prices are actually increasing in some areas of the county, they continue 

to fall in western and Midwest states (See Figure 3). According to Zillow, negative equity rose to 28.6 

percent of single-family homes with mortgages in the third quarter of 20] ]. Unemployment and partial 

unemployment remains horrific at 8.6% and 15.6% (see Figure 4), respectively. According to the Bureau of 

Labor Statistics latest employment report, 315,000 people dropped out ofthe labor force while 120,000 nonfarm jobs were created amounting to a net job loss of around 200,000. 

The combination of a recession, a catastrophic decline in house prices, and continued unemployment 

levels not seen since The Great Depression has resulted in a staggering number of mortgage delinquencies, 

defaults and foreclosures. According to a December 1,20 II LPS report, 2 mortgage delinquencies are down 

nearly 30 percent from the peak while the Foreclosure Inventory is at an all-time high. 3 As of October 20 II, 

2.33 million loans are less than 90 days delinquent, 1.76 million loans are 90+ days delinquent, and 2.21 

million loans are in the foreclosure process. This sums to 6.30 million loans delinquent or in foreclosure in 

October. The foreclosures rates are correlated with declines in house prices (see Figure 5) and state 

unemployment rates (see Figure 6). Clearly, the housing market and high unemployment rates arc a drag on 

the economy. Households have responded by reducing debt levels (see Figure 7) as a percentage of 

disposable income, whether voluntary or involuntary. 

One ofthe problems facing the U.S. and global economy is debt saturation (see Figure 8). Europe is 

currently drowning in debt (see Figure 9), and the U.S. has serious indebtedness problems to the point where 

federal debt is growing faster than our industrial production (see Figure 10). This begs an obvious question: 

should Congress be encouraging households to take on more debt when bankruptcy and foreclosure allows 

the opportunity for households to shed burdensome debt? 

1 The 32.5% decline is according to the Case~Shi11cr 20 City Index. Ifl usc the FHFA house price index. the decline was 16.6%. The 

index cxc!udesjumbo mortgages and other so the indices vary. 

vs. non-judicial foreclosure process. 
114 

THE REMEDIES 

The remedy for the housing market collapse and high uncmployment rates is twofold: I.) economic 

growth and 2.) getting foreclosed properties back into the economy. However. a series of federal programs. 

state programs. and litigation aimed at slowing the movement of households through the foreclosure process. 

even when foreclosure is in the household's best interest, are slowing the housing market recovery4 

Onc such action slowing thc recovery is the agreement betwecn federal agencies (OCC. Fed, and 

OTS) and large mortgage servicers over alleged borrower mistreatment in the foreclosure process. 5 Servicers 

would hire independent consultants to rcview foreclosures over the past two years in an attempt to discern 

whether borrowers were wrongfully harmed. Based on the outcome of the review, the agencies would then 

determine what restitution would be provided to the borrowers, if any. 

THE FORECLOSURE REVIEW 

What is the magnitude of the foreclosure review? Apparently, more than four million borrowers who 

lost their homes to foreclosure since they defaulted on their mortgages could potentially quality for free 

reviews of their cases. The audits are available to those who were living in their homes and in some stage of 

foreclosure during 2009 or 2010 and had mortgages serviced by one of24 companies hired by 14 banks. 

The Office ofthe Comptroller of the Currency (OCC) has released its Interim Status Report dated 

November 2011 6 The report discloscs the independent consultants for the review, and there is no reason to 

believe that these independent consultants will skew or shape their findings to favor the servicers. 

Furthermore, given the level of scrutiny on the loan modification process and foreclosures and the 

lender/servicers' desires to put this process behind them, I am confident that all parties will handle the review 

process accurately and honestly. 

My concern is not with the selection of independent consultants, but with the time and costs involved 

in such a laborious review process relative to the expected economic assessment of harm. 

In addition to reviewing foreclosures at the request of the borrowers (and certain mandatory groups), 

thcre will also bc a sampling of foreclosures to detect problems. Let us suppose tllat 4.5 million forcclosures 

are reviewed, and it costs an average of $2,500 per review.' If all 4.5 million foreclosures were reviewed, the 

process would cost $11.25 billion. So, depending on the number of borrowers that ask for a "free review" 

and the sampling size for all foreclosures, this entire process could be quite costly to lenders/scrvicers. 

More importantly, what would be the penalties for harm done to borrowers relative to the cost? 

There will likely be egregious enws (such as violations of the law including foreclosure on active duty 

military personnel), but I would be surprised if those violations exceed 100 instances (or less than2110ths of 

1% of the 4.5 million foreclosures). In terms of modification errors, there are likely to be less than 50,000 

instances (or 1.11% of the 4.5 million foreclosures). In terms oftechnical errors (such as Robosigning), it is 

difficult forecast how many there will be, but technical elTors like robosigning should not result in any 

financial harm to borrowers since they would be foreclosed upon after the documentation elTor is correct. 

Suppose thatthc 100 instances of egregious errors cost $150,000 in financial harm (or $1,500,000). 

Furthermore suppose that the 50,000 instances of modification errors cost $20,000 in financial harm (or $1 

billion). This projected remediation for financial harm is $1,001,500,000 (or 8.9% of the total possible cost 

for the review). 

Once the review is completed and the remediation for financial harm is concluded, I urge evelyone 

to put the foreclosure issue aside and allow the market to heal itself. 

while an emotional drain. foreclosure allows for debt reduction and increased labor mobility since the borrovYcr is no 

to the home. 
115 

APPENDIX: FIGURES 

Figure 1. The Case-Shiller 20-City Home Price Index and the FHFA House Price Index Since 2000 

Figure 2. Owner's Equity in Household Real Estate - Net Worth 
116 

Figure 3. Recent 12 Month Change in House Prices (lncluding Distressed Sales) 

U _ HPJ Change 

m.:-8%8-B%---4'!!1. 

I"1S of OctOOei 21)11 

Figure 4. Civilian Unemployment and Total unemployed, plus all marginally attached workers plus total 

employed part time for economic reasons (U6RATE) 
117 

Figure 5. RealtyTrac Foreclosure Heat Map as of October 2011 

October 2011 Foreclosure R"le Heat Map 

Figure 6. State Unemployment Rate 

foreclosure Rate Heat 

Map 

market? 

State Unemployment Rate: Current Rate and Max for 2007 Recession 

~15% 

~ 14% 

@ 13% 

E 

;; 12% 

111% 

§ 10% 

§9% 

t 

a "'" t: 7% i 6% f 5% 1: 

i 2% 

I: 

I :> 

ig ~ ., 

z~ •• i 

~ ! ~flf 

i 

1111 Re~sslon Max 

" . H] 'i .~~~~~ ilitii~lilli~i~li l ~j ~~of- j o~ ~~~~;- !~%:.~-~~~ ~ ~~~ ~ 1~! ~ ~>~ ~~~ ~ • ~ z 1 
118 

Figure 7. Household Debt Service Payments as a Percentage of Disposable Personal Income 

Figure 8. Global Debt as Percentage ofGDP 

Exhibit 1 

G10 Debt Distribution 

1000 

900 

800 

700 

600 

500 

400 

300 

200 

100 

o 

%ofGDP 

0*" c,0-<;'- .1:>0'0 04' )0-~ 0-i'''-' <v.:J 

Source: Haver Analytlcs, Morgan Stanley Research 

o Non-financial 

II Financial 

o Govemment 

II Households 
119 
120 

PREPARED STATEMENT OF ANN M. KENYON 

PARTNER, DELOITTE & TOUCHE LLP 

DECEMBER 13, 2011 

Chairman Menendez, Ranking Member DeMint, other Members of the Subcommittee, good afternoon. My name is Ann Kenyon and I lead the Securitization 

Advisory Group at Deloitte & Touche LLP. My experience, for over 30 years, has 

been in accounting and finance in both industry and public accounting. Since joining 

Deloitte in 1997, I have led or worked on many engagements for financial institutions, commercial clients and governmental entities with respect to their issues in 

dealing with the capital markets. 

Deloitte & Touche LLP (Deloitte) and its affiliates have over 45,000 people in offices throughout the United States and perform professional services in four key 

areas—audit, financial advisory, tax and consulting. 

In your invitation, you asked me to discuss ‘‘the Consent Orders that were 

reached by the OCC last spring with the major mortgage servicers and the foreclosure reviews that will result from them.’’ You have heard already today directly 

from the Office of the Comptroller of the Currency (OCC) and will hear more from 

this panel on the Consent Orders and resulting foreclosure reviews. 

As you know, Article VII of the OCC Consent Order creates a foreclosure review 

process for borrowers with residential mortgages referred to foreclosure during 2009 

and 2010 (the ‘‘Review’’). The Review is set forth in Article VII and is designed to 

determine whether, among other items: 

• a foreclosure action was properly brought, particularly with respect to certain 

Federal and State laws; 

• a foreclosure sale occurred under appropriate circumstances; 

• fees and charges assessed were permissible; 

• various loss mitigation programs were handled appropriately so that each borrower had an adequate opportunity to apply for such a program, any such application was handled properly, a final decision was made on a reasonable basis, 

and was communicated to the borrower before the foreclosure sale. 

As contemplated by the Consent Order, the objective of the Review is to identify 

borrowers who have suffered direct financial injury as a result in any deficiencies 

identified in the servicer’s procedures in the areas noted above. 

Article VII calls for the Bank to retain an ‘‘independent consultant’’ to conduct ‘‘an 

independent review of certain residential foreclosure actions regarding individual 

borrowers with respect to the Bank’s mortgage servicing portfolio.’’ Deloitte serves 

as the independent consultant for JPMorgan Chase Bank and I am the engagement 

partner on that matter. As required by Article VII, the conduct of the Review is subject to the monitoring, oversight, and direction of the OCC. We have been and are 

meeting with the OCC regularly to keep OCC officials apprised of the details of our 

approach and progress. 

Deloitte’s engagement consists of three stages. In the first stage, Deloitte undertook the planning and coordination necessary to conduct an effective foreclosure file 

review as described in the Consent Order. The specific procedures to be performed 

by Deloitte were established based on the requirements of the Consent Order and 

discussions with independent counsel. The Consent Order contemplates OCC approval of the procedures proposed. As a public accounting firm, we do not practice 

law, so we are guided by independent counsel, retained solely to advise Deloitte in 

all matters requiring legal interpretation. These procedures, developed with advice 

of independent counsel, are generally described in Appendix E to our engagement 

letter, which appears on the OCC Web site in redacted form. As a result of these 

considerations, procedures for review of the loan files within the scope years, data 

gathering/sample selection processes, and project management routines were established and as indicated previously, are contained within our approved engagement 

letter. 

Concerning data gathering/sample selection, key activities have included information gathering to support the development of the sample methodology and identification of the specific populations and sample size(s) required. In order to arrive at an 

effective and statistically valid sample of foreclosure files, a sampling methodology 

was developed that is outlined in Appendix D to our engagement letter. The goal 

of the sampling methodology, required by the Consent Order, is to confirm that the 

sample set selected for testing is representative of the characteristics of the total 

population from which the sample is derived, thus enabling us to produce results 

that achieve prescribed levels of confidence and precision. Additionally, identification of specific high risk populations of loans was done pursuant to OCC guidance, 
121 

and these populations include all borrowers who were protected under the U.S. 

Bankruptcy Code as well as borrowers eligible for protection under the 

Servicemembers Civil Relief Act. 

The second stage focuses on testing of the selected foreclosure files. To execute 

this task, we have deployed file testing teams to review applicable foreclosure files 

as a basis for making appropriate recommendations for further action. Each file 

testing team consists of a team leader, supported by multiple file analysts and certain specialists. The file analysts will be assigned a file workload to execute against 

the procedures in Appendix E to our engagement letter. The analysts will conduct 

necessary research and will obtain additional information as necessary for each to 

form a sufficient basis of conclusion with respect to the results of the procedures 

performed. Finally, the analysts will recommend a file for further review, for possible remediation activity or closure. Throughout the process, the analysts will document the research, recommendations and basis for conclusions, and, if the analyst 

recommends a case for further review or for possible remediation activity, the basis 

for the recommendation will be documented and reported to engagement leadership. 

In addition, Deloitte will conduct quality assurance procedures on the work performed by our team. 

Finally, the third stage consists of the review, approval, and issuance of the results of the foreclosure file testing. Among other tasks, a written report will be prepared by Deloitte and submitted to the OCC detailing the process, testing methodology followed, and results of the procedures performed by Deloitte in the Review. 

Our engagement letter was approved by the OCC in September, and our work is 

well under way. As outlined in our engagement letter, we anticipate delivery in late 

2012 of the final report based on the Review. 

Additionally, and pursuant to guidance from the OCC, Deloitte has worked actively in the servicers’ effort to initiate a borrower outreach program. This program, 

as described in Appendix C to our engagement letter, was established so that borrowers were provided a fair opportunity to file claims or complaints due to errors, 

misrepresentations, or other deficiencies associated with foreclosures initiated or 

completed during the review period. All servicers agreed to work through a single 

claims processing firm, Rust Consulting, with experience in setting up integrated 

claims processes, conducting outreach, and processing claims requests. The program 

was launched on November 1, 2011, and we are actively reviewing the responses 

that have been received thus far. 

I assure you that we at Deloitte take our responsibilities as an independent consultant very seriously. We are working hard to complete the foreclosure review in 

a timely and effective manner so that the results of our work can be reported to 

the OCC as promptly as possible. I am satisfied with our progress to date and I am 

confident in the quality of the work performed. However, there is much more to accomplish. 

I thank you for providing me with this opportunity to testify and would be happy 

to answer any questions you have. 

PREPARED STATEMENT OF KONRAD ALT 

MANAGING DIRECTOR, PROMONTORY FINANCIAL GROUP, LLC 

DECEMBER 13, 2011 

Good afternoon, Mr. Chairman. My name is Konrad Alt. Since 2004, I have been 

a Managing Director of the Promontory Financial Group, responsible for our San 

Francisco office. Many years ago, however, I served as counsel to the Senate Banking Committee. I am honored to be back here again today. 

The independent Foreclosure Review is not the only piece, but I hope it will be 

an important piece, of our country’s efforts to address the foreclosure crisis. Our 

country cannot recover from this crisis until distressed homeowners and former 

homeowners who have been injured by errors in the foreclosure process receive the 

remediation they deserve. The Foreclosure Review seeks to accomplish this goal, 

and my colleagues and I are mindful that our role in it brings serious responsibilities. I want to commend you, Mr. Chairman, for your leadership in addressing the 

foreclosure issue and advancing transparency in regard to the Foreclosure Review. 

My comments here today are my own and those of my firm. They do not necessarily reflect the views of any of the financial institutions with which Promontory 

is working, nor those of other independent consultants. As you know, the independent Foreclosure Review grows out of a set of enforcement orders involving 15 

of our country’s largest mortgage servicers and 3 Federal bank regulatory agencies: 

the Office of the Comptroller of the Currency, the Federal Reserve Board and the 
122 

Office of Thrift Supervision, now a part of the Office of the Comptroller of the Currency. Among other requirements, these orders direct each servicer to retain an 

independent consultant to conduct a ‘‘Foreclosure Review’’ of certain residential foreclosures for the purpose of finding borrowers who incurred financial injury as a result of errors, misrepresentations, or other deficiencies in the foreclosure process, so 

that they can receive appropriate remediation. 

Early in 2011, several of the servicers that received these orders approached 

Promontory about our willingness and capacity to perform the required independent 

review. Three of them ultimately proposed to the OCC to engage us. In reviewing 

their proposals, the agency requested and we provided exhaustive information concerning our credentials and potential conflicts of interest. After considering that information, the agency approved all three engagements. As a result, I now head one 

of our firm’s review teams and help to coordinate Promontory’s work in this area. 

Two of my colleagues head similar engagements at other institutions. 

Given the millions of consumers involved, each with individual circumstances, this 

undertaking is complex by its very nature. Many things can go wrong with a mortgage or a foreclosure, and reviewing a particular file to ascertain what if anything 

did go wrong can be both difficult and time consuming. Yet an overly protracted review effort is not helpful to borrowers who have suffered or are at risk of suffering 

genuine financial injuries. My colleagues and I want you to know that we are working hard to do this job as fairly and effectively as possible, to the highest professional standards, and that every aspect of our work, from design to implementation 

to results, is fully transparent to the agencies and subject to agency examination 

and criticism. 

Allow me to elaborate. Following approval of our retention, Promontory began to 

develop a methodology to meet the challenges presented by the Foreclosure Review. 

We developed that methodology in close consultation with regulatory examiners and 

subject matter experts, adapted it to the particular circumstances of the different 

servicers with which we are working, and detailed it in engagement letters that the 

regulators reviewed and commented on before authorizing their execution in September. 

Our engagement letters, all of which the OCC has made public in redacted form 

on its Web site, make clear that Promontory works at the agency’s direction. Importantly, Promontory, not the servicers, determines what information to review in 

each borrower’s file and whether financial injury has occurred. 

Our engagement letters set forth a two-pronged approach to the Foreclosure Review. 

The first prong of our approach consists of a meticulous review of a large number 

of files. We selected a large portion of these files based on known risk factors—for 

example, the commencement of foreclosure proceedings after the issuance of a stay 

in bankruptcy—and the remainder according to well-established statistical methods. 

Consistent with the requirements of the consent orders, we review each of the selected files with an eye to numerous specific questions relating to compliance with 

applicable State and Federal laws, the reasonableness of fees and penalties, and the 

accuracy of servicer processing of borrower requests for loan modifications. Thus far, 

we have been seeking through this part of our review to gain a comprehensive and 

statistically rigorous understanding of the file characteristics associated with financial injury. We estimate that this effort will take our large team of analysts several 

months to complete. If we learn of additional file characteristics associated with financial injury, subsequent phases of work may entail further review of file population segments based on those characteristics. This could potentially lead us to review tens or even hundreds of thousands of additional files. 

The second prong of our approach to the Foreclosure Review is an outreach effort, 

intended to afford every in-scope borrower an opportunity to request an independent 

review of his or her foreclosure file. Through a combination of direct mail, advertising, and free media, we are trying to let all in-scope borrowers know about the 

review opportunity, encourage those who believe they may have been injured by 

servicer actions to request a review, and give them a form to submit, along with 

any additional documentation they would like to provide, to help our reviewers find 

and focus on the borrowers’ specific issues. This outreach effort launched on November 1 and is now ongoing. 

The file review and outreach efforts each have strengths and weaknesses. But in 

combination they represent a powerful approach to accomplishing the objectives of 

the Foreclosure Review. If we miss any borrowers who have been financially injured 

in our file review effort, those borrowers still have the opportunity to bring themselves to our attention through the outreach effort. Conversely, if the outreach effort 

fails to reach portions of the borrower population who have been injured, we should 
123 

learn about that through the file review process and be able to take additional steps 

as appropriate. 

The logistics of these reviews are formidable. Hundreds of professionals are working on my review team. Members of the team perform roles ranging from data entry 

to file review to statistical analysis, systems development, and various management 

responsibilities. The team includes many former bank examiners, attorneys and 

other professionals with relevant subject matter expertise. We have also retained 

our own counsel, independent of the servicer, to assist with issues of legal interpretation that arise in the course of our review. Like Promontory, our counsel faced 

careful regulatory review of its credentials and conflicts before we received authorization to retain them. 

Quality control and quality assurance are integral to the success of this review, 

and we have taken care to build them into the design and execution of both the file 

review and outreach efforts. We conduct a mandatory training program for each reviewer. Team leads oversee the work of each reviewer and review every indication 

of an error in the foreclosure process. Our review processes also include extensive 

quality control systems and dozens of individuals with quality control responsibilities. 

Further, a third group, somewhat in the nature of an internal audit function, has 

responsibility for Quality Assurance and reports directly to me. The Quality Assurance unit samples output from both the file review and outreach efforts to help 

maintain consistency and a high standard of performance across the two groups. 

Mr. Chairman, our redacted engagement letters provide considerable additional 

detail concerning our approach to this assignment. We hope that you and your colleagues will see in that detail and in my comments here today evidence of a 

thoughtful, serious and professional effort—one worthy of the serious problem we 

are all trying to remedy. We are proud to contribute what we can to the solution, 

and we will do our part to the best of our individual and collective ability. 

I will be pleased to try to answer any questions you or your colleagues may have 

for me. 

(125) 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN 

MENENDEZ FROM JULIE L. WILLIAMS 
126 

includes 3. feature IIttide des.::ribing the Inde~ndtnl Fnredosurc Rt\"icw ancItW\I JG-

!\d1md radio s"",s. produced in English and Spanish. dinrib\ltw 10 mOR' than 10.000 

small print publications and 6,sOO small, Inc31 milia slatiaM. Through ~'II/'Ch 7, tht 

PSAs hive run SIS timn in 29 stales, The IOlal pc1Imtial combined !eldership and 

listening audiences e~ceeds SI million. 

• To provide additional time \0 illCrC8SC 3. .... 'ltC'ntSS nfllle [ndcpen~1 Fort(losun: Review. 

the O<X and lhe federal Re:;m'c on Febnmry IS t"~ tt"Bd ~ lilt deadline fM mjIXSlin&1I 

review by three manlhs, from ."pril 30, 201210 Jul)' JI, 2012, 

• 1'he OCC and the Ftderal Re.ttrve are 111M fllC ilitoting educational and awareness 

nutmch meetings with housing advocacy groupS, including tWO nationwide webinatl 

IIc:ld for housing ~oWlSeJors to increase 8Warcne,u oflhis effon, 

• More than four miltion ICllct5 were S('otto eligible borro .... 'Crs who we~ euslOmcrs of 

OCCsupervised institutions, a.nd only about S.6 pettent hll\'e proven to be undelivenlble. 

This low ulldelh'ernble rate is a result of elft'clivc cfforts lu idrolify current and (lC(:Ur.ltC 

addrtsst:s of potentially eligible borrowffl induding a three-step tracing process. Onc of 

lilt goals oflhe continued media outrc&Ch and advenising campaigns is 10 get the word 

OUI til (bose .... t.o were not rtaChN by mail. Mosll't\;('ntly, 0 major nalional bank x rvker 

I\ILIi provid~ funding 10 II c:onununilY organizationsl/l;sl .... ;11 assi51 iI'I reaching 

borrow('t5 eligible fot an indqlelllkni r(vie ...... 

• The Independent f:oreclosure Re\;e ...... com Web site was signific311tly enhanced on March 

2 10 allo ..... bolTCr ..... crs to eompletc thc:it Rtqudl for Review forms online, which should 

abo facilitate lhe filing ofrcquesu for rt\';ew, 

• As of Mareh 4, 113,894 borro .... ~rs ba.\~ requested an independent l'C\icw oftbeit 

fo ro:losure case, and thaI number will likely grow in the monlhs ahead as a resull of 

continued ootrelKh and the e.tlCndcd deadline. [n addition. ncarly 136,000 filC5 ha\'e 

been selected ~ fur in the "IooHack" iile review rtquirtd WlderourOrckrs. which 

melM at kast a q1.l!irtI.'f.million C_5 arc currtntly slaled to ~ te\'iewed. AI prtllCtlt. 

ne:u'Jy I [6,0(10 files ofnolional banl: ~ fedl.'fa' savings associDtion servicers an: under 

Jtview. 

This is a l1'I35lIive- undcrt:lking. Aftttall tbt ..... ort: ..... edid in the OCC rorffi~1lJ'C process 

examinations in the laller par( of 2010 10 cstablisll the case fot our r.nfOfcen\C!llt Ordel"$, 

tbr work ofmOfC than IOOJlCU)ncd examiners (I\'er four mooths resulted in actual 

review of 1.200 files, 0)' companson.lht- "look-back" review and cooniill:lted cl3ims 

elTul'1 ~1.Iirod by our Orders: now in\'oh'e more \h311 a quaner million cases and growing, 

and .... ill tt<juire thoUS3!lds ofreyicwcrs. 
127 

I hope the infonnation provided in !he responses thai follow prove helpful 10 the Commit1c(. If 

}'Ou havt qucstionsor need additional information, please contact Carrie Moore, Deputy Direttoi' 

for Congressional Liaison, 111202-8744844. 

Julie L. Williams 

First Senior Deputy Comptroller and Chief COWlSCI 

Eoclosurt 
128 

Q.1. How many third-party consultants were submitted by the 

servicers to OCC for review, and of those, how many were rejected 

by the OCC for conflicts of interest? Specific names are not necessary. 

A.1. With respect to third-party independent consultants and independent counsel that were subject to non-objection under the April 

13, 2011 Consent Orders, the OCC and OTS rejected 12 separate 

firms: two proposed independent consultants and 10 proposed independent counsel because they did not satisfy independence criteria 

(one rejected consultant was proposed under the Consent Order between the OCC and MERS). We also understand that one other 

consultant withdrew its name from consideration after independence concerns were raised. 

Q.2. How many of the third-party consultants are currently doing 

other work for the servicers that is unrelated to mortgages or foreclosures? Specific names are not necessary. 

A.2. With respect to the national bank and Federal savings association servicers, eight consultants have current engagements with 

the servicers, and four do not. 

Q.3. How many of the third-party consultants formerly did other 

work for the servicers that was unrelated to mortgages or foreclosures? Specific names are not necessary. 

A.3. Most of the independent consultants have done some work for 

the servicers at a previous time. 

Q.4. Can the OCC extend the deadline for homeowners past April 

to allow more time for those who are just hearing about it through 

the media campaign to submit claims? If not, please specify why 

maintaining the April 30, 2012 deadline is necessary. 

A.4. On February 15, 2012, the OCC and the Federal Reserve announced an extension of the deadline for individuals to request a 

review under the Independent Foreclosure Review. The new deadline is July 31, 2012, and provides an additional 3 months for borrowers to request a review. The deadline extension provides more 

time to increase awareness of how eligible borrowers may request 

a review through this process, and to encourage the broadest participation possible. 

Q.5. What outcome will the OCC view as success? Will this effort 

be successful if 2 percent of eligible borrowers seek a review, for 

example? 

A.5. Due to the unique nature of this process, i.e., the number of 

borrowers who suffered financial injury within the scope of the 

OCC’s orders is unknown, there is no ready yardstick by which to 

measure success based on any expected percentage of returns. The 

OCC is reviewing all relevant data, including the reach of borrower 

outreach efforts, to determine whether an effective outreach campaign was launched. The file review, which is separate from the coordinated complaint process, is an equally important part of the 

foreclosure review process and provides another means for identifying financially harmed borrowers. In evaluating the reach of the 

entire process, both efforts in combination must be considered. 
129 

Q.6. What are the fair housing implications of the review period 

the OCC selected (2009–2010)? The earliest loans to go through 

foreclosure were subprime loans, many of which were targeted to 

communities of color, yet those folks are left out of this review for 

no apparent reason. Please provide data comparing the racial statistics of homeowners who were foreclosed on during the 2009–2010 

period compared to the years immediately preceding that. 

A.6. The OCC review period includes all borrowers who were in 

any stage of the foreclosure process during 2009–2010, including 

‘‘pending’’ foreclosures, regardless of when the foreclosure action 

was initiated. Thus, borrowers who started the foreclosure process 

in 2008 (and in some cases in 2007) whose foreclosures continued 

to be in process as of 2009 will be covered under the review, as well 

as those borrowers whose foreclosures began in 2009 and 2010 and 

are still in the process today. 

We do not have available the statistics on the racial composition 

of homeowners who were foreclosed on during the 2009–2010 period, compared to the years immediately preceding that period. 

Q.7. Will the OCC set up a system to collect claims requests from 

borrowers who were in the foreclosure process either earlier or 

later than their limited scope of review? What will happen to complaints that come in from borrowers whose foreclosures may have 

been improper, but were completed before January 1, 2009 or initiated after December 31, 2010? 

A.7. The OCC foreclosure review and remediation process is being 

conducted pursuant to the terms of the April 13, 2011 Consent Orders and accordingly covers borrowers who had pending or completed foreclosures in the period of 2009 to 2010. Complaints submitted that are out-of-scope where the borrower has raised concerns that his or her foreclosure may have been improper can be 

referred to the servicer’s customer complaint channels, and the borrower may also contact the OCC’s Customer Assistance Group. See 

www.helpwithmybank.gov, to submit a formal complaint. 

Q.8. How will the OCC ensure that all homeowners are reviewed 

for all financial injury, regardless of which boxes they check? 

A.8. The purpose of the background questions is to assist borrowers 

in communicating how they believe they were financially harmed. 

The independent consultants will focus their review on these areas 

to ensure that the borrowers’ specific concerns are evaluated. To 

the extent borrower descriptions are incomplete, inadequate or 

vague, independent consultants will treat such claims as a ‘‘generalized’’ complaint subject to a full scope review. In addition, we 

have instructed independent consultants that all servicer errors 

identified during the file review that resulted in financial injury 

must be remediated as appropriate. 

Q.9. As Senator Reed suggested at the hearing, can the OCC request that the independent consultants report the exact nature of 

any engagements they have with the servicers? I request that you 

do that for a period of 3 years following the completion of the reviews, and that the OCC submit that information to Congress, including this Housing Subcommittee. 
130 

A.9. The OCC considered existing engagements for the firms who 

serve as independent consultants prior to issuing non-objections for 

each firm. Neither the independent consultants nor the servicers 

were placed on notice at the time of their engagement that they 

would be subject to any ongoing restrictions or monitoring with respect to future engagements. We also do not have generalized authority to impose reporting requirements on the independent consultants following the conclusion of their work on the foreclosure 

reviews. This information could be accessible to the OCC through 

the supervisory process; however, since it would constitute otherwise confidential supervisory information and could be considered 

proprietary information, we would need to further discuss if such 

information could be made available. 

Q.10. What additional steps can the OCC mandate of servicers to 

improve contact rates with borrowers? What are the most effective 

methods of outreach so that borrowers will respond to solicitations? 

A.10. As required by the OCC and the Federal Reserve, the 

servicers prepared an extensive national media campaign, launched 

last November, to advise borrowers about the Independent Foreclosure Review process and the ability to submit a Request for Review form. The OCC has also met with community and housing advocates to discuss additional potential methods to reach eligible 

borrowers. Based on those meetings, the OCC required that the 

servicers increase the scope of their media campaign to reach additional demographic groups and to make information available in 

additional languages other than English, which the servicers have 

agreed to do. The OCC also made use of its Public Service Announcement campaign in January to highlight the Independent 

Foreclosure Review. And as noted previously, the OCC has extended the deadline for the submission of Request for Review forms 

until July 31, 2012, which will provide additional time for servicers 

to contact borrowers. The OCC will continue to monitor return 

rates subsequent to the advertising launch and will make determinations whether additional media is necessary at that time. 

The OCC is also encouraging servicers to provide resources to 

housing counselors to help make borrowers aware of the opportunity to take advantage of the Independent Foreclosure Review 

and, where needed, to assist those borrowers during the process. 

Bank of America has already funded an initiative to engage recognized HUD-approved counseling intermediaries to support enhanced outreach to customers who may be eligible for the Independent Foreclosure Review and to provide help in completing the 

application. The initiative supports 11 HUD-approved intermediary 

agencies (who are also National Foreclosure Mitigation Counseling 

fund recipients) and their nonprofit affiliates and is designed to 

support grass roots visibility to reach as many eligible customers 

as possible including low- and moderate-income, multicultural and 

those who may be experiencing language barriers. The outreach 

will include: mailings and outbound calling directed at customers 

believed to be eligible for the foreclosure review; traditional grass 

roots outreach events to provide information to individuals and 

families; and other activities designed to communicate information 

to the community, such as newsletters, Web sites, PSAs, and pur-
131 

chased ads. These organizations will also manage two toll-free 

numbers (one aimed at Spanish speaking borrowers) and will assist 

borrowers in requesting and completing the Request for Review 

form, including assembling supplemental information and documents as necessary. 

Q.11. What role will the courts play in this foreclosure review process? Are the consent orders for example approved by a court? 

A.11. The OCC’s Consent Orders are not subject to court approval 

and are issued pursuant to the OCC’s enforcement authority under 

12 U.S.C. § 1818. However, the OCC may file an action in the appropriate Federal district court for injunctive relief to enforce the 

Orders if the servicers do not comply with them. 

Q.12. Why were these consent orders done under the OCC’s safety 

and soundness powers and not under consumer protection powers? 

If this review process may be irreparably tainted by bias of the consultants and the entire manner in which the OCC set up these reviews, why shouldn’t the Consumer Financial Protection Bureau 

take over this whole foreclosure review process since the primary 

basis for the consent orders is really consumer protection? 

A.12. The deficiencies identified through the horizontal examinations of the largest national bank servicers raised serious safety 

and soundness issues rising to the level of unsafe and unsound 

banking practices. As such, it is entirely appropriate for the OCC, 

as the servicers’ prudential regulator, to take action to ensure that 

those unsafe and unsound practices are promptly corrected. The jurisdiction of the Consumer Financial Protection Bureau does not include unsafe and unsound banking practices, thus it would be inappropriate for them to take over the foreclosure review process or 

any other aspect of the actions required to comply with the Consent 

Orders. 

Q.13. You stated in your testimony that it has not been decided 

whether homeowners would have to give up their legal rights to 

other remedies if they apply for this program or take any money, 

even a small amount. Given the inherent biases of the consultants 

who are conducting these reviews, why should homeowners have to 

give up their right to have their case reviewed by a court? Unlike 

the consultants, the court is truly an independent third party. 

A.13. With respect, we cannot concur with your statement that the 

consultants have ‘‘inherent biases’’ that will impact the independent reviews. Our experience to date with the independent consultants simply does not support that characterization. 

No final decisions on the issue of releases have been made at this 

time by the OCC. Should any form of release be permitted, however, borrowers will always be given a choice to either accept the 

offer of remediation or to reject the offer and pursue their claims 

in alternative venues, including the courts. The issue is simply one 

of avoiding duplicative compensation for the same injury and 

achieving closure in connection with at least some issues in the 

mortgage/foreclosure crisis arena. 

Q.14. The OCC banned the practice of proceeding with foreclosure 

where the bank already agreed to a loan modification with the 

homeowner, but why specifically did the OCC not ban the practice 
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of proceeding with foreclosure when the borrower had already requested a modification and the bank hasn’t yet responded? Not 

banning the latter creates great confusion for homeowners and can 

easily lead to the kinds of illegal foreclosures these Consent Orders 

are supposed to remedy. 

A.14. The OCC’s Consent Orders require servicers to implement 

procedures under approved action plans to ensure that no further 

foreclosure or legal action predicate to a foreclosure occur when the 

borrower’s loan has been approved for a trial or permanent modification, unless the borrower is in default on the terms of the trial 

or permanent modification. It was also contemplated under the Orders that servicers will be required to revise action plans to comply 

with any higher standards that might be required by developing 

national servicing standards, other negotiated settlements or contractual agreements, including those subject to the National Mortgage Settlement, or in some respects, new requirements imposed by 

the GSEs. It is important to recognize, however, that contractual 

requirements and requirements imposed by other sources will affect how new higher standards can be implemented in practice. 

Q.15. Will these Consent Orders interfere in any way with the actions currently underway by the Department of Justice and State 

Attorneys General? The Federal Reserve and FDIC have said they 

do not intend to do that, am I correct that the OCC also does not 

intend to do that? 

A.15. That is correct. For over a year, the OCC has been in close 

communication with Department of Justice (DOJ) officials as settlement negotiations have progressed. The Consent Orders do not 

interfere with the National Mortgage Settlement announced by 

DOJ, other Federal agencies and State Attorneys General. 

Q.16. Ms. Cohen in her testimony cites several examples of harm 

to borrowers that are not included in your examples, such as 

servicer delay, the cost of being placed in a proprietary modification instead of a HAMP one, and the cost of an improperly damaged credit score. Senator Merkley also gave the example of robosigning. Will each of those four examples be treated as ‘‘financial 

harm’’ to the borrower, too? Please address each of those four examples in detail. In addition to instructing the servicers to correct 

the credit score, will homeowners be compensated for past financial 

injury occasioned by a poor credit score, such as lost employment, 

lost alternative housing, higher insurance and credit costs? What 

steps will the OCC take to ensure that credit scores are corrected 

in a timely way? 

A.16. The OCC and the Federal Reserve have considered these examples and others as we work to formalize the financial remediation framework. As discussed above, we have contemplated how to 

incorporate into the framework financial injury resulting from 

servicer delays in processing borrower applications for loan modifications in cases where there was a requirement to process a completed application within a specified timeframe (i.e., under HAMP) 

that was not met. The framework will also address direct financial 

injury resulting from a wrongful denial of a HAMP loan modification in the case where the borrower qualified for another modification but suffered financial injury as a result of the wrongful denial; 
133 

and it will address damage to credit scores resulting from servicer 

error. With respect to robo-signing, as discussed above, in cases 

where the independent consultant determines that there was direct 

financial injury suffered as a result of robo-signing of affidavits, 

then there will be remediable harm. However, the act of robo-signing alone does not in and of itself constitute direct financial injury 

that is compensable under the Independent Foreclosure Review. 

Q.17. How will you ensure uniformity of remedies across servicers? 

Your reference in your testimony to ‘‘baseline’’ rules for compensation that didn’t have to be followed by the third-party consultants 

was disturbing and could lead to wildly inconsistent results for 

similarly situated homeowners. When will you release full guidance 

as to how financial compensation will be calculated for borrowers? 

A.17. The remediation framework currently being finalized by the 

OCC and the Federal Reserve will provide types and amounts of 

remediation expected under several scenarios. The remediation 

framework will assure consistency in the remediation provided to 

similarly situated borrowers who suffer similar injury. The remediation framework has been referred to as ‘‘baseline’’ standards, because if the independent consultant or servicer proposes to offer remediation above what is set forth in the framework for a particular 

borrower or groups of borrowers, the OCC would not object. There 

is also a need to provide the independent consultants with some 

amount of flexibility to determine whether a different type or 

amount of compensation may be required to address the borrower’s 

direct financial injury under a borrower’s particular circumstances. 

The remediation framework is expected to be released in March 

2012. 

Q.18. Under current policy, the OCC is directing servicers and 

their independent consultants to escalate the review of certain borrower claims when the borrower’s home is scheduled for a nearterm foreclosure sale. As I understand it, borrowers will qualify for 

an escalated review if their foreclosure is 30 days away (this timeframe may be extended for borrowers where the independent review may take longer to complete). Will the OCC make public the 

specific timetables, at each servicer, where borrowers will qualify 

for an escalated review? Will the OCC consider prohibiting 

servicers from proceeding to a foreclosure sale in certain circumstances? Can the OCC guarantee that servicers will not complete any foreclosure sales while the escalated review is still pending? Will post-foreclosure review really be sufficient to address 

their concerns after they’ve already lost their homes? I’m concerned 

that most homeowners will not be expecting to lose their homes 

while they are awaiting a decision and most will likely assume that 

in applying for the program their foreclosure will be stopped until 

the review process is over. 

A.18. The OCC has issued guidance to the independent consultants 

and servicers to try to prevent any borrower who is receiving an 

independent foreclosure review from losing their home without 

their file first receiving an independent review or a pre-foreclosure 

sale review. All borrower requests and other files selected for an 

independent foreclosure review will be monitored on at least a 

weekly basis to determine if a foreclosure sale is scheduled. The 
134 

independent consultants will prioritize their review of these requests and files according to the scheduled foreclosure sales date. 

Additionally, servicers, subject to independent consultant testing 

and validation, will be required to promptly review all borrower requests for an Independent Foreclosure Review and borrower submitted documentation to determine if a scheduled foreclosure sale 

should be postponed, suspended or canceled. Servicers, after being 

notified of a borrower request for review, also must promptly determine whether the borrower is currently in an approved active loss 

mitigation program or is being actively considered for a HAMP or 

other modification or loss mitigation program and whether further 

foreclosure proceedings and/or scheduled foreclosure sale be postponed, suspended or canceled as required by the applicable program standards. We encourage borrowers who believe they have a 

basis to submit a request for review and are facing foreclosure to 

submit their requests as soon as possible and to also continue with 

their foreclosure prevention efforts directly with the servicer, since 

submission of the request for review form just prior to foreclosure 

sale may not allow for sufficient time for the above checks to be 

completed. 

Q.19. Why hasn’t the OCC already released the full guidelines 

(other than the approximately 22 examples) to the public for what 

constitutes ‘‘financial harm’’ to a borrower? Am I correct that a 

more comprehensive definition and examples could easily be released without releasing any proprietary information? When will 

the OCC do that? If you don’t release the full guidelines, then how 

are borrowers supposed to know if what happened to them will 

qualify for relief or not? That seems to me like really basic information that you should have released in November before you started 

sending letters to homeowners. I’m deeply concerned about the inadequate reference in your testimony to merely ‘‘supplemental 

guidance’’ and that the OCC just isn’t getting the message that full 

public transparency is absolutely essential to having any public 

confidence in these reviews, especially since the OCC has already 

tainted the reviews with its decision to allow banks to choose their 

own judges. 

A.19. The OCC and the Federal Reserve expect that the final remediation framework, which will provide types and amounts of remediation expected under various scenarios, will be complete in 

March. We plan to make it publicly available at that time. 

Q.20. How will the OCC conduct oversight of consultant activities? 

What actions will it take if it finds their performance lacking or if 

it finds that they are doing what’s in the best interests of the big 

banks instead of what’s in the public interest? Will there be a process where the first line of reviewers at the consultants can directly 

contact the OCC about these problems without going through their 

supervisors at the consultants or any other layers of bureaucracy? 

A.20. OCC oversight of all independent consultants involved in the 

foreclosure review process is conducted on a two-tiered level OCC 

examiners regularly review and discuss consultants’ work, often onsite at individual institutions, and discuss activities and findings 

with OCC senior managers on an ongoing basis. At an agency-wide 

level, OCC senior managers meet separately each week with the 
135 

independent consultants, the Federal Reserve staff, and the 

servicer consortium to discuss progress, issues, and challenges. The 

independent consultants have been provided multiple direct points 

of contact with OCC supervisors in our Washington, DC, headquarters as well as onsite OCC supervisors at each institution and 

are encouraged to raise any issues of concern. OCC senior managers also meet periodically with community and housing advocates and other Federal agencies to discuss the Independent Foreclosure Review process. 

Full and timely compliance with the Consent Orders will help ensure that both the industry and the public interest are well served 

going forward. If the OCC determines timely compliance with Consent Order requirements is hindered due to shortcomings in individual consulting firm performance, several steps can be taken. 

They range from providing the applicable firm a notice of opportunity to improve, to requiring the servicer to terminate the contract and replace the firm. 

Q.21. Will the OCC consider establishing an ombudsman to handle 

borrower complaints about the independent foreclosure review 

process? What is the process for borrowers who file complaints 

about the handling of their cases by the consultants? 

A.21. The Independent Foreclosure Review is a process established 

pursuant to the Consent Orders. It is not subject to an appellate 

type review of individual decisions by the OCC’s Ombudsman; however, the OCC will take into consideration complaints received 

about how the process is being conducted in its oversight of the 

independent consultants and servicers pursuant to the Consent Orders. 

Q.22. How will the OCC conduct oversight of servicers who are not 

providing the consultants with complete and accurate information 

in a timely manner? 

A.22. OCC examiners regularly review and discuss the independent 

consultants’ work, often onsite at individual institutions, and discuss activities and findings with OCC senior managers on an ongoing basis. OCC senior managers meet each week with the consultants, and have provided the consultants multiple direct points of 

contact with OCC supervisors and onsite examiners to raise any 

issues of concern. The OCC closely monitors the status of file reviews performed by the independent consultants from intake to 

final conclusion. The OCC will immediately address any identified 

impediments to the Independent Foreclosure Review process. 

Should any servicer fail to provide the consultant with complete 

and accurate information in a timely manner, the OCC will address 

the issue immediately and directly with the servicer. 

Q.23. Some of the engagement letters between servicers and their 

independent consultants invoke attorney-client privilege and attorney work product privilege over the whole process and confidential 

treatment of the engagement letter itself. In fact, all servicers used 

their general counsel’s office to engage the independent consultants 

and outside counsel, and some servicers name their general counsel 

as project lead. Some servicers engaged additional outside legal 

counsel for the review directly rather than through the primary 
136 

consultant. So, given all of this information, does an attorney-client 

privilege exist between any of the servicers subject to the consent 

orders, or any of their employees, and the independent consultants 

or outside counsel retained by them? How does such attorney-client 

privilege interact or interfere with the responsibilities that consultants have to the OCC? Will this attorney-client privilege at all 

limit what information will be made public? 

A.23. By statute, the OCC has complete and unfettered access to 

all of the books and records of the servicers, including documents 

created by the independent consultants in connection with the foreclosure review, regardless of whether or not they are privileged. 

Therefore, claims of privilege have no impact on the responsibilities 

that the consultants have to the OCC. Additionally, the OCC required the servicers to waive attorney-client privilege between 

them and the law firms that were hired to advise the independent 

consultants if the servicer engaged the law firm and paid the firm’s 

fees directly. While some servicers engaged the independent counsel via an engagement letter signed by their general counsel and 

asserting various privileges, this does not create a legal impediment to either the regulators’ or the consultants’ access to information and documents maintained by the servicers concerning the 

foreclosure review. 

Q.24. In their testimony, the Federal Reserve Board commits to 

imposing fines on servicers found to have acted improperly. Will 

the OCC commit to doing the same? When the results come out, 

what factors will you be considering in deciding whether and how 

much of a monetary penalty to impose on servicers? Suppose for example that a homeowner got charged $5,000 in illegal fines. It 

seems to me that asking the bank to give back the $5,000 to the 

homeowner alone doesn’t provide sufficient deterrence and that the 

bank should be fined multiple times that amount to discourage 

that illegal behavior in the future. Do you agree with that assessment? 

A.24. On February 9, the OCC announced agreements in principal 

with Bank of America, Citibank, JP Morgan Chase and Wells 

Fargo to settle civil money penalties for deficient, unsafe and unsound mortgage servicing practices. The servicers agreed not to 

contest the OCC’s ability to impose civil money penalties totaling 

$394 million, and the OCC agreed to hold the $394 million in penalties in abeyance, provided that the banks take actions and/or 

make payments under the National Mortgage Settlement with a 

value that meets or exceeds that amount. The OCC’s civil money 

penalty enforcement action is similar in approach to the civil 

money penalty action taken by the Federal Reserve. 

Q.25. What information will the OCC report to the public on the 

results of reviews and the compensation provided to borrowers, including information on a per servicer, per consultant basis? It is 

not acceptable to me from a public accountability and transparency 

standpoint to have aggregate results released without accountability on a bank-by-bank basis. I and many other Members of the 

Senate want to know for example, how many people in New Jersey 

were harmed by the foreclosure practices of a particular servicer 

and how much compensation people received for that wrongdoing. 
137 

Will this report on outcomes include information on race and national origin? Income level? Home location? Other demographic factors? 

A.25. In July 2011 testimony, the OCC committed to producing an 

interim report, which it published on November 22, 2011, and a 

final report of the results at the conclusion of the Independent 

Foreclosure Review process and other efforts to correct deficiencies 

identified in the Consent Orders. To provide additional information 

and transparency around the Independent Foreclosure Review 

process, the OCC plans to issue additional periodic, public summaries of the developments in implementation of the Consent Orders and the Independent Foreclosure Review. The OCC has not 

yet determined the content and format of that final report. 

Q.26. How exactly did the OCC determine that it would not be a 

conflict of interest for a consultant to review the work of a servicer 

when that consultant is being paid or has been paid to do work for 

that same servicer? 

A.26. The engagement of independent consultants subject to the 

OCC’s Consent Orders followed the same process the Federal banking agencies generally utilize with respect to implementation of requirements to hire independent third parties to conduct reviews 

under § 1818 enforcement orders. Under this process, the financial 

institution is required to propose engagement of an outside independent party, which is subject to agency non-objection, and the institution is required to pay directly for the third-party services. The 

banking agency oversees the engagement and examines the results. 

Under this process, consultants are motivated to perform their 

services independently, competently, and thoroughly; because, if 

they do not, they risk having their independence called into question, their resulting work-product rejected, and they risk future approval by the regulators to serve as an independent outside third 

party with respect to other projects. 

Q.27. Will the OCC and consultants institute a permanent mechanism for meeting regularly with a broad cross-section of homeowners and counselors for their input on the process before major 

decisions are announced? For example, many have raised concerns 

that the letters sent out to borrowers have no official logo on them 

and many borrowers will think they are a scam, a mistake which 

could have been caught if homeowner advocates had been consulted 

before that form was finalized rather than being written by the 

banks themselves with no input from the other side. 

A.27. The OCC, the Federal Reserve, and the independent consultants have already begun a series of meetings and consultations 

with community and housing advocates around the Independent 

Foreclosure Review. Representatives from the National Consumer 

Law Center, National Fair Housing Alliance, Center for Responsible Lending, National Council of La Raza, Consumer Action, and 

several other organizations, met with independent consultants, the 

OCC, and the Federal Reserve on January 5th. The advocates presented their experiences with loan modification and foreclosure 

cases and explained their specific concerns with the implementation of the Review. The OCC has held two follow-up meetings with 

these and other advocates to gain feedback on outreach initiatives 
138 

and issues presented by the Independent Foreclosure Review process. These meetings will continue to be held every few weeks. 

Q.28. Will the mandatory review of all files in certain categories 

include the category of cases where borrowers previously filed complaints with the servicers about foreclosure actions that were pending in 2009 and 2010? The Fed indicated in their testimony that 

they are requiring review of all such files. 

A.28. The independent consultants will review 100 percent of all 

foreclosure-related complaints previously submitted by in-scope 

borrowers that are forwarded by regulators, Government agencies 

and other officials. Joint guidance provided by the OCC and the 

Federal Reserve also calls for appropriate samples of other borrower claims and complaints previously submitted to the institution, and the OCC requires that the independent consultants review all complaints submitted by in-scope borrowers from January 

1, 2011 through commencement of the borrower outreach process 

on November 1, 2011. 

Q.29. What was the OCC’s role in designing, consulting on, or approving the servicers’ national print media outreach plan? If homeowners, counselors, advocates or Members of Congress request that 

changes be made to the national outreach campaign, to whom 

should they send these requests (ex: the OCC, servicers, their consultants, the Financial Services Roundtable)? 

A.29. The development and implementation of the national print 

media campaign was an iterative process between the servicers and 

regulators, but subject to final review and approval by the OCC 

and the Federal Reserve. Feedback and suggestions gained from 

ongoing meetings and communication with community and housing 

advocates, including edits to the advertising copy and use of recommended media outlets, was also incorporated into this process. 

The OCC will continue to monitor the media campaign to determine what media outreach would be beneficial. Any recommendations and suggested changes to the national outreach campaign 

should be made directly to the Federal regulators. 

Q.30. Please describe the exact process by which the claim forms 

mailed to eligible borrowers were designed. Did the OCC request 

that any changes be made after reviewing drafts of the form from 

the servicers? If so, what changes were requested? 

A.30. Development of the claims forms was an iterative process between the OCC and the Federal Reserve, independent consultants 

and servicers following a series of discussions centered on the objectives of the outreach process and the regulators’ financial injury 

guidance. The approach centered on providing a class action style 

notice to borrowers of their opportunity to submit a claim for an 

independent review of their foreclosure case. The OCC and the 

Federal Reserve reviewed and accepted the final claims forms after 

several edited iterations were drafted and submitted by the 

servicers and the independent consultants. Required edits by the 

Federal regulators included revisions to the cover letter, expansion 

of the examples of situations that could result in financial injury, 

simplification of questions, for example to ensure proper capture of 
139 

active duty servicemember information, and incorporation of Spanish language disclosures. 

Q.31. Did the OCC do any usability testing of the claim forms, either with focus groups of borrowers or with form usability experts? 

A.31. The OCC did not conduct usability testing beyond internal 

review among parties with varied expertise and experience, interagency discussion with the Federal Reserve, and dialogue with the 

servicers and independent consultants. 

Q.32. Has the OCC either mandated or encouraged servicers to 

provide funding to housing counselors, who are expected to assist 

borrowers in completing the claim forms? 

A.32. The OCC is encouraging servicers to provide resources to 

housing counselors to help make borrowers aware of the opportunity to take advantage of the Independent Foreclosure Review 

and, where needed, to assist those borrowers during the process. 

Bank of America has already funded an initiative to engage recognized HUD-approved counseling intermediaries to support enhanced outreach to customers who may be eligible for the Independent Foreclosure Review and to provide help in completing the 

application. The initiative supports 11 HUD-approved intermediary 

agencies (who are also National Foreclosure Mitigation Counseling 

fund recipients) and their nonprofit affiliates and is designed to 

support grass roots visibility to reach as many eligible customers 

as possible including low- and moderate-income, multicultural and 

those who may be experiencing language barriers. The outreach 

will include: mailings and outbound calling directed at customers 

believed to be eligible for the Independent Foreclosure Review; traditional grass roots outreach events to provide information to individuals and families; and other activities designed to communicate 

information to the community, such as newsletters, Web sites, 

PSAs, and purchased ads. These organizations will also manage 

two toll-free numbers (one aimed at Spanish speaking borrowers) 

and will assist borrowers in requesting and completing the Request 

for Review form, including assembling supplemental information 

and documents as necessary. 

Q.33. As I understand it, the OCC could have directly retained the 

independent consultants, and directed them to review the actions 

of servicers subject to the consent orders. The OCC could have then 

recouped costs related to these reviews via an assessment on the 

servicers subject to the consent orders. Please describe, in detail, 

why the OCC did not adopt this approach. If Federal procurement 

rules were an issue, please describe specifically which rules would 

have prevented the OCC from swiftly engaging consultants. 

A.33. The engagement of independent consultants subject to the 

OCC’s Consent Orders followed the same process the Federal banking agencies generally utilize with respect to implementation of requirements to hire independent third parties to conduct reviews 

under §1818 enforcement orders. Under this process, the financial 

institution is required to propose engagement of an outside independent party, which is subject to agency non-objection, and the institution is required to pay directly for the third-party services. The 

banking agency oversees the engagement and examines the results. 
140 

Under this process, consultants are motivated to perform their 

services independently, competently, and thoroughly, because, if 

they do not, they risk having their independence called into question, their resulting work-product rejected, and they risk future approval by the regulators to serve as an independent outside third 

party with respect to other projects. 

The OCC considered the option of directly contracting with independent consultants and determined that it would be more appropriate and timely to have the servicers contract directly with the 

consultants pursuant to the process described above. For example, 

Federal Government procurement rules require that the OCC conduct full and open competitions for services including the services 

of consultants unless, for example, there is only one source that can 

provide the services or there are urgent and compelling circumstances. Even if circumstances are considered urgent and so 

compelling, the maximum amount of limited competition is required. Given that the services of up to 12 independent consultants 

were needed, competition would have to include more than 12 

offerors. 

The procurement process requires that the OCC develop a request for proposals, advertise its requirement, evaluate proposals, 

negotiate with offerors and make awards. This process can be time 

consuming and, in the case of the foreclosure reviews, could have 

taken as long as 6 to 9 months. Because of the number of institutions involved, multiple negotiations with offerors would have been 

necessary. Additionally, as with any procurement, an interested 

party may protest at the solicitation, offer or award phase to the 

U.S. General Accountability Office. This adds risk and time to the 

procurement process. Because the full scope of the work for the 

consultants could not be defined up front, it would have been difficult for offerors to price their services and for the OCC to place 

a dollar value on the contracts. Also, the OCC determined that 

flexibility in scoping requirements and in making changes based on 

supervisory needs was important and that such factors do not easily translate to Federal procurement contract types. While there 

are some contract types that allow more flexibility than others, the 

OCC would have been in a position of continuously modifying its 

contracts to ensure the scope of work was correct. The contract risk 

associated with change in scope was, in our opinion, more appropriately placed on the entities complying with the consent orders 

rather than the OCC. 

Q.34. What procedures are being established for both the foreclosure reviews and the remediation process to ensure uniformity 

so that borrowers get the same treatment no matter which 

servicers or consultant they have? 

A.34. The OCC and the Federal Reserve have collaborated to provide guidance to the independent consultants with respect to the 

foreclosure reviews, outreach/request for review process, financial 

injury, prioritization of file reviews, and remediation to ensure borrowers are treated in a consistent manner. The regulators and 

independent consultants are in regular, ongoing communication to 

share information and to ensure standards are being applied in a 

consistent manner. We have directed the independent consultants 
141 

to include quality control processes within their work flow to monitor the quality and consistency of file reviews and address identified issues. These quality control processes carry through to the determination of financial injury as well as remediation. OCC onsite 

examiners will review processes at each servicer, and will also selectively test file work of the independent consultants to help ensure both quality and consistency. 

Q.35. Is it true that the results of the reviews will be shared with 

banks for comment prior to release, but not with homeowners, who 

will have no opportunity to comment prior to release? I would urge 

you to give homeowners equal opportunity to comment prior to release. It is bad enough that there are deep concerns about the true 

independence of the reviewers without even further biasing the 

process by allowing only one side to comment on and influence the 

outcomes. 

A.35. Independent consultants may share information with the 

servicers for the purpose of correcting factual inaccuracies or to obtain documentation in situations where incomplete or missing documentation may be needed to reach an accurate conclusion. The 

servicers are not permitted to influence conclusions reached by the 

independent consultants with respect to servicer errors, misrepresentations or deficiencies, or any recommendations with respect to 

financial injury compensation or other remediation. 

Q.36. What steps will the consultants take to ensure that a foreclosure does not happen while a review is underway? How will the 

consultants know when a foreclosure sale is imminent such that 

they should halt the foreclosure and/or provide a faster review? 

A.36. The OCC has issued guidance to the independent consultants 

and servicers to try to prevent any borrower who is receiving an 

independent foreclosure review from losing their home without 

their file first receiving an independent review or a pre-foreclosure 

sale review. All borrower requests and other files selected for an 

independent foreclosure review will be monitored on at least a 

weekly basis to determine if a foreclosure sale is scheduled. The 

independent consultants will prioritize their review of these requests and files according to the scheduled foreclosure sales date. 

Additionally, servicers, subject to independent consultant testing 

and validation, will be required to promptly review all borrower requests for an independent foreclosure review and borrower submitted documentation, to determine if a scheduled foreclosure sale 

should be postponed, suspended or canceled. Servicers, after being 

notified of a borrower request for review, also must promptly determine whether the borrower is currently in an approved active loss 

mitigation program or is being actively considered for a HAMP or 

other modification or loss mitigation program and whether further 

foreclosure proceedings and/or scheduled foreclosure sale be postponed, suspended or canceled as required by the applicable program standards. We encourage borrowers who believe they have a 

basis to submit a request for review and are facing foreclosure to 

submit their requests as soon as possible and to also continue with 

their foreclosure prevention efforts directly with the servicer, since 

submission of the request for review form just prior to foreclosure 
142 

sale may not allow for sufficient time for the above checks to be 

completed. 

Q.37. I was very disturbed by the testimony indicating that if the 

consultants wish to contact or speak directly with borrowers, they 

are expected to contact the servicer first. How is it even remotely 

appropriate for the consultants, who are supposed to maintain 

independence at all times, to have to notify or get permission from 

the banks to contact borrowers? Will the OCC change its directives 

so that consultants do not have to either notify or get the permission of the banks to directly contact borrowers? For consultants to 

evaluate homeowner claims fairly requires open and direct communication between the consultants and homeowners and their advocates and should never be deterred by the servicer as an intermediary between them. 

A.37. Independent consultants do not have to obtain the permission 

of servicers to contact borrowers, and servicers do not dictate what 

additional information may or may not be needed by the independent consultants from the borrower. Independent consultants 

may exercise their judgment, consistent with the terms of their engagement, in deciding whether to request additional information 

from a borrower. It has never been the OCC’s position to prohibit 

contact between the independent consultants and borrowers’ rights 

advocates. In fact, the OCC is facilitating such meetings. 

Q.38. Is there a protocol requiring the consultants to reach out to 

homeowner advocates when there is evidence in the file that they 

were involved? Is there a protocol about how the reviewers will respond to inquiries from parties authorized on behalf of borrowers? 

If there are protocols, please describe them. If there are not protocols, I respectfully ask that you establish them. 

A.38. The borrower is free to enlist the assistance of housing counselors or other homeowner advocates to assist them in preparing 

the complaint form. This can be done in several ways. A borrower 

may request the Request for Review form from the Independent 

Foreclosure Review call center, or use a Request form already received in the mail, and sign and return the form. If the borrower 

seeks to have a homeowner advocate request a form or otherwise 

communicate on his or her behalf, he or she would need to submit 

a signed written authorization to allow the homeowner advocate to 

communicate with representatives of the Independent Foreclosure 

Review. If the homeowner advocate wishes to sign the form on the 

borrower’s behalf, a legal power of attorney is required. 

We are pleased to report that on March 2, 2012, the 

IndependentForeclosureReview.com Web site was enhanced to allow 

for the intake of Request for Review forms online. This new capacity for online submission of claim forms through the Web site will 

facilitate and provide additional access for borrowers and for borrower representatives to assist borrowers in filing a request for review. 

Q.39. Can you commit to contacting homeowners or their advocates 

if pertinent information is missing? It is tremendously important 

that the reviews not be conducted on ‘‘submitted documents’’ alone, 

since we know that servicers have lost paperwork and servicer files 
143 

may not be complete, and that homeowners who don’t have a counselor or attorney to guide them through the process don’t really 

know what proof they need to send in. 

A.39. For most cases, records required for review will be found in 

the servicer files, attorney case files, and/or will be supplied by the 

borrower in connection with their complaint submission. However, 

the independent consultant may exercise their judgment, consistent 

with the terms of their engagement, in deciding whether additional 

information is needed from the borrower. 

Q.40. What experience requirements are mandated by the OCC for 

foreclosure file reviewers? How long is the mandatory training program for them? This strikes me as something that can’t be learned 

in a 2- or 3-week training program, but would take years of experience. It seems to me that you really need lawyers reviewing these 

files on such complicated legal questions, but given some of the 

questionable job ads that have appeared, I question the qualifications of some of those being hired to do these reviews and make 

decisions that will have profound impacts on the lives of struggling 

families. 

A.40. In-depth and elaborate tools have been prepared by the independent consultants and their outside counsel to assist file reviewers, and reviewers are assigned based on experience level of the 

task required (i.e., basic file review may entail review by a contractor trained to respond to a specific inquiry; quality assurance 

reviewers will have a higher level of relevant experience). Training 

is also provided by the independent consultants to file reviewers. 

Each of the independent consultants also has engaged independent 

counsel to help them address legal issues that require the assistance of counsel in order to properly review a borrower case file. 

OCC examiners also serve in an oversight role and will review 

samples of individual files as another quality assurance measure to 

ensure that the file reviews are being conducted appropriately. 

Q.41. If consultants are only reviewing borrowers for the items 

they check on the letter, then why aren’t borrowers informed of 

that important fact in the letter? 

A.41. The letter and Request for Review form encourage borrowers 

to provide all information the borrower feels relevant and provides 

clear opportunity for the borrower to address any other issue in an 

open-ended question. Providing as much information as possible in 

describing borrowers’ concerns helps ensure an accurate and effective review by the independent consultants. 

Q.42. What information obtained from borrowers will the consultants or Rust share with the servicers? This has Fair Debt Collection Practice Act implications, and there should be clear and public 

guidelines on this. Homeowners are more likely to trust the process 

if their personal information is not shared with the servicer (counselors have already had homeowners contact them who said that 

the potential use of information by the servicer is one reason why 

they don’t want to return the form). 

A.42. Information submitted on the borrower Request for Review 

form is made available to the respective servicers in order to facilitate the collection of necessary documents for review by the inde-
144 

pendent consultants. However, we have directed servicers to limit 

the use of contact or personal information provided in connection 

with the Independent Foreclosure Review only for purposes relating to the Independent Foreclosure Review process. We believe this 

mandate will address any borrower concerns regarding a servicers’ 

use of updated contact information for debt collection efforts 

against a borrower who provides such information in connection 

with his or her Request for Review submission. Our initial research 

into the matter determined that use of Request for Review form information to collect on borrower debts was never contemplated by 

the servicers; nonetheless, we have issued a clear mandate to provide eligible borrowers with these additional assurances. Information concerning this mandated privacy policy now appears on the 

www.IndependentForeclosureReview.com Web site. 

Q.43. Testimony indicated that only 5 percent of mailings have 

been returned undeliverable, and that seems like a surprising statistic considering how many people who are foreclosed on move 

multiple times afterward. What explains that low rate of returns? 

Is it possible the letters are still sitting in unused mailboxes without being returned as undeliverable? Is there any in-person outreach being done to reach borrowers? 

A.43. As of March 4 and after completion of all 4.3 million initial 

mailings, 5.6 percent have been returned undeliverable with no additional alternate addresses available. Second and third mailings 

using an address trace process to reach additional borrowers are 

currently nearing completion. The low undeliverable rate is a result 

of effective efforts to identify current and accurate addresses of potentially eligible borrowers. To help reach those people where direct 

mailing is unsuccessful, the OCC and the Federal Reserve have 

also required nationwide public awareness advertising. In addition, 

the OCC published public service articles and radio spots for use 

in small newspapers and radio stations throughout the country and 

continues to conduct media interviews on the subject. The OCC and 

the Federal Reserve are also facilitating educational and awareness 

outreach meetings with housing advocacy groups, including two nationwide Webinars, to increase awareness of this effort. 

The OCC also is encouraging servicers to provide resources to 

housing counselors to help make borrowers aware of the opportunity to take advantage of the Independent Foreclosure Review. 

As previously described, one major servicer has already funded an 

initiative to engage 11 HUD-approved counseling intermediaries to 

support enhanced outreach to reach as many eligible customers as 

possible including low- and moderate-income, multicultural, and 

those who may be experiencing language barriers. 

Q.44. What has the borrower response rate been so far among the 

borrowers who have been contacted? What percentage have already 

returned their completed forms? 

A.44. All of the scheduled 4.3 million independent foreclosure review forms have been mailed, and second and third mailings to 

borrowers where the initial mailing was returned undeliverable are 

nearing completion. Through March 4, 113,894 Requests for Review 

have been received. On February 15, the OCC and the Federal Reserve jointly announced that the deadline for borrowers to submit 
145 

a request for review to the Independent Foreclosure Review process 

had been extended from April 30, 2012 to July 31, 2012. The 3- 

month extension will provide more time to increase awareness of 

how eligible people may request a review and to encourage the 

broadest participation possible. The national print media campaign 

will also be extended to further increase and expand public awareness of the Independent Foreclosure Review process. 

Q.45. Shouldn’t people be able to go to a Web site to get the form 

they need rather than relying on mailings alone? 

A.45. We are pleased to report that on March 2, 2012, the 

IndependentForeclosureReview.com Web site was enhanced to allow 

for the intake of Request for Review forms online. Online submission of claim forms through the Web site further facilitates and 

provides additional access for homeowners to Request for Review 

forms online. 

Q.46. Can the Web site be immediately redesigned to look more official, but also easier for borrowers to understand? It is currently 

so primitively done that it looks like a scam. 

A.46. Changes to the text of the site have been made to reference 

the OCC and the Federal Reserve in order to provide additional 

credibility and assurance to site visitors that 

www.IndependentForeclosureReview.com is a legitimate site and 

program. 

Q.47. How will the borrowers who lost their homes to foreclosure 

or who have relocated be contacted? Can you commit to consulting 

with a wide variety of homeowner advocates including housing 

counselors and attorneys to gather any homeowner contact information from them? 

A.47. Outreach actions to contact and promote an informed awareness among in-scope borrowers have included direct mail supported 

by a mass media (print) campaign and public service announcements promoted by the OCC. The direct mail campaign started 

with the borrower’s current active address or last known active address. All addresses on file were run through a national change of 

address database to identify a more current address. Several 

servicers also processed borrower addresses through a third-party 

consumer database using information from sources such as credit 

bureaus, public records/registrations, utilities, phone number databases etc., to determine the most likely current addresses. Returned mail for servicers who did not ‘‘pre-trace’’ borrower addresses was subject to the above tracing process. Any returned mail 

from the next contact attempt was processed using human 

judgmental decisioning to determine most likely current addresses. 

We attribute the relatively low numbers of returned mail to the 

level of efforts made to pre-trace and post-trace borrower addresses. This address tracing process is further supplemented by the 

print media advertising campaign and OCC-promoted public service announcements to help reach borrowers who may not have received the direct mailing. The OCC is regularly meeting with various housing counselors and advocates to explore additional methods to reach relocated borrowers and increase customer awareness 

of the Independent Foreclosure Review program. 
146 

As described in previous answers, the OCC is encouraging 

servicers to provide resources to housing counselors to help make 

borrowers aware of the opportunity to take advantage of the Independent Foreclosure Review and, where needed, to assist those borrowers during the process. 

Q.48. What provisions are being made for outreach, materials (including required forms), and assistance to be provided in languages 

other than English? I’ve heard concerns that the way the outreach 

is being conducted may violate the Fair Housing Act. How will you 

ensure that all outreach materials comply with Limited English 

Proficiency Executive Order 13166? 

A.48. There are multiple efforts currently underway to make outreach and information about the Independent Foreclosure Review 

available in languages other than English. The RUST toll-free call 

center has translation services available in over 240 languages, and 

the operators can also translate documents for borrowers over the 

phone. Spanish language translations of the Frequently Asked 

Questions and a Spanish language guide on how to complete the 

form are now available on the IndependentForeclosureReview.com 

Web site. The OCC will be monitoring the volume of calls coming 

into the RUST call center from borrowers who request translation 

services and will use this data to determine if other similar translations are necessary to serve other non-English speaking populations. 

Q.49. The Spanish messages on the mailed claim forms and proposed print ads give unclear directions. Do call centers have representatives who are capable of taking calls in Spanish? Will Spanish-speaking borrowers be required to obtain their own independent interpreters in order to navigate the process? 

A.49. The call center does have Spanish translators available at all 

times. Spanish-speaking borrowers and any other non-English 

speaking borrowers will not be required to obtain their own translators; statements to that effect contained in the draft of the advertisement and on the Web site have been removed. 

Q.50. Will Rust provide a 1–800 number for translation of forms 

and other guidelines? 

A.50. Yes. Borrowers can request a free translation over the phone 

of forms and other letters they receive by calling the main RUST 

1–800 number available to all borrowers. 

Q.51. Will outreach and print ads be done through Spanish-language media in select markets? 

A.51. The OCC worked with servicers to expand their media plan 

to include Spanish-language placements in key markets. In addition, the OCC public service advertisements were produced in 

Spanish and distributed to hundreds of small Spanish language 

publications and radio stations throughout the country for their 

use. 
147 

RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM 

JULIE L. WILLIAMS 

Q.1. As part the foreclosure review process, what is the extent of 

the Department of Justice’s (DOJ) involvement with respect to in 

scope borrowers who are covered by the Servicemembers Civil Relief Act (SCRA)? Will the OCC provide the DOJ with every opportunity and the ability to determine (a) whether a servicer has engaged in a pattern or practice of violating the SCRA and (b) whether a servicer has engaged in a violation of the SCRA that raises 

an issue of significant public importance? If not, please explain why 

not. 

A.1. The OCC has been working closely with the Department of 

Justice (DOJ) to ensure that borrowers covered under both of our 

respective enforcement actions are treated similarly, and we are 

committed to sharing the results of the SCRA foreclosure reviews 

with the DOJ for all servicers under OCC orders or orders under 

our jurisdiction. Not only has the DOJ been provided with every 

opportunity and the ability to determine whether a servicer has engaged in a pattern or practice of violating the SCRA or engaging 

in an SCRA violation of significant public importance, but OCC 

staff at all levels have been in regular, sometimes daily, contact 

with their DOJ counterparts to ensure that we are taking consistent approaches to common issues. We have found the DOJ to 

be extremely helpful to us, especially with regard to interpretive 

issues, discussions of remediation of violations, and in resolving 

issues with the Defense Manpower Data Center database. We 

greatly appreciate the assistance they are providing us and value 

highly our working relationship with them. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR MERKLEY 

FROM JULIE L. WILLIAMS 

Q.1. Given the difficulties of reaching all eligible homeowners, will 

the OCC consider extending the deadline for applications beyond 

April of 2012? 

A.1. On February 15, 2012, the OCC and the Federal Reserve announced an extension of the deadline for individuals to request a 

review under the Independent Foreclosure Review. The new deadline is July 31, 2012, and provides an additional 3 months for borrowers to request a review. The deadline extension provides more 

time to increase awareness of how eligible borrowers may request 

a review through this process, and to encourage the broadest participation possible. 

Q.2. Is it correct that homeowners will be evaluated only for those 

‘‘boxes’’ they check even if they were to mistakenly check the wrong 

box? 

A.2. The purpose of the background questions is to assist borrowers 

in communicating how they believe they were financially harmed. 

The independent consultants will focus their review on these areas 

to ensure that the borrowers’ specific concerns are evaluated. To 

the extent borrower descriptions are incomplete, inadequate or 

vague, independent consultants will treat such claims as a ‘‘generalized’’ complaint subject to a full scope review. In addition, we 
148 

have instructed independent consultants that all servicer errors 

identified during the file review that resulted in financial injury 

must be remediated as appropriate. 

Q.3. Homeowners applying for a loan modification can be financially harmed simply due to servicer delays in processing their application. Will such delays be considered to constitute ‘‘financial 

harm?’’ 

A.3. The OCC and the Federal Reserve are in the process of finalizing the financial remediation framework. As part of that, we have 

considered how to incorporate into the framework financial injury 

resulting from servicer delays in processing borrower applications 

for loan modifications in cases where there was a requirement to 

process a completed application within a specified timeframe (i.e., 

under HAMP) that was not met. We expect to be able to release 

this remediation framework in March. 

Q.4. One of the consultants who testified on December 13 suggested that cases where a homeowner lost his or her home through 

a process that included robo-signing of affidavits would not necessarily have suffered any financial harm. Will the remediation 

construct being developed by the OCC recognize financial injury 

when a homeowner is thrown out of his or her home due to the illegal robo-signing of affidavits? 

A.4. The remediation framework being developed by the OCC and 

the Federal Reserve is designed to remediate direct financial injury 

suffered as a result of errors, omissions or misrepresentations by 

the servicers. If the independent consultant determines that there 

was direct financial injury suffered as a result of robo-signing of affidavits, then, pursuant to plans that must be approved by the 

OCC, the servicer will be required to remediate such harm. However, the act of robo-signing alone does not in and of itself constitute direct financial injury that is compensable under the Independent Foreclosure Review. 

Q.5. The remediation construct that will direct the consultants will 

play a pivotal role in determining the amount of compensation 

homeowners will receive. How soon will you be able to share a copy 

of that document with our office? 

A.5. The OCC expects the remediation framework will be completed in March. We plan to make it publicly available at that 

time. 

Q.6. Will homeowners be provided access to the remediation framework? 

A.6. See answer above. 

Q.7. Would the OCC allow a homeowner to lose their home during 

the time they are waiting for a review and determination of their 

case? 

A.7. The OCC has issued guidance to the independent consultants 

and servicers to try to prevent any borrower who is receiving an 

independent foreclosure review from losing their home without 

their file first receiving an independent review or a pre-foreclosure 

sale review. All borrower requests and other files selected for an 

independent foreclosure review will be monitored on at least a 
149 

weekly basis to determine if a foreclosure sale is scheduled. The 

independent consultants will prioritize their review of these requests and files according to the scheduled foreclosure sales date. 

Additionally, servicers, subject to independent consultant testing 

and validation, will be required to promptly review all borrower requests for an independent foreclosure review and borrower submitted documentation, to determine if a scheduled foreclosure sale 

should be postponed, suspended or canceled. Servicers, after being 

notified of a borrower request for review, also must promptly determine whether the borrower is currently in an approved active loss 

mitigation program or is being actively considered for a HAMP or 

other modification or loss mitigation program and whether further 

foreclosure proceedings and/or scheduled foreclosure sales should 

be postponed, suspended or canceled as required by the applicable 

program standards. We encourage borrowers who believe they have 

a basis to submit a request for review and are facing foreclosure 

to submit their requests as soon as possible and to also continue 

with their foreclosure prevention efforts directly with the servicer, 

since submission of the request for review form just prior to foreclosure sale may not allow for sufficient time for the above checks 

to be completed. 

Q.8. What provisions will OCC make for direct interactions between the homeowner and the reviewer of their application? 

A.8. The independent consultants will review all information submitted by the borrower as well as information provided by the 

servicer as included in the borrower’s file. Independent consultants 

may exercise their judgment, consistent with the terms of their engagement, in deciding whether additional information is needed 

from a borrower to conduct their review. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM JULIE L. WILLIAMS 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 

anyone care to address this risk? Do any of you share these concerns? 

A.1. See response to question 3 below. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. See response to question 3 below. 
150 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Congress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 

A.3. Each of the foregoing questions raise very important issues 

about the standards and infrastructure supporting housing finance 

in the United States. A modern, efficient system that supports 

home ownership opportunities, responsible lender behavior, and 

healthy mortgage markets would include elements of clear, predictable and consistent national standards and utilization of 21st century technology to enable efficient operation of the mortgage finance system. We welcome the opportunity to be part of this dialogue. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER 

FROM JULIE L. WILLIAMS 

Q.1. Even with some signs of increased demand, it seems like the 

mortgage market in 2012 could be a lot like 2011, and housing 

prices may even decline according to some projections. Seventeen 

percent of FHA’s portfolio is delinquent and over 10 million homes 

nationwide are underwater. S&P thinks it will take almost a year 

to work through the excess inventory of houses. Considering the 

state of the housing market, does the OCC believe that a refinance 

program for non-GSE owned homes could be beneficial to homeowners, lenders, and housing market recovery? Should such a refinance program, or the current HARP program be applicable to 

homeowners with over 20 percent equity? 

A.1. The OCC has not taken a position of any on the various refinancing ideas that have been suggested for non-GSE backed mortgages. 

Q.2. My staff is still receiving consistent complaints about the 

quality of customer service by servicers, which directly affects the 

rate of foreclosures. The OCC has completed an Interagency Review of Foreclosure Policies and Practices and has participated in 

efforts toward implementing national servicing standards. How do 

you measure the progress made in the last few years toward effective servicing? Can you give us a status report on the implementation of national servicing standards? Can regulators affect the quality and capability level of servicing professionals that are hired? 

How should I characterize servicing oversight and improvements to 

my constituents? 

A.2. This is an area where mortgage servicers need to continue to 

improve the quality of customer service. The OCC and the Federal 

Reserve Consent Orders require a number of crucial steps. The National Mortgage Settlement imposes detailed requirements on the 

five largest servicers, and the OCC and other Federal agencies 

have undertaken to develop more comprehensive uniform mortgage 

servicing standards that will apply not just to federally regulated 

banks and thrifts, but to all mortgage servicers. This latter effort 
151 

is in early stages and is strongly supported by the OCC. There is 

much work still to be done but important new standards are already being applied to the largest federally regulated servicers as 

a result of the OCC and the Federal Reserve Consent Orders. 

Q.3. Based on reports from my State staff, there are three specific 

issues I want to address in the context of progress toward improved 

servicing standards. First, difficulty obtaining permanent modifications: Folks will complete their 3-month trial modification, and 

then be rejected for a permanent modification. And according to 

housing counselors, all of these loss mitigation decisions take too 

long. Can you characterize what percent of homeowners nationally 

have typically qualified for HAMP or proprietary modifications and 

then are rejected for permanent modifications? Does the OCC see 

any feasible changes in the eligibility for permanent modifications 

that would maintain success rates in permanent modifications but 

allow greater eligibility? 

A.3. The OCC does not have data on the number of borrowers 

qualified for a HAMP or proprietary modification program that ultimately receive or are rejected for permanent modifications. The 

Making Home Affordable (MHA) program administered by the 

Treasury Department could have applicable information on HAMP 

modifications. The OCC believes that the eligibility criteria currently used for HAMP reasonably balances borrower qualification 

requirements with investor expectations for a positive, comparative 

net present value return and an acceptable post-modification success rate. Proprietary programs currently in effect to supplement 

HAMP provide greater flexibility for borrower eligibility, but at the 

expense of lesser post-modification success. 

Q.4. Second, short sales: If my constituents need to leave their 

home, a short sale may be their best option. I hear a lot of reports 

that homeowners are having trouble getting short sales approved, 

they go through multiple rounds of negotiations for an underwater 

home and are lucky if they can get approval. Can you discuss the 

OCC’s regulatory concerns with short sales, and how we can make 

short sales a more viable option for homeowners? Shouldn’t the 

mortgage owners want a new borrower in the home who can better 

afford the payments? Are there options for credit reporting following short sales that lenders can use to minimize credit damage 

to homeowners? 

A.4. The OCC endorses short sales as a viable loss mitigation alternative for many troubled borrowers, and OCC mortgage metrics 

data obtained from nine of the national banks under the Consent 

Orders shows that short sales have steadily increased over the past 

2 years, from 30,766 transactions in the third quarter of 2010 to 

57,479 transactions in third quarter 2011. Unfortunately, while 

short sales continue to increase, accomplishing a successful short 

sale at times can be a very complicated process, especially when 

the servicer does not service or own both the senior lien mortgage 

and the junior lien loan(s), or when there is a third-party investor 

or another institution that provides private mortgage insurance for 

the loan(s). To affect a successful short sale, there generally must 

be a purchase offer that results in a positive net present value return (vs. a foreclosure) to the third-party loan investor or mortgage 
152 

insurance provider. The offer must come from a qualified purchaser 

with either cash or available financing to accomplish the purchase. 

In addition, investors may not allow servicers the significant time 

often necessary to negotiate a short sale when those timeframes 

conflict with established foreclosure processing timeframes. And, 

junior lien holders on the property must also be receptive to the 

transaction and willing to release their liens. Short sales cannot always be accomplished because these criteria cannot be met. 

The OCC believes that credit reporting must accurately reflect 

the facts and circumstances around how a borrower has performed 

under a credit arrangement. Reliable credit bureau information is 

the foundation for the vast majority of consumer credit that exists 

today, allowing lenders to make informed credit decisions and offer 

credit to the broadest borrower population possible. Credit reporting should be an objective process that allows lenders to make informed decisions based on a borrower’s demonstrated creditworthiness. How lenders use the information is part of the underwriting 

process when considering new or additional credit. Reporting that 

does not accurately portray the facts and circumstances of a credit 

arrangement weakens the usefulness of the information and would 

be a concern. 

Q.5. Third, dual-track processes are still happening: Homeowners 

are still receiving foreclosure notices and auction date notices while 

they are working toward modifications. Internal communications 

seems to be a problem within the large lender and servicer organizations. What must be done internally in lender and servicer organizations to end the dual track, and what abilities do the banking 

regulators have to cause expedited improvement here? 

A.5. This is an area actively under review by the OCC. The OCC’s 

Consent Orders require servicers to implement procedures under 

approved action plans to ensure that no further foreclosure or legal 

action predicate to a foreclosure occur when the borrower’s loan has 

been approved for a trial or permanent modification, unless the 

borrower is in default on the terms of the trial or permanent modification. We are currently assessing each servicer’s progress in completing required changes in this and other areas. Moreover, it was 

also contemplated under the orders that servicers will be required 

to revise action plans to comply with any higher standards that 

might be required by developing national servicing standards, 

other negotiated settlements or contractual agreements, including 

those subject to the National Mortgage Settlement, or in some respects, new requirements imposed by the GSEs. The OCC also expects the servicers to comply with other applicable dual-track 

standards required under the Making Home Affordable program, 

as well as applicable GSE and investor standards. With respect to 

the latter two, however, it is important to recognize that contractual requirements and requirements may determine servicer actions and timing in processing foreclosures. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ 

FROM ALYS COHEN 

Q.1. You voiced several concerns regarding the outreach process, 

including complexity, inability to access forms, and many others. 
153 

What specific suggestions for improvement can you offer the OCC, 

servicers, and consultants to implement? 

A.1. Any marketing changes that are made will only be useful if 

the reviews themselves are both thorough and fair. With regard to 

outreach, key changes to be made include: sending a letter to 

homeowners that is understandable and that properly highlights 

the scope of harm covered by the reviews; advertising must be done 

in order to reach affected populations including communities of 

color; materials and assistance must be done with language access 

needs met; and the deadline for submission of claims should be extended to allow for improvement to the outreach process. Everything about the outreach process, including letters, should be made 

public in order to ensure accountability. Finally, homeowners and 

the public need to know that the review process will be thorough 

and fair and provide adequate compensation without inappropriate 

waivers of legal rights; without these assurances, homeowners are 

unlikely to and should not trust the process. Glossy outreach without substance is merely another name for fraud. 

Q.2. The foreclosure review application requests that applicants 

check boxes for the types of harm (from a very narrow list) which 

correlate with the harm they have suffered. However, their application will only be reviewed for the types of harm checked. If the 

homeowner submits the form and checks no boxes, they will be reviewed for all of the types of harm listed, which is still limited. 

What solutions do you suggestion for this issue? 

A.2. Every claim submitted by a homeowner should receive a full 

review for all types of harm based on the servicer’s file, the claim 

and necessary follow up, including consumer interviews where applicable. Homeowners often are not in a position to know whether 

they were overcharged or were otherwise denied proper loss mitigation. While it has been suggested that homeowners should be told 

that reviews are dictated by what the consumer identifies, this disclosure is unlikely to be understandable to most consumers and 

thus would not be an adequate protection against a faulty review. 

Moreover, such a disclosure does not change the fact that homeowners will not be able to identify all of the harms they have suffered. 

Q.3. You mentioned in your testimony two types of harm not listed 

in the OCC’s list of 22 examples. Are there any other types of harm 

that should be considered as well that are not covered by the 

OCC’s examples? 

A.3. The consent orders and the documents connected with the 

foreclosure reviews fail to cover all foreseeable economic damage in 

the definition of financial injury and omit common examples of significant financial harm to consumers. The OCC’s narrow definition 

of financial harm is at conflict with long settled and well-established rules about available damages and undermines homeowners’ 

rights. It will leave many homeowners uncompensated for harm 

they have suffered at the servicers’ hands. 

Among the harms that should be considered are the following: 
154 

1See Office of the Comptroller of the Currency, OCC Mortgage Metrics Report: Disclosure of 

National Bank and Federal Thrift Mortgage Loan Data, Second Quarter 2011, 40 (June 2009). 2See Francine McKenna, OCC Foreclosure Review Disclosures Still Disappoint, Am. Banker, 

Dec. 6, 2011, available at http://www.americanbanker.com/bankthink/OCC-foreclosure-reviewdisclosures-still-disappoint-waters-1044628-1.html?zkPrintable=true. 

• Servicer delays in processing and approving a modification cost 

homeowners thousands of dollars in additional interest and 

fees that is then rolled into the principal balance. 

• Being improperly placed into a non-HAMP modification is costly for homeowners. The interest rate may reset sooner, may 

not be reduced as low, legal rights may be waived, additional 

costs may be capitalized, the waterfall may extend the term before lowering the interest rate (costing average homeowners 

tens of thousands of dollars), or the terms may be less advantageous in other ways. Homeowners in proprietary modifications lose the benefit of the HAMP borrower incentive payments and face a higher risk of a subsequent foreclosure.1 The 

increased risk of redefault is a quantifiable economic harm, but 

it does not appear compensable under the OCC metric. 

• The cost of credit and insurance are driven by credit scores: a 

wrongful foreclosure can easily cost a homeowner thousands of 

dollars annually just on these two fronts. 

• Employers and landlords also both rely on credit scores; a 

wrongful foreclosure can result in lost jobs and difficulty locating alternative housing. 

• Homeowners spend time and money trying to unravel wrongful 

foreclosures: the need to send notarized documents by overnight mail repeatedly to the servicer by itself can result in 

hundreds of dollars of out-of-pocket expenses. Homeowners 

should be compensated for all time and out-of-pocket expenses 

incurred in correcting the servicer’s malfeasance. 

• Children who suffer dislocation due to foreclosure may lose 

educational opportunities and experience poor health. Families 

should be compensated for these economic harms. 

• Families are often torn apart by a foreclosure; compensation 

should be offered for all the psychological and social damage 

done by a wrongful foreclosure. 

• Any waiver demanded by the servicer must be offset by full 

compensation for all legally cognizable harm and limited to a 

waiver of claims related to the scope of the waiver. Otherwise, 

homeowners will be further injured by servicers without redress. 

Q.4. You stated in testimony that the servicers’ general counsel’s 

offices appeared to have been involved in drafting the engagement 

letters for the third-party consultants, and expressed concern about 

whether that was being done to create attorney-client privilege. 

Can you elaborate on that? 

A.4. In many cases, the ‘‘project leads’’ of the foreclosure reviews 

are the servicers’ own general counsel office and in all cases the engagement letters that have been released reveal that the servicer’s 

general counsel’s office is the point of contact for the review.2 The 
155 

3 Id. 

following excerpt from the recent article highlighting these issues 

elaborates on this: 

One tricky area for the consultants and legal counsel is attorney-client 

privilege. The engagement letters include boilerplate language that emphasizes the OCC is the primary director of the engagement at each servicer. 

However, the level of emphasis of this fine point in the final versions varies. 

Some of the engagement letters invoke attorney-client privilege and attorney work product privilege over the whole process and confidential treatment of engagement letter itself. It appears all the servicers used their general counsel’s office to engage the consultants and outside counsel and some 

name their general counsel as project lead. Some servicers engaged additional outside legal counsel for the review directly rather than through the 

primary consultant.3

Whether or not this creates problems regarding access for public officials, it certainly appears to be an effort to keep the process and 

outcomes of these reviews out of the public eye. Moreover, it makes 

clear that, despite boilerplate language to the contrary, the consultants are working for the servicers. The use of attorney-client privilege by the servicers could prevent homeowners and the public at 

large from ever knowing the scope or results of the reviews. 

Servicers could invoke attorney-client privilege to prevent homeowners from presenting to courts evidence of the servicers’ wrongdoing, if that evidence was in any way touched on during the foreclosure review. This leaves homeowners in a catch-22: compensation they receive from the foreclosure review process is uncertain 

and likely coupled with a waiver of all legal claims, but attempts 

to vindicate their rights outside of the foreclosure review process 

are likely to be met by stonewalling on the part of the servicer. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM ALYS COHEN 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 

anyone care to address this risk? Do any of you share these concerns? 

A.1. Real estate investments have always been subject to State 

law. In the years leading up to the crash, investigations and enforcement actions by State officials did not deter investment in 

real-estate secured loans. Instead, investors have relied on representations and warranties by originators and servicers as to compliance with applicable State laws. If investors are scared off now, 

it is because originators and servicers have failed to make good on 

those representations and warranties to investors. 

Additionally, investors suffer significant losses when homes are 

foreclosed on. These losses far exceed the losses when loans are 
156 

modified. Unsurprisingly then, many investors have expressed an 

interest in seeing the same result as sought by the 50 State AGs: 

greater efficiency in the processing of loan modifications and increased numbers of loan modifications, including principal reductions. 

Servicers’ failure to meet their legal and fiduciary obligations to 

investors and homeowners is a leading cause of the current crisis. 

Servicers must be held accountable in order to restore confidence 

in our real estate and investment markets. State and Federal enforcement actions are one key mechanism for changing abusive behavior. Establishment of strong, minimum national servicing 

standards will provide clarity to industry while ensuring fairness 

and efficiency to homeowners and the market. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. Strong minimum standards—with room for parties or states to 

require more as dictated by their circumstances—are essential to 

establishing an efficient and fair mortgage servicing market. While 

such standards could be developed in a uniform PSA, investors, 

homeowners, and regulators have struggled to hold servicers to the 

standards in existing PSAs. The accountability mechanisms in 

PSAs typically allow servicers to evade or delay meaningful compliance. Moreover, the provision of minimal national servicing standards by law or regulation would be less intrusive of the free marketplace, by allowing contracting parties to design their PSAs to 

suit their individual circumstances. The provision of national servicing standards might result in greater uniformity in some PSA 

standards, but would be more targeted, less invasive, and more enforceable. While a set of minimum PSA provisions may be advisable for a variety of reasons, the Government has not typically dictated the provisions of private contracts, but provided ground rules 

for competition. 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Congress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 

A.3. The key issue regarding registration of mortgages is whether 

legal compliance and transparency are satisfied. The current 

MERS system provides neither and therefore creates huge roadblocks for homeowners defending foreclosures. Homeowners know 

neither the identity of the party seeking to foreclose on them nor 

whether the legal requirements regarding transfers of ownership, 

a pre-requisite to a foreclosure, have been satisfied. Any electronic 

registration system must be implemented in a manner that preserves the approach required under law and affords full transparency to homeowners and the American public rather than being 

used as a means to circumvent it. 
157 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN 

MENENDEZ FROM DAVID C. HOLLAND 

Q.1. If consultants are only reviewing borrowers for the items they 

check on the letter, then why aren’t borrowers informed of that important fact in the letter? 

A.1. Based on Rust’s role in this process—specifically, as the firm 

which printed and mailed letters, but not the authors of their content—I do not believe I am the appropriate person to answer this 

question. 

Q.2. What information obtained from borrowers will the consultants or Rust share with the servicers? This has Fair Debt Collection Practice Act implications, and there should be clear and public 

guidelines on this. Homeowners are more likely to trust the process 

if their personal information is not shared with the servicer (counselors have already had homeowners contact them who said that 

the potential use of information by the servicer is one reason why 

they don’t want to return the form). 

A.2. Rust follows a process with respect to handling and sharing 

of data which was agreed to by the Independent Consultants; 

Servicers; OCC; and the FRB. This process is to make all information sent to Rust available to both the appropriate servicer and its 

Independent Consultant. 

Q.3. Testimony indicated that only 5 percent of mailings have been 

returned undeliverable, and that seems like a surprising statistic 

considering how many people who are foreclosed on move multiple 

times afterward. What explains that low rate of returns? Is it possible the letters are still sitting in unused mailboxes without being 

returned as undeliverable? Is there any in-person outreach being 

done to reach borrowers? 

A.3. Rust, based on standard notification processes and agreedupon processes for this engagement, conducted a number of steps 

prior to mailing with the intention of maximizing delivery rates. 

For example, when possible, we ran addresses through the National Change of Address service and, performed ‘‘skip-tracing.’’ 

Further, the last-known addresses were relatively recent, only 

going back to approximately 2009; in the context of our business, 

this is relatively recent information. 

It is noteworthy that it takes time for undeliverable mail to be 

returned; having continued to drop new mailings and knowing that 

mail will continue to be returned as it works its way through the 

U.S. Postal Service, the rates will change. Current statistics (as of 

Jan. 10, 2012) are that 414,317 total Notices have been returned 

as undeliverable (as compared to 4,339,191 Notices mailed), for approximately 9.5 percent. 

With respect to whether letters could be unopened in unused 

mailboxes, we cannot comment with any authority: we can only 

confirm what is not received (based upon it coming back as undeliverable), not what is received, or (if received) what may be 

opened, read, etc. 

Q.4. What has the borrower response rate been so far among the 

borrowers who have been contacted? What percentage have already 

returned their completed forms? 
158 

A.4. As of Jan. 10, 2012, 61,890 complaint forms have been received, as compared to 4,339,191 Notices having been mailed to 

borrowers, for approximately 1.4 percent. Notices were mailed in 

waves from Nov. 1, 2011, through Dec. 30, 2011. The complaint filing deadline is April 30, 2012. 

Q.5. Shouldn’t people be able to go to a Web site to get the form 

they need rather than relying on mailings alone? 

A.5. In this respect, Rust is carrying out the program as agreed 

upon by the consortium. Their agreement in this case was to mail 

out bar-coded forms tied to specific database records as opposed to 

generic, Web-generated forms. 

Q.6. Can the Web site be immediately redesigned to look more official, but also easier for borrowers to understand? It is currently so 

primitively done that it looks like a scam. 

A.6. The Web site was created to match the design as requested 

by the consortium. We can make changes as requested. 

Q.7. How will the borrowers who lost their homes to foreclosure or 

who have relocated be contacted? Can you commit to consulting 

with a wide variety of homeowner advocates including housing 

counselors and attorneys to gather any homeowner contact information from them? 

A.7. Rust will carry out efforts according to the agreement of the 

consortium to contact borrowers, including working with whatever 

groups are identified as appropriate. As is typical in this type of 

effort (such as with class action settlements or other outreach programs), a media notice program is intended to reach borrowers currently unreachable by mail for whatever reason. The schedule for 

the media notice program, currently scheduled to begin in mid-January and aimed toward national and regional audiences in English 

and Spanish, is attached. 

Q.8. What provisions are being made for outreach, materials (including required forms), and assistance to be provided in languages 

other than English? I’ve heard concerns that the way the outreach 

is being conducted may violate the Fair Housing Act. How will you 

ensure that all outreach materials comply with Limited English 

Proficiency Executive Order 166? 

A.8. In this respect, Rust is carrying out the program as agreed 

upon by the consortium. 

Q.9. The Spanish messages on the mailed claim forms and proposed print ads give unclear directions. Do call centers have representatives who are capable of taking calls in Spanish? Will Spanish-speaking borrowers be required to obtain their own independent interpreters in order to navigate the process? 

A.9. Yes, our contact center includes Spanish-speaking customer 

service representatives (CSRs) who can respond to callers’ questions to the same level of detail as our English-language CSRs, as 

all representatives follow approved, scripted questions and answers. 

Q.10. Will Rust provide a 1–800 number for translation of forms 

and other guidelines? 
159 

A.10. Rust will facilitate whatever the consortium decides with respect to this. We have coordinated with the servicers to offer translation services via the existing toll-free number. If no CSR on staff 

can field questions in the language being requested, we will engage 

a third-party translator via a three-way call to resolve the call. 

Q.11. Will outreach and print ads be done through Spanish-language media in select markets? 

A.11. Yes, please see the attached media schedule for specific publications. 

Q.12. Will you and the entire working group of independent consultants commit to having a regular series of ongoing meetings 

with a broad cross-section of housing counselors and legal advocates who are assisting borrowers prior to making major decisions 

about how these reviews will be conducted? For example, housing 

counselors may have forwarding information for the millions of borrowers who have moved, so why aren’t they being consulted to get 

that info rather than just run skip traces? Why is their deep store 

of knowledge of problems that most borrowers have had not informing the review process? The OCC has stated in a post-hearing letter to me that they encourage you to engage in such communications as long as they do not reveal bank-specific information. 

A.12. Rust will commit to participating in whatever meetings are 

identified as useful to the administration of this project, as agreed 

upon by the consortium. 
160 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM DAVID C. HOLLAND 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 
161 

anyone care to address this risk? Do any of you share these concerns? 

A.1. I do not believe that Rust Consulting, as the firm engaged to 

administer certain aspects of the Consent Orders for the Independent Mortgage Foreclosure Borrower Outreach project, or that 

I, as the executive vice president overseeing Rust’s work in these 

engagements, are qualified to respond to this question. Rust’s role 

is that of managing the already agreed-upon project, including data 

management, notification, contact centers, mail processing, etc. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. Please see the response to the first question, above. 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Congress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 

A.3. Please see the response to the first question, above. 

RESPONSE TO WRITTEN QUESTION OF CHAIRMAN MENENDEZ 

FROM PAUL LEONARD 

Q.1. As Senator Merkley suggested during the hearing, will banks 

voluntarily submit to a foreclosure review process in which homeowners or groups representing homeowners get to choose the thirdparty reviewers who will decide the outcomes? 

How will servicers learn from the results of this review? How 

will they correct any patterns of mistakes they made so that they 

don’t continue to make those mistakes in dealing with foreclosures 

going forward? 

A.1. Mr. Chairman, as discussed during the hearing, the Independent Foreclosure Review (IFR) process is part of the consent orders signed by 14 major mortgage servicers and their Federal regulators. The IFR process is being closely monitored by the Office of 

the Comptroller (OCC) and the Federal Reserve Board. As part of 

the IFR, the consultants performing the independent reviews will 

make all recommendations on financial remediation or other remedies for homeowners who they have determined experienced financial injury resulting from errors by their mortgage servicer. The 

OCC required that engagement letters for the independent consultants contain specific language stipulating that consultants would 

take direction from the OCC and prohibited servicers from overseeing, directing or supervising any of the reviews. The servicers 

participating in the Independent Foreclosure Review are complying 

with all aspects of the review and will comply with the recommendations of the independent consultants. That process is underway. 
162 

The Independent Foreclosure Review contains two components 

for determining if homeowners were harmed by servicer errors. The 

first is the ‘‘look-back’’ review. The independent consultants are 

conducting a valid statistical sampling of borrower accounts, including a review of 100 percent of borrowers with certain characteristics—such as those who may have been eligible for protection 

under SCRA. The second is the outreach effort to more than four 

million borrowers to enable them to request a review if they believe 

they experienced financial harm as a result of servicer errors, misrepresentations or other deficiencies in the foreclosure process. The 

process and results of both of these components is being overseen 

by the Federal regulators. 

In addition, servicers have been making changes to strengthen 

their servicing practices and systems, based on their internal efforts and on requirements from their regulators. These changes include: hiring additional servicing staff and increasing staff training; improving management information systems; establishing a 

single point of contact for at-risk borrowers; and procedures on the 

‘‘dual track’’ issue to ensure there are safeguards in the loan modification and foreclosure processes. The servicers participating in 

the Independent Foreclosure Review have made and are continuing 

to make changes to strengthen their mortgage servicing systems. 

RESPONSE TO WRITTEN QUESTION OF SENATOR REED FROM 

PAUL LEONARD 

Q.1. According to economist Mark Zandi, we could put a floor on 

housing prices by facilitating an additional 600,000 loan modifications above and beyond those that would otherwise occur with 

HAMP and other loan modification programs. Is this something 

that the Housing Policy Council and its members could strive for? 

A.1. The members of the Housing Policy Council and other mortgage servicers continue to work hard to provide loan modifications 

and other home ownership preservation solutions for at-risk homeowners whenever possible. The latest industry data on loan modifications reported by the Hope Now Alliance shows that servicers 

completed 969,000 loan modifications in the first 11 months of 2011 

and more than five million loan modifications since 2007. Hope 

Now data indicates that loan modifications continue to exceed foreclosure sales in a very difficult economic environment. Loan modifications are guided in large part by investor requirements. Lender/ 

servicers can do additional types of modifications for loans they 

hold on their own books, but major expansion of loan modifications 

beyond those governed by HAMP and GSE guidelines would require additional guidance by the GSEs, which are currently the 

largest owner/investors of mortgages. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM PAUL LEONARD 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 
163 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 

anyone care to address this risk? Do any of you share these concerns? 

A.1. It is true that more certainty regarding mortgage litigation 

and regulation at both the Federal and State level would allow investors to price the risk for investing in mortgages. In addition to 

investor reluctance, another serious problem is an ‘‘issuer strike’’— 

issuers of MBS are reluctant to reenter the market. Issuers are facing the implementation of a variety of new regulations such as the 

Qualified Residential Mortgage (QRM) regulation, many of which 

have yet to be finalized. This is generating both uncertainty and 

compliance challenges for issuers. Private issuers also find it difficult to compete with the GSEs, given the current pricing structure for the securities they issue. The Housing Policy Council supports efforts to begin the process to reform the secondary mortgage 

market and ultimately replace the GSEs with a system that is 

based primarily on private capital and a clear, defined role for a 

Government guarantee that is defined and protects the taxpayers, 

while allowing consumers to have access to sound products like the 

30-year fixed-rate mortgage. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. Standardization is a hallmark of GSE securitizations. However, one of the strengths of the private label market is the ability 

of that market to develop unique pools of mortgages. As this market restarts, we believe the participants should have some flexibility in designing alternative terms and structures. Possibly some 

general ‘‘principles’’ would be useful rather than a mandatory PSA. 

Uniform loss mitigation efforts should also be developed in way 

that enables them to be implemented by all types of servicers— 

small, medium and large. 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Congress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 

A.3. The Housing Policy Council does not have a formal position on 

additional legislative action on the registration of mortgages at this 

time, but some factors that must be kept in mind include privacy 

concerns for individuals in the registration of mortgages, as well as 

an evaluation of the role and performance of MERS. The Housing 

Policy Council looks forward to working with Senator Corker on 

steps to insure the proper functioning of the secondary mortgage 

market in the future. 
164 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN 

MENENDEZ FROM ANTHONY B. SANDERS 

Q.1. Your testimony stated that you have no reason to believe that 

the third-party consultants will shape their findings to favor the 

banks. Isn’t it at least plausible that it’s a conflict of interest for 

the servicer to choose its own reviewer when that reviewer has 

taken or is still taking millions of dollars in contracts from that 

same servicer? I think most neutral observers would say that 

doesn’t pass the sniff test. It’s essentially like a defendant being allowed to choose their own jury where the defendant knows the jury 

and has done business with or still has business with that jury. 

A.1. While it seemingly doesn’t pass the sniff test, one must remember that every watchdog group (both governmental and private 

sector) is watching the servicers (and third-party consultants) like 

hawks. Not only are there layer after layer of investigation units 

at Treasury, OCC, HUD, The Fed, FDIC, etc., watching the 

servicers, you have private sector watchdog groups and attorneys 

looking to pounce on any perceivable wrong (even if it is just a difference of opinion). So there are enough eyes on the servicers already. 

Q.2. You cite statistics on the potential cost of the reviews, but 

don’t those costs depend heavily on the borrower response rates? If 

only 1 percent of borrowers respond, how much would costs be? 

And what is your source for the statistic about the cost of each review? 

A.2. To be sure, the cost of foreclosure review ultimately depends 

on the number of borrowers that respond. Having said that, each 

of the lenders and servicers in question have expended fixed costs 

in the effort to ramp up for the foreclosure review. So even if no 

borrowers respond, the foreclosure review is still quite costly. My 

source of the information was from phone interviews with several 

servicing companies. 

Q.3. Recent estimates from the Consumer Financial Protection Bureau suggest that mortgage servicers may have ‘‘saved’’ more than 

$20 billion through under-investment in proper servicing during 

the crisis. Do you have any estimate of the amount of money 

‘‘saved’’ by servicers, to date, by failing to properly service residential mortgages? 

A.3. I do not have any insights into whether servicers under-invested in proper servicing during the crisis. But I will say that defaults were so low prior to 2007 that servicers had slimmed-down 

staff. The gearing-up for the avalanche of defaults and foreclosures 

did result in more servicing infrastructure, which will have to be 

downsized again as defaults begin to decline. So, the CFPB is suggesting that they knew the optimal size of investment in mortgage 

servicing which is a silly proposition. Remember, the biggest mortgage buyers and insurance companies in the United States are 

Fannie Mae and Freddie Mac and they weren’t concerned until 

after housing prices declined 40 percent. Hindsight is always 20/20. 
165 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM ANTHONY B. SANDERS 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 

anyone care to address this risk? Do any of you share these concerns? 

A.1. I share these concerns and others. Not only are the lawsuits 

scaring away investors, but the constant drone of additional bureaus enforcement units is very frightening. Particularly since the 

AGs and Obama administration ignore the root causes of the housing and credit bubble (the Clinton administration’s National Homeownership Strategy (see http://confoundedinterest.wordpress.com/ 

2012/01/26/krugmans-misleading-tale-of-two-bubbles-a-closer-lookat-the-data/) but rather investigate and punish any bank that went 

along with the NHS. The rest of the world is looking at us with 

great confusion and fear since Government intervention in housing 

and financial markets is escalating at both the State and Federal 

levels. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. I think that developing a standardized PSA to govern loss 

mitigation is a good idea since it would clarify rules in general, 

particularly for investors. But since loan modifications are very 

specific to the borrower, I must warn that broad-based rules governing who should receive loan modifications would ultimately back 

fire (see HAMP for a model of how NOT to encourage loan modifications). The real solution is to back away from Government stimulus of the housing market and not create further bubbles (see previous answer). Clinton’s ‘‘Who let the dogs out’’ solution to unleash 

Fannie Mae and Freddie Mac turned out to be dreadful policy. 

Also, remember that Fannie Mae and Freddie Mac developed the 

Uniform Mortgage Contract. That did not prevent Fannie Mae and 

Freddie Mac from rolling the dice on mortgages. My point is that 

you can try to regulate markets, but they often have a mind of 

their own. 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Congress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 
166 

A.3. To be sure, a national registration process for mortgage ownership would be a good step forward. However, as long as the Federal 

Government continues to subsidize mortgage borrowing and the 

Federal Reserve attempts to stimulate the housing market through 

low interest rates, these problems of a housing bubble and burst 

will surface again. But have a national registration system updates 

the system to the 21st century. The problem is that housing policy 

is still stuck in the FDR years. 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN 

MENENDEZ FROM ANN M. KENYON 

Q.1. What procedures are being established for both the foreclosure 

reviews and the remediation process to ensure uniformity so that 

borrowers get the same treatment no matter which servicers or 

consultant they have? 

A.1. As discussed in my testimony, we are subject to the monitoring, oversight, and direction of the OCC. Our procedures for conducting the independent review have been approved by the OCC, 

and, as I indicated in my response to Senator Merkley during the 

hearing, the OCC currently is considering the remediation construct for use by the independent consultants in conducting the review. Additionally, Ms. Williams stated in her testimony and in response to Senator Merkley that the OCC is working to ensure that 

this remediation construct is consistent across servicers. Finally, as 

stated in my testimony, we and other independent consultants 

‘‘have been and are meeting with the OCC regularly to keep OCC 

officials apprised of the details of our approach and progress.’’ 

Q.2. Is it true that the results of the reviews will be shared with 

banks for comment prior to release, but not with homeowners, who 

will have no opportunity to comment prior to release? I would urge 

you to give homeowners equal opportunity to comment prior to release. It is bad enough that there are deep concerns about the true 

independence of the reviewers without even further biasing the 

process by allowing only one side to comment on and influence the 

outcomes? 

A.2. Pursuant to the Consent Order, Deloitte & Touche LLP 

(‘‘Deloitte’’) will draft a report containing the results of the independent review and, pursuant to the engagement letter approved 

by the OCC, submit it to the servicer for its comment. Deloitte, 

however, as independent consultant, has the final responsibility for 

the report’s content. Consistent with the results of the independent 

review, Deloitte will exercise its own professional judgment and 

conclude as to what extent to accept or reject any suggested comments received from the servicer. As we are committed to transparency, should our findings and the servicer’s views differ, such 

differences will be disclosed in the report. 

Q.3. What steps will the consultants take to ensure that a foreclosure does not happen while a review is underway? How will the 

consultants know when a foreclosure sale is imminent such that 

they should halt the foreclosure and/or provide a faster review? 

A.3. As Ms. Williams stated in her testimony, the OCC will ‘‘provide direction on minimum criteria’’ for review of files subject to 
167 

imminent foreclosure. We will conduct ‘‘prioritized review[s]’’ of 

those files consistent with those instructions, and the servicer also 

will review those files concurrently with us. 

Q.4. I was very disturbed by the testimony indicating that if the 

consultants wish to contact or speak directly with borrowers, they 

are expected to contact the servicer first. How is it even remotely 

appropriate for the consultants, who are supposed to maintain 

independence at all times, to have to notify or get permission from 

the banks to contact borrowers? Will the OCC change its directives 

so that consultants do not have to either notify or get the permission of the banks to directly contact borrowers? For consultants to 

evaluate homeowner claims fairly requires open and direct communication between the consultants and homeowners and their advocates and should never be deterred by the servicer as an intermediary between them. 

A.4. We are not required to receive permission from the servicer to 

direct the servicer to request any additional necessary information 

from a borrower. As Mr. Alt indicated during questioning, and as 

I agreed, should any additional borrower information be necessary 

during the review process, we have the power to ‘‘direct the 

servicer to request that information from the homeowner, or former 

homeowner.’’ 

Q.5. Is there a protocol requiring the consultants to reach out to 

homeowner advocates when there is evidence in the file that they 

were involved? Is there a protocol about how the reviewers will respond to inquiries from parties authorized on behalf of borrowers? 

If there are protocols, please describe them. If there are not protocols, I respectfully ask that you establish them. 

A.5. As discussed in response to Question 4, above, we will direct 

the servicer to contact homeowners should any additional information regarding their file be required during the course of the review. Inquiries and complaints received from borrowers or their advocates as part of the Borrower Outreach Program are processed 

by the third-party Claim Intake Firm, Rust Consulting, and any 

documentation received by Rust, regardless of source, is forwarded 

to us. Finally, we are mindful of our instructions from the OCC 

(which you reference in Question 10 below) with respect to thirdparty communications about our work. To that end, we participated 

in a meeting with all the independent consultants and representatives from selected advocacy groups, facilitated by the OCC and the 

Federal Reserve Board, on January 5, 2012. It is my view that all 

participants found the meeting helpful. 

Q.6. Can you commit to contacting homeowners or their advocates 

if pertinent information is missing? It is tremendously important 

that the reviews not be conducted on ‘‘submitted documents’’ alone, 

since we know that servicers have lost paperwork and servicer files 

may not be complete, and that homeowners who don’t have a counselor or attorney to guide them through the process don’t really 

know what proof they need to send in. 

A.6. As discussed in response to Questions 4 and 5, above, we are 

not required to conduct the independent review on the basis of 

‘‘‘submitted documents alone.’’ In some instances, our procedures 
168 

were specifically crafted to take into account assertions of missing 

paperwork. For the Borrower Outreach Program, we will direct 

servicers to contact homeowners should additional information regarding their file be required during the course of the review of 

their complaint. 

Additionally, in an effort to make the process easier, there is no 

requirement for the borrower to submit any documentation. We 

would welcome any and all documentation the borrower would like 

to send, but their request for a review will be addressed as long 

as the eligibility requirements mandated in the Consent Order are 

met. Also, please note that question 13 on the form allows for comments to be written in, so borrowers are not restricted to answering the questions posed in questions 1–12. 

Q.7. What experience requirements are mandated by the OCC for 

foreclosure file reviewers? How long is the mandatory training program for them? This strikes me as something that can’t be learned 

in a 2- or 3-week training program, but would take years of experience. It seems to me that you really need lawyers reviewing these 

files on such complicated legal questions, but given some of the 

questionable job ads that have appeared, I question the qualifications of some of those being hired to do these reviews and make 

decisions that will have profound impacts on the lives of struggling 

families. 

A.7. As I indicated in response to the Chairman’s question at the 

hearing, Deloitte has not hired externally for this independent review. Within our Firm, we generally identified people with ‘‘prior 

mortgage banking experience, experience in controls and procedures work,’’ and ‘‘familiarity with financial institutions and processes as well as . . . dealing with financial assets.’’ The foreclosure 

file reviewers in our teams will undergo 3 weeks of rigorous training regarding our procedures approved by the OCC, and their work 

will be reviewed by managers and senior managers. The reviews 

also will be subject to our own internal quality control procedures, 

and the entire process will be overseen by a team of partners. Also, 

as outlined in our engagement letter, we are guided in our work 

by Independent Counsel, on whom we rely for the sufficiency of all 

matters requiring legal interpretation. 

Q.8. If consultants are only reviewing borrowers for the items they 

check on the letter, then why aren’t borrowers informed of that important fact in the letter? 

A.8. As Mr. Leonard and Mr. Alt indicated at the hearing, the form 

sent to borrowers as part of the outreach program reflects a collaborative process between the servicers, independent consultants, 

and the regulators. The form was submitted to the OCC and Federal Reserve and approved by them. Further, as indicated in Ms. 

Williams’ testimony, there is a portion of the form letter sent to 

borrowers as part of the outreach program ‘‘where a borrower can 

tell their story.’’ According to Ms. Williams, 78 percent of the claim 

forms submitted by the time of the hearing utilized this ‘‘other’’ category. In her words, the review ‘‘process . . . contemplate[s] that 

there is the opportunity and the need for the independent consultants to consider the facts that are before them and take those into 

account.’’ 
169 

Finally, as described in our engagement letter, we are not reviewing submitted complaints for those items only noted on the 

form. Complaints that are eligible for review but contain limited or 

inconsistent information will be given a full review for all items 

covered by Article VII of the OCC Consent Order. 

Q.9. What information obtained from borrowers will the consultants or Rust share with the servicers? This has Fair Debt Collection Practice Act implications, and there should be clear and public 

guidelines on this. Homeowners are more likely to trust the process 

if their personal information is not shared with the servicer (counselors have already had homeowners contact them who said that 

the potential use of information by the servicer is one reason why 

they don’t want to return the form). 

A.9. Consistent with the terms of the Consent Order with the OCC 

and as approved by the OCC, our engagement contemplates that 

all outreach efforts and claim intake efforts will be handled by the 

third-party Claim Intake Firm, Rust Consulting. Rust and the 

servicer are expected to forward all complaints to us, along with 

relevant documents and findings related to the complaint 

Q.10. Will you and the entire working group of independent consultants commit to having a regular series of ongoing meetings 

with a broad cross-section of housing counselors and legal advocates who are assisting borrowers prior to making major decisions 

about how these reviews will be conducted? For example, housing 

counselors may have forwarding information for the millions of borrowers who have moved, so why aren’t they being consulted to get 

that info rather than just run skip traces? Why is their deep store 

of knowledge of problems that most borrowers have had not informing the review process? The OCC has stated in a post-hearing letter to me that they encourage you to engage in such communications as long as they do not reveal bank-specific information. 

A.10. We are in receipt of guidance from the OCC with respect to 

such communications. As a public accounting firm, we have professional standards with which we must adhere, and those have previously been provided to Members of the Subcommittee’s staff. Nevertheless, we are mindful that there are many parties interested in 

our results and have worked, and will continue to work, toward facilitating open communication. To that end, as indicated in our response to Question 5, we participated in a meeting with all the 

other independent consultants and representatives of selected 

housing/legal advocates, facilitated by the OCC and the Federal Reserve Board, on January 5, 2012. 

Q.11. Can you swear that any other work or conflicts of interest 

between Deloitte and JP Morgan Chase will not affect the foreclosure reviews in any way? What disciplinary steps will you take 

against your employees if you find that they are performing the reviews in a way that benefits the banks instead of the public interest as directed by the regulators? What steps will you take to directly communicate that possibility of discipline to all your employees? 

A.11. As I indicated in my response to the Chairman’s question at 

the hearing, Deloitte has in place a specific process designed to ad-
170 

dress conflicts of interest with respect to this engagement or indeed 

with any matters in this subject area. Based on this process, nothing has come to my attention that, in my judgment, would impair 

our ability to objectively serve on the engagement. Again, as I stated in the hearing, we are extremely ‘‘mindful of our mandate to 

maintain independence in this review,’’ and will take corrective 

measures to the extent we believe in our judgment that any of our 

employees are not performing the review appropriately. To this 

end, any member of the engagement who is determined to be performing his or her work inappropriately as you describe will be removed from the engagement, the work re-performed, and the situation communicated to the regulators. In addition, since the hearing, 

the written testimony of Ms. Cohen as well as my own has become 

mandatory reading and incorporated into our training process. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM ANN M. KENYON 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 

anyone care to address this risk? Do any of you share these concerns? 

A.1. As I described in my testimony offered at the December 13, 

2011 hearing, our mandate, pursuant to the Consent Order with 

the OCC, is to conduct ‘‘an independent review of certain residential foreclosure actions regarding individual borrowers with respect 

to [the servicer’s] mortgage servicing portfolio.’’ As the scope of my 

work is thus limited, I do not have an opinion regarding investors’ 

responses to numerous State and Federal regulations. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. As indicated in my response to Question 1 above, our mandate 

is limited to conducting an independent review of certain foreclosures in 2009 and 2010. Pursuant to the Consent Order, the 

independent review will consider, among other things, whether 

‘‘various loss mitigation programs were handled appropriately.’’ 

Should our review determine that borrowers suffered financial 

harm due to deficiencies in loss mitigation programs, we will recommend possible remediation activity. 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Con-
171 

gress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 

A.3. As indicated in my response to Question 2, above, it is beyond 

the scope of our work to offer recommendations regarding current 

or future legislation relating to the regulation of mortgage foreclosure practices or the mortgage service industry. 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN 

MENENDEZ FROM KONRAD ALT 

Q.1. What procedures are being established for both the foreclosure 

reviews and the remediation process to ensure uniformity so that 

borrowers get the same treatment no matter which servicers or 

consultant they have? 

A.1. Consistent treatment of similarly situated borrowers, without 

regard to which servicer was involved in the foreclosure or which 

independent consultant conducts the review, is important to the 

success of these foreclosure reviews. With this objective in mind, 

the independent consultants and the agencies have worked hard to 

develop and support consistent procedures, including in regard to 

the solicitation and intake of complaints, the definition of financial 

injury, and the determination of appropriate remediation. 

The nature of the process is such that independent consultants 

can often identify needs for consistency, escalate those needs to the 

agencies, and discuss potential solutions with them. But the independent consultants have neither the authority to establish uniform or substantively equivalent procedures, nor—because each 

consultant has detailed understanding only of its own procedures— 

the ability to validate that the procedures in use in different reviews are in fact uniform or substantively equivalent. As independent consultants, therefore, we seek to promote consistency primarily by adhering closely to the guidance we receive from the 

agencies and by escalating to the agencies whatever opportunities 

we can identify to strengthen that guidance or bring uniformity to 

other key areas through the development and publication of additional guidance. 

Q.2. Is it true that the results of the reviews will be shared with 

banks for comment prior to release, but not with homeowners, who 

will have no opportunity to comment prior to release? I would urge 

you to give homeowners equal opportunity to comment prior to release. It is bad enough that there are deep concerns about the true 

independence of the reviewers without even further biasing the 

process by allowing only one side to comment on and influence the 

outcomes. 

A.2. My colleagues and I agree that maintaining our independence 

is vitally important to the success of these reviews. In that regard, 

our engagement letters make clear that we alone are responsible 

for the final determinations we reach with regard to each file we 

review. We make the servicers we work with aware of those determinations but we do not invite servicers to comment on them. 

While we have not designed our process to give servicers an opportunity to comment on our final determinations, servicers can 
172 

often gain an understanding of our preliminary views as a by-product of our fact-finding process. Our ability to reach unbiased conclusions depends entirely on gaining a complete understanding of 

the facts pertaining to each file we review. We gain that understanding partly by reviewing the file materials provided to us, and 

partly by following up with the servicer when those materials suggest that we may be missing other relevant documents or data. 

All of these activities are transparent to and closely monitored by 

the regulators and intended to ensure that we reach final determinations based on a complete factual understanding. We would 

view any ‘‘lobbying’’ by the servicers we work with as an effort to 

interfere with our independence that would require escalation to 

the agencies. We believe the servicers understand our view in this 

regard. 

Q.3. What steps will the consultants take to ensure that a foreclosure does not happen while a review is underway? How will the 

consultants know when a foreclosure sale is imminent such that 

they should halt the foreclosure and/or provide a faster review? 

A.3. We recognize how important it is to identify and correct errors 

in the foreclosure process in time to prevent wrongful foreclosures 

from occurring. We have established dedicated review teams, guided by more urgent timelines, to ensure that we promptly review 

every file we receive in which the borrower faces an imminent foreclosure sale. If we identify a harmful error in the course of our review, we promptly notify the servicer. After consideration of our 

findings, the decision whether to suspend a sale date rests with the 

servicer. 

In addition, we have worked with the agencies and the servicers 

to develop consistent procedures for identifying and prioritizing 

files for review where foreclosure is imminent, for the use of all 

independent consultants and servicers. We understand that the 

agencies are finalizing these procedures, and anticipate that they 

will be published as guidance to the independent consultants in the 

near future. 

Q.4. I was very disturbed by the testimony indicating that if the 

consultants wish to contact or speak directly with borrowers, they 

are expected to contact the servicer first. How is it even remotely 

appropriate for the consultants, who are supposed to maintain 

independence at all times, to have to notify or get permission from 

the banks to contact borrowers? Will the OCC change its directives 

so that consultants do not have to either notify or get the permission of the banks to directly contact borrowers? For consultants to 

evaluate homeowner claims fairly requires open and direct communication between the consultants and homeowners and their advocates and should never be deterred by the servicer as an intermediary between them. 

A.4. My testimony should not have left the impression that we 

must go through the servicers we work with in order to contact borrowers. We understand ourselves to be free to contact borrowers directly. 

The judgment we have thus far made not to reach out to borrowers directly is not immutable, and we continue to discuss with 

other independent consultants and with the agencies whether, how, 
173 

and under what circumstances independent consultants should engage with borrowers directly. Should those discussions yield an 

OCC determination that the independent consultants should assume responsibility for contacting borrowers directly, we would 

abide by that determination to the best of our professional ability. 

Q.5. Is there a protocol requiring the consultants to reach out to 

homeowner advocates when there is evidence in the file that they 

were involved? Is there a protocol about how the reviewers will respond to inquiries from parties authorized on behalf of borrowers? 

If there are protocols, please describe them. If there are not protocols, I respectfully ask that you establish them. 

A.5. No such protocols exist, and, as you know from my testimony 

before the Subcommittee, I share the view that they are potentially 

beneficial. While a decision to establish protocols binding on all of 

the independent consultants would need to come from the agencies, 

the independent consultants have begun to discuss this question, 

among others, with a number of advocacy groups and with the 

agencies. I expect these discussions to continue, and can promise 

that my colleagues and I will participate in them actively, in the 

hope that we can identify a constructive mechanism to supplement 

our own knowledge of the files within the scope of our review with 

information and expertise in the possession of advocates who may 

have additional knowledge. 

Q.6. Can you commit to contacting homeowners or their advocates 

if pertinent information is missing? It is tremendously important 

that the reviews not be conducted on ‘‘submitted documents’’ alone, 

since we know that servicers have lost paperwork and servicer files 

may not be complete, and that homeowners who don’t have a counselor or attorney to guide them through the process don’t really 

know what proof they need to send in. 

A.6. In the first instance, it is the servicer’s responsibility to provide us with the information necessary to complete our review. 

When notations or other information in the file make clear that the 

servicer has not met this responsibility—i.e., that something important is missing—our first step is to direct the servicer to complete 

the file by providing whatever is missing. To meet that burden and 

satisfy our informational requirements, the servicer may need to 

reach out to any of several parties. These parties commonly include 

the local counsel engaged by the servicer to handle the foreclosure, 

but can potentially include borrowers or their advocates as well. 

Unfortunately, it may not always be clear from the contents of 

the file that information is missing. For example, a file could seem 

complete even though it is in fact missing key documents that are 

in possession of the borrower or the borrower’s advocate. Because 

it appears complete, however, such a file is unlikely to lead an 

independent consultant to seek additional information from anybody. While the borrower, in the course of requesting an independent review, can elect to provide us with supporting documentation, this possibility only partially mitigates the problem. The borrower could reasonably but incorrectly assume that the file under 

review includes documents that are, in fact, absent and unknown 

to the independent consultant. 
174 

In principle, we could address this issue by adopting the practice 

of reaching out to the borrower or the borrower’s advocate routinely, on every file. In practice, however, this approach could create its own set of issues. In particular, because the number of files 

under review is very large, and because many borrowers have proven difficult to reach, requiring such outreach on every file could 

delay or preclude altogether the independent consultant’s review of 

many files. In addition, the independent consultant may not be 

able to tell from the file whether an advocate worked with the borrower. 

Despite these challenges, we are anxious to avoid drawing incorrect conclusions from incomplete files. We will continue to explore 

this problem with other independent consultants, the agencies, and 

borrower advocates in the hope of identifying good practical solutions. Should those discussions yield regulatory direction to change 

our current practices in this area, we will of course comply. 

Q.7. What experience requirements are mandated by the OCC for 

foreclosure file reviewers? How long is the mandatory training program for them? This strikes me as something that can’t be learned 

in a 2- or 3-week training program, but would take years of experience. It seems to me that you really need lawyers reviewing these 

files on such complicated legal questions, but given some of the 

questionable job ads that have appeared, I question the qualifications of some of those being hired to do these reviews and make 

decisions that will have profound impacts on the lives of struggling 

families. 

A.7. The OCC has not mandated experience requirements for foreclosure reviewers in general. Instead, the agency required each 

project team to propose, as part of its draft engagement letters, 

how it would staff these engagements. The agency considered these 

proposals in the course of evaluating, commenting on, and, ultimately, approving our engagement letters for execution. This process yielded a variety of directions specific to individual engagements. Our executed engagement letters, accordingly, incorporate 

the results of this dialogue and describe the types of individuals we 

look for and the training we provide. 

As I indicated in my testimony, these reviews require many 

types of expertise and levels of experience, and we have built our 

teams accordingly. No single job description is representative of the 

population of people we have hired to perform these reviews. 

We agree that legal expertise is essential to the successful conduct of these reviews, but many of the determinations we need to 

make are not legal in nature and do not require assistance of counsel. For example, in most cases, we do not need a lawyer to determine whether a foreclosure sale occurred after the date of a bankruptcy filing, or whether an income computation was accurate, or 

whether a borrower was or was not on active duty as of a particular date. With the support of appropriate information systems 

and with oversight and quality control by experienced supervisors, 

we have found that appropriately selected and trained professionals can make determinations such as these reliably, without 

the benefit of legal education. 
175 

Even though many of the determinations we need to make are 

not legal in nature, my testimony should not have left the impression that we are performing these reviews without the benefit of 

legal expertise or resources. On the contrary, our teams include 

many lawyers and, in addition, each of our teams has retained 

independent counsel for any and all necessary legal interpretations. 

In addition, our teams include numerous subject matter experts, 

and we maintain strong quality control and quality assurance processes, staffed with highly experienced and dedicated personnel, to 

ensure that we adhere to the processes we have established and 

maintain a high standard of quality in our work. 

Q.8. If consultants are only reviewing borrowers for the items they 

check on the letter, then why aren’t borrowers informed of that important fact in the letter? 

A.8. It is not the case that consultants will only review items 

checked by the borrowers. The form provides borrowers with an opportunity to convey, in the borrower’s own words, the borrower’s 

own view of what went wrong in the foreclosure process. Many of 

the borrowers who have responded thus far are taking advantage 

of this opportunity. We read their comments closely and use them, 

in addition to whatever boxes the borrower may have checked, to 

guide our review of the file. In addition, borrowers who submit a 

‘‘generalized’’ complaint will receive a thorough file review. We 

deem complaints ‘‘generalized’’ under a variety of circumstances. 

For example, a complaint may be generalized because the borrower 

checked multiple items, checked no items at all, or provided written commentary conveying the belief that the entire foreclosure 

process was flawed. 

More generally, the letter and associated form were designed to 

help guide independent consultants to the issues of greatest concern to the borrowers. The specific questions seek to direct the borrowers to the subject areas within the scope of the independent review, as set forth in the consent orders. In designing the letter and 

form, the hope was that, by zeroing in on issues of concern to the 

borrower, independent consultants would be able to identify and 

evaluate the most likely servicer errors more quickly, thereby facilitating prompt remediation to the borrower. 

Q.9. What information obtained from borrowers will the consultants or Rust share with the servicers? This has Fair Debt Collection Practice Act implications, and there should be clear and public 

guidelines on this. Homeowners are more likely to trust the process 

if their personal information is not shared with the servicer (counselors have already had homeowners contact them who said that 

the potential use of information by the servicer is one reason why 

they don’t want to return the form). 

A.9. Currently, all information submitted by borrowers to Rust is 

shared with the servicers. This sharing is necessary to enable 

servicers to collect and assemble the file materials essential to the 

independent consultant’s review, but it is not intended to support 

servicers in their ongoing or future collection activities. We endorse 

the view that clear and public guidelines in this area are desirable, 

and have both discussed the issue with the OCC and elevated it 

for discussion among the servicer consortium. 
176 

Q.10. Will you and the entire working group of independent consultants commit to having a regular series of ongoing meetings 

with a broad cross-section of housing counselors and legal advocates who are assisting borrowers prior to making major decisions 

about how these reviews will be conducted? For example, housing 

counselors may have forwarding information for the millions of borrowers who have moved, so why aren’t they being consulted to get 

that info rather than just run skip traces? Why is their deep store 

of knowledge of problems that most borrowers have had not informing the review process? The OCC has stated in a post-hearing letter to me that they encourage you to engage in such communications as long as they do not reveal bank-specific information. 

A.10. On January 5, I helped to organize and attended an initial 

meeting between a group of independent consultants and representatives of a number of advocacy groups, including the National Fair Housing Alliance, the National Consumer Law Center, 

Consumer Action, the Center for New York City Neighborhoods, 

the National Association of Consumer Advocates, and the Center 

for Responsible Lending. Representatives of both the OCC and the 

Federal Reserve Board of Governors also attended this meeting, for 

which the OCC graciously provided space at its offices in Washington, D.C. The National Fair Housing Alliance worked with other 

advocacy groups to organize an agenda and helped to lead the 

meeting. 

My colleagues and I found this meeting useful and constructive. 

We agree that groups such as these have information and insights 

from which independent consultants can benefit. We welcome their 

contributions to this effort. We expect that there will be follow-up 

meetings, and we will gladly join them. While we cannot make 

commitments on behalf of other independent consultants, we will 

do what we can to make sure that other independent consultants 

are invited to such meetings. 

Q.11. Can you swear that any other work or conflicts of interest 

between Promontory and Bank of America, PNC, and Wells Fargo 

will not affect the foreclosure reviews in any way? What disciplinary steps will you take against your employees if you find that 

they are performing the reviews in a way that benefits the banks 

instead of the public interest as directed by the regulators? What 

steps will you take to directly communicate that possibility of discipline to all your employees? 

A.11. My colleagues and I are doing and will continue to do everything we can to perform these reviews in an independent and unbiased manner. We will find financial injury, or not, according to the 

facts presented by each file. We will be firm in our conclusions 

without regard to past, present or future work with Bank of America, PNC or Wells Fargo. 

All employees hired for the foreclosure review receive mandatory 

training that clearly communicates the role of the independent consultant and the nature of the job, specifically including the objective of these reviews: to find borrowers who have suffered financial 

injury, so that they can receive appropriate remediation. We include a summary of the consent order in our analyst handbook, 

which we require all project staff to read prior to beginning review 
177 

work. We frequently remind project staff to err on the side of the 

borrower in making any close call, and reinforce in our staff meetings the importance of maintaining independence and performing 

to the best of our individual and collective abilities. 

Our firm is committed to the highest standards of professionalism, which certainly include avoiding conflicts of interest and 

maintaining appropriate independence. We reinforce our standards, 

and the seriousness of our commitment to them, in numerous ways, 

including through our willingness to take disciplinary action, up to 

and including termination, when employees or contractors fail to 

meet our standards. We would strongly counsel and, if necessary, 

terminate any employee or contractor engaged in this review whose 

performance manifested an obvious pro-servicer bias, conflict of interest, lack of independence, or other violation of our standards. We 

will continue to reinforce our standards, and the potential consequences for those who fall short of them, in communicating with 

our employees and contractors, specifically including the workforce 

we have engaged to conduct the independent foreclosure reviews. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR CORKER 

FROM KONRAD ALT 

Q.1. Are we permanently scaring off investors by telling them that 

when they buy an American mortgage security they have to deal 

with not only Federal regulations but 50 State AGs? I talk to 

countless investors who are telling me they are ‘‘on strike,’’ so to 

speak, and they will stay on strike until they have clarity over the 

rules for foreclosures and loss mitigation. Basically we are scaring 

away investors with these lawsuits, which seems to me to be a 

problem given that all of the evidence thus far suggests that these 

were homeowners who were not paying their mortgages. Would 

anyone care to address this risk? Do any of you share these concerns? 

A.1. These are important questions, but they are outside the scope 

of our firm’s recent work as an independent consultant, and beyond 

my personal expertise. Unfortunately, therefore, I am unable to 

provide an informed or expert response. 

Q.2. Do we need a uniform PSA to govern loss mitigation? I have 

a bill that directs the FHFA to work with industry participants to 

craft a PSA that would give investors and homeowners clarity on 

the rules of the road for loan modifications and loss mitigation. Do 

you all think this is a worthwhile idea? 

A.2. The idea of a uniform PSA is certainly intriguing, but here, 

too, I feel that our recent experience as an independent consultant 

affords me no particular claim to insight or expertise. 

Q.3. Do we need to codify into law, and regulate with clarity, proper registration of mortgages? Our bill calls for a new platform to 

serve as the source of electronic registration for mortgage ownership, which would be regulated by FHFA and overseen by the Congress. Would this be a helpful step in ensuring we have 21st century infrastructure to go along with a 21st century capital markets 

regime? 
178 

A.3. Undeniably, problems with mortgage registration rank high 

among the issues confronting the mortgage sector. As a general 

matter, my colleagues and I support efforts to modernize our mortgage registration system. We know, moreover, that the Federal 

banking agencies have already initiated such efforts, using their 

examination and enforcement resources. Unfortunately, we are not 

aware of the progress achieved through those efforts to date, and 

therefore do not have a view as to whether additional efforts, such 

as Federal legislation, would serve a constructive purpose at this 

time. 
179 

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

Comptroller of the OJrrency Administrator of National sanks 

Washington, DC 20219 

December2,2011 

Ms. Megan Von Wahi, A!lonhill, Ll.e 

Ms. Elizabeth McCaul, Promontory Financill Group, LLe 

Mr. Eric Mercer, PricewaterbouseCoopers LLP 

Mr. Matthew Giacomini, Cla)1on Scrviccs. LLe 

Mr. ChrisIophcr &roy, Ernst & Young, LLP 

Ms. Ann Kenyon, Deloine & TQllCbe, WOP 

Mr. Bradley M&sSam, Ernst & YounS, U P 

~k Paul Noring, Navigant Consulting, inc. 

Mr. Michael Joseph, Promontory Financial Group, LLC 

Ms. Catherine Brown, Treliant Risk Advisors, LLC 

Mr. Michael Stork, PricewatcrhouseCoopers LLP 

Mr. Konrad All, Promontory Financial Group, LLC 

Subjtt-t: Anicle JIlJ - lndtperrdtlll Foftci(}Sl/ft Ke'litw Relaled DiJclOSlirts of Infrmnlli/o/l 

Ow Independent C01I3UItants: 

As)'OllIlrC a .... '2ft. thtrc is a high level of public interest in the Anide VII Foreclosure Reviews 

currently underway pursuant to the April 13, 2011 Consent Orders for which each of your 

respectivt fmns have a role in serving as an indeptndcnt consultant. The functions)'O\II" 

~pecli\'~ finns arc perfonning are-essential to the financial rtmediation process required under 

the Consent Orders, and those Orders, in tum, arc part ofa larg~ set of gov~nlaJ responses 

10 crises in the mortgage and housing markels. In this unique oontext, external parties' 

understanding ofand confidence in the integrity and effectiveMSS of the financial remediation 

processes your I'irml; IlI"C conducting under the Orden is important. In lUl effort towards 

tran"SpmTICy of this process, the Office of the ComptrOller of the CwTmcy (ocq rccrntly 

published l1li Interim Report providing details on the fortclosure review and infonnanon about 

progt'CSI made by servicers on compliance ",ith our Ordrn. The report was IICalmpanicd by 

rt.d!cted versions of the respecti~ engagement lettm. 

Since the release of the engagement leners and the names of the consulting groups responsible 

for perfonning the independent reviews of borrower files and oomplaints, various panics, 

including public interest organizations and members of Congress, have expressed inlertsl in 

having direct communications with the independent consultants to better understand the 

activities being performed as part of the forec1oswe review. The OCC view! effective 

communications with such parrics IS beneficial 10 the independent review. To thai end, we 

believe ccnain clarifications, SCI forth below, arc important 
180 

· As a general matter, non-public, institution-specific information and information relating to the 

foreclosure reviews and the. OCC consent orders is confidential supervisory information subject 

to restrictions on disclosure under 12 C.F.R. Part 4. Howev~r, wbere the OCC has released 

information into the public domain, that information may be discussed. This would include the 

information contained in the recently released redacted engagement letters and in the acc's 

Interim Report. Further, generic descriptions of how the foreclosures review prO<:tss will 

operate, and answers to gencnll operational questions thai 8re not institution-specific, are also not 

preduded. On the other handl bank specific information related to the reviews or 

implementation of remedial actions under the Orders that has not been previously publicly 

disclosed by the OCC'remains subject to Part 4 protections and may not be disclosed. To tl).e 

ex.tent you assert there are legal or professional standards or requirements that impede the 

discussion of publicly available information contained in the engagement letters or generalized 

information about the revi~ws, please set forth in detail those requirements and explain why the 

servicer client could not provide a waiver, as part of the engagement arrangement, to any such 

requirements. 

In view of the public interest in this pl"O«!SS, we strongly encourage you, consistent with the 

principles above, 10 be responsive to initiatives by public inlerest organiZations and Congress to 

obtain bettcr understanding of the process. Establishment of constructive and mutually 

informative relationships with public interest organizations alSil offers the opportunity to develop 

additional avenues of outreach to borrowers who may qualify for an independent foreclosure 

review. Effective outreach will enable more oorrowe-rs who believe they have a legitimate claim 

for financial remediation to have their circumstances considered under the independent reviews 

conducted by your firms. 

Sincerely, 

Julie L. Williams 

Senior Deputy Comptrol,ler 

Large Bank Supervision 

F~t Stnior Depuiy Comptroller 

and Chief Counsel 

Cc: 

Theodore P. Januiis, Chief Executive Officer, Aurora Bank FSB 

Charles F. Bowman, Special Advisor on Remediation Strategies 

Bank of America Corporation 

Sanjiv Das, Senior Vice President, Citibank, NA 

Tom Hajda, SVP and General CDunsel, Evcrbank 

StwIr1 AlderOI)i, Senior Execurive Vice President and Genml Counsel, 

HSBC Bank USA, NA 

Stephen M. Cutler, General Counsel, IP Morgan Chase Bank, NA 

-2-
181 

Duane Elmer, Chief Risk Officer, MetLife Bank, NA 

Jules Vogel, Executive Vice President and General Counsel, OncWest Bank, FSB 

Thomas K. Whitford, Vice Chainnan, The PNC Financial Services Group 

Richard Toomey, Executive Vice President and General Counsel, Sovereign Bank 

Michael lafontaine, Deputy Chief Risk Officer, U.S. Bancorp 

Caryl Athanasiu, Executive Vice President and Chief Operational Risk Officer 

Wells Fargo Bank. NA 

.,. 
182 

• As pan of consent orders issued in April 201 1, fedml regulators required smiws 

to engage independent rums to conduct a multi-faceted miew of foreclosure 

actions in process in 2009 and 2010. 

• As pan of that program, the14 bank and tbrift smicers covered by the enforcement 

actions will be mailing information to potentially eligible borrowers through the end 

of the yeu. 

• The mailings provide information about how eligible borrowers can request a 

re\ifw of their foreclosure cases iftheybelien' they suffered fmancial injul)' as a 

result of errors, misrepresentations, or other deficiencies in foreclosure proceedings 

related to their primary residence between Januuy 1, 2009 and December 31 , 2010. 

• To be eligible, the mortgage must have been active in the foreclosure procm 

between January 1, 2009, and Deeember 31 , 2010, the propcty securing the loan 

must have been theprimuy residence. and the mortgage must have been sm-iced by 

one ofthe following servicers: 

America's Smici.ng 

Company I 

Aurora Loan I 

Smices 

Bank of America 

Beneficial 

Chase 

Countr;'\\~de 

EMC 

E \'erbankIE vmome 

First Horizon 

GMAC Mortgage 

HFC 

HSBC 

• Cmbank • IndyMac Mortgage 

CniFinancial Sm1ces 

National City 

PNC 

Sovereign Bank 

SunTrust Mortgage 

U.S.BmI< 

Wachovia 

Washington Mutual 

• Wells Fargo 

• CitiMongage • Metlife Bank 

. _________ . __ l ____________ .J ___________ J 

• The smict'rs have established a Web site, www.lnd~pfndfntroredosurfRe\iew (om 

and a toll-free nwnber (1-888-952-9105) to provide borrowers additional information. 

AssimJlce from the toll-free number is available Monday liuough Friday from 8 a.m. to 

10 p.m. (E1) and Saturday from & a.m. to 5 p.m. (E1). 

• Requests form·iew must be reeeh'ed by April 30, 2012. 

• The acc will monitor sU\icers and independent consultant throughout the process. 

The independent consultants ue responsible for conducting the reviews. 
183 

For rdeJse at 2:)0 p.m. EST 

DeCi!mber 13. 2011 

SlIltement of 

Seon G. A.I\'ar~E 

General Counsel 

Board ofGO\lefl]Of$ of the Federal Resen'l! System 

Submincd to tht Senale Commincc on Bank.ing. Hou,ing, and Urban Affairs Subcommittee 

HOusing, Tmnsllortal iOIL and Communhy De\'dopmer\t 

U.S. Senate 

Washington, D.e.. 

IRcember 13, 2011 
184 

- 2-

by the Fed~rnl Reserw will conduct too F()fed<)sur~ Re\iiew: (C) est.abli.~h. in ~01Ul~Cl on with 1h .. 

Forc:dosure Rel'lew, a pruress Ibrlhc recdpt and revi". of bonuwef claims and complJinlS (thi: 

"Borrower Outreach Program"); and (d) slLbl11iI5p~ci!k plan, acc~puble to the Fed~rdl R<!Sm'e 

csign~d \0 carre.:! pratlicel! Iha\ resulted in se rvicCf errors and \0 pre tl11 fUlnr~ abuses inlhe 

loan mooiticaliml ,lI1d foreclosure proc~5s.:s . This ~memcnl also addr~es the rtquirem~l1ls in 

tilt Fedtral Reserve's enfOC(:cmenl ac1ions thal]HltCl1t holding rompanies submit plans 

al'Ceplable \0 tho!- redeMlI Rtsen'e \0 ilI1pro\ ~ holding l'Oll1pany oversight of residel11illl mortgage 

Joan s.."fvicing and foreclosure prtJccs~ing oonduclcd by bauk and rwnbank $ubsidlaric ~. 

The FOl'f'('losuJ"(' Rt'\'iew lind InLieprnLient COll5ulhmis 

TIle FedeTliI Rl'Serve's cnlbrcemcnt actions rcquir<: Ihe I>er" ice~ 10 relain one 01 more 

;ndcp~ndcnl "OIl3uhanti ""~~pbbl~ 10 the F~dcnll Res"n·" 10 """duct Ih ~ Forodo~ur~ Review 10 

dt1..rTliin .. \\-hdh"r bOfN\IWS suff=d finaJH.inl injur)· as a re~uh of m<lf"S. misrtpft"S.·uulhms, Of 

oilier ddicienci~'S iU th~ for~c1QSUrc process. "1LCf~ financial ilUUI")' is fOllud. the S<.'f\'icers mLlst 

~omp<nsale 1h< injur~d oorrowers pl,"l~~nlto a r~mtdialion plan that is acc<'ptuble 10 the F,-d~rnl 

Resen-e. 

In de\~nnining the acecpt~hilily of consultants, the F~d~rnl Ro:su,·e c1~I~' st'flltinizcd 

t11~ir in&pcudenc<:. Importantly. the Ftdt-ral R.-serve reviewed "hetlJ<:r the Consl~t,ull culTl.'1lliy 

prll\"id..--s or h"d pre"ioll!;ly pr{ll'id.!d advice to the banking organization regnrding ilS lorec1osur~ 

pr<ICtices. opinions. or actions th~t m~y hal·c contrihlJICd 10 the ddici<:ncies identified by 

eXJllIiners during WiT re,·iel\'!; condu~ted from Nonmber 2010 10 Jnnu3T)' 2011 . ·nlis 

dctcnnirl3liQIl was made 10 CtlSLlTC thatlhc ~onsuhalll \\()Irld 1101 n:vi~w aoy action or Dpilli!)n 

pre\'imlSly ~ro111m~nded byth~ 'XIn~ult~lItto th~ b.1!lking organization. We will ronlinutlll 
185 

.,. 

O\'i:TSee the Foredosufl.' R~l'icw IlroceSS \0 make sure Ihat the CO!L~ultants who \\,~'Te a~ccpted ;1i.'1 

independently. 

'[he Federal Rescrw orders require the se rviccrs 10 reyiew Ihe files ofhormwers whQSe 

primary residence WIIS in lh~ forec losure proce,,~ orlhc scn'iccr in 2009 or 2010, wheth~r or nDt 

Ihe foreclosure W;lS completed. 

At this time, we arc TC(IUiring the independent cQnsnlt:UlIS 10.1 include in Ihe rel'ic\\, all 

files for pM1iculM Ctlugorics of borrowers "ho we have delennined present a sigllilkallt risk of 

being financially injured in Ihe forcc1osl.lrI: pro~'i:s s. AllY borrol\cr who r~lls inlo lIny one of 

those categories mU5t recei\le <til independent ibred osure rel'iew. TIle categoric, tOr mlUld~lorv 

rel"jew indude 11 11 mortgages in Ih~ mortgage foreclosure proc ... s~ in '2009 or 2010 inl'olving 

members oftlle military who we ~ covered by h~ Scrviccl1\~mbers Civil Relief Act. It also 

include~ all bomJlwrs who had previously fikd ~oln pJain s with thes.:rvicen; about f0rec1osure 

actions thut \\"cr~ pending during 200'> or 2010. High risk files lm'olving borrowers in 

bankruptcy II'ill also be reviewed. Other files outside of these caleg<>ries l1\ust be reviewed on a 

mnp!ing basis 10 dCl~cl if elTOn;, misrepreselll:llions, urdefidcn~ics n<:'curred. Goiug forward. 

we muy detennine that ~dditioua llil e I\ i~ws art approrriate. 

The IJOrluwe r Out relldl I'rogmm 

·Ib ... Fedt'l"al Reserv~'s cnfurcemenl IIL'lion;: reqnire thaI each banking Qrgau ~aliou with 

servicing op~rations sup«\'iset! by Ih" F.:deml Rc,cr..-e impl~nlenl. in connection wilh the 

Foreclosure Review. $ poxess for tile r~'Ceipl ill\d I\!view of borrow~r dniOIS nud complaints. 

We view this I3orrower Ollln::ach Program and the sulmtission by bOlTOwers of ~'qllcS1S for 

re\"i~w.lS criti~':II10 ('1\ uring that oolTOwCrs Ilho sufTered finand:tl inju!)' are identified and 
186 

appruprinlciy C<lllI I"'lt~a(~"d for financial injurylhcy uff~T\."d as a I\!sull of Cmll1\. 

misn:pr<$~nta ions. or other deficit.'ndes inlh ... f()l\."'i:losu~ proc.:~ s. 

11,e Borrowe.Ollln:ach Program WIIS first 3!lllollllced 011 Novemb<.. 1,2011 . and i~ 

int~lHJc{/ w ll1~k e eligible borrowers O"Dr~ of1h~ opportlulily Ihe), have to h3,'e their 

foredosurcs illdep~ ndcll(ly r.:\"ic\\"~-d ~s pan ofth" ore~losure Rev·;cw. I3orrowen; ar~ digibl" 

10 r<:lllJest tllJI th~ir fi1~s be Teview.:d ifthcif' prim~ry rcsi d~nC\.· WIIS in t.IU) loreciosllre proccs~ in 

201J9 or 201 0, whc thc'1" Of (lotlhc foredOliurt: WIIS oo'lIplded. l:J,orrowcrs are eligible 10 .e'lllesl a 

review even if they prel'iously filed a compbint wilh Iheir service!" aboullhc ir foreclosure. 

Foreclosure Revicw, is bc:ing Jlrovided in mailings 10 boTT<.)w'1"$ who may be eligible for a 

.... view. '1,c ~c cl:11l inilialcd mailiugs on Nowmbcr 1 and ha,'c n:p 'St:n l~d Ihallh~y should 

I\!quircd 10 lake mClIs"re~. 1I~h ali skip tr""ing (collecling infom.;tlioll l,OOul an individua l from 

various SOlll\:es 10 dC'\(''1'mine II~ individual's 1000 atiou), to idenlify borro-wen> who Illay lIa\'1.' 

moved. 'nlc scrviccn; also hllve established a loll-free number Ihal bolT()w~ ca.n ~all and a 

w~b!!ilc l1ml orro",~n; can acc~'S~ 10 gel more illf"nnatioll aboulll1e I\.'I;CW.: Addilionolly. 

$~ i:<'rs are reqllj~d 10 conduct a.'1 ad\'~rt in g campaign 10 nHlke borrow.",; awa.ro!;()fthe 

opportunity 10 re(lu~'S1 r~yicws orlheir foreclO!lllfCS as purt of lhe ForeciOtiure Re"iew. TI,C 

Federnl Res.:ryc is owrsecing the scrvicers it supcNis..'S to make Sure they arc efli:!C1 il'~ly doing 

ever:>,hing they nn 10 find borrowers who are JlOlcnti~lly eligible fOf 1he FOf\"'dosul"i' Reli~·w. 

TIle Federal RL'"SCrw i~ working ~loseJy with tlw omc" orlil e Comptroller uflhe 

Currency in overseeing Ihe develop"'''''1 and operalio" of the Borro"'Cf Oulre""h l'fOgJ·am. and 

l To "I/Ply f",. revIeW. ,n<\ ,v,du.ll, m.y ca\l88S·952-9105. Mon;laythrough Fndoy from 8 ".m 1010 p.m (ET) 

0Ind SaIl!lJf,y flom 3 ".m lOS p.m. TIIG$<lvic. ",' wobs,1' '$ ww)\·J,*m)<k!!!£9m:~ W)\·CI!m . 
187 

-,-

wilh the iudcpcudml consultants. servicers. and cOlUlllunity groups 10 Ulcrcasc aW3C,:nes$ ofl]lls 

progrnm lind promote pMlicipalioll by rnlw~n;. We emphasiu that (/II\' harm",!}, whOfl'-

prJ/nan' residence 101'41" in the (orec!oiure process III 2(}1)9or lOID, C(]n haw. his or her file 

inci/ld"d In the Fnrec/o,'llre Review simply by $1lbJ!!Ilting II clmm or como/mnl pur,man( /0 thot 

~ 

T ile F;ngal!,cmr n[ l,('tlCrlI 

The Feder,1I Reserve"s cnfofCcmenl aC1ions r':<luire the servicers \0 each lLbmil an 

cngllgell1<.'111 len.:.'r \<) the Fedi.-ral Re:seTYC for appn)\ llhal describes how the indcp<'nd(IlL 

consultant, retained by the ,ervic.'!r and approved by the FedcT:ll Rts~r\'e will COtldUl~ the 

Foreclosure Review. The Federal Re~"r\"e ~ [}Caring completion of its review and finalizalioo 01 

Ihosl.'. engllgcnliml leners. &"'::l.use ollr Tc:l'icw orllli.' k llers cunlc1l1plalllll IlIQre ,\1ellsive crilt'lia 

fOT conducting the Foredo llr~ Rcview than Ihose Ih31 apply to the national brulk sCTviccrs, 

fmalil alion fth~ cng;tgcmcnt el1 ~n; has rc1luir.:d ~ time to complcte, 

W~ bo:licl'<.\ thallhe aClions l;I\.;.en by the f~d~rnl Rilsm 'e and the banking organizations it 

upel". S<!~ to implemcn.t the oJOf~f'\'I)e m se ;o ~ sooliid be a~~ssible by the public \0 th ... 

maximum C}"1enl possible. To that cnd, \\ ~ eXpect to di d~ significnJlI portions orthe linnl 

l'ngagemeOliel1<.'TS, cons tl.'nl lIitlllha ne~d 10 prol~'C1 proprietary finan.::ial infomlalion and 

personal privacy, 

Thc Action Plans 

'll\e Fcd .. ral RelIfrve's cnforccm<'lll ac!ions 1<'(111 '1\.' Ih .. u each banking Tga1\il.~lioll with 

scrvicillg Opcr31 01L~ sup.:niscd by Ih~ Fedcra! Res.:n'( submit specific plans lICcq>table to IIl e 

Feo.lcml Resel".'c Iksiglled 10 corrcd pl1l~tice s thaI resul1ed ill scn:i":CT errors and pre,'em future 
188 

-6-

abllll'e~ in th~ 100m mQ<.\ilicaiioll and foredo:;ure proc<'Ss. Each serviccr regulated lIy Ih ~ felkral 

Rc~er'l e must. 31ll00g olher things, submit sp~cific plans accl.'r»able to the FederJ.! Resen'<.\ thai 

• etlS ll r~ there is ad~quale SlafTlo cafTY oul r~sidcnlj~J mortgage loan servicing. loss 

mitigation, and for .. closur .. activities, and conduct periodic Ti!\'i~\V5 oflh e 

adcqulIcy ofs!a!liug Icv.:Js 10 erlSUr.: Ihal levels r.::main a~qlllllc: 

• ill1prov~ lmining of staff illl'olwd in residential mortgage 100Ul servicing, 

including by ""'Iuinng th~1 tmining be COllductoo at least annually; 

• sll\'llglhel1 coordination of (.'\'lll1 I1!lInkalions with bOlTl)w~rs IhruughOlll lhc los~ 

mitigatiQIl 311d for~..:losurc_ pJ\li.'>!SSC$ by providing such borrowers the Ilame or[h~ 

ptTS()U at Ihe So!rvicer who is their primary pujol of l'Qn \acl ~ 

• require thallhc primary pOint Qf<;onlact has access to current ;nfomlalion and 

p<''1'Sonnc1 SUmd nll() 1;1I1~ly. eeUI1l y. and i.'q ual ~ly ;lIfonllthil bormw~f 

about 1000s m;ligation Jnd foreclosure ~,· tivit;~s; 

• address duallmd..ing by ensuring Ihat foredo$UrCll are 1101 pursued once a 

mor1gage has been approl'cd for modificmiol1, ulllcss rcpa}111.::nts under the 

modil1ed 10an:1re 1101 made; 

• OOIlsider loan mooi/icaliol1 Of OI hef loss miligalion a<;liv;li~s will! rcspectlo 

junjor·lko loaus owoed by the ~er\'icer. wher~ Ul~ senicer se1\';c<'s the 3SS!Xioted 

l1rsl·lien mor1gnge and becomes aware Ihalthc firsl-lien mor1gagc is oclin4uCn\ IIf 

ho.~ Ix-en modified; 

• eSlablish robust rotJIrols Silo oversighl O\"l~r Ihe acti viti es ofthirtl·pany v<'ndon; 

that provid.! 10 the ser.'iccrs \'ariolL~ residenlial 1n0r1gage loan servicing, los.~ 
189 

- 7-

mitigation, or tbn.'<.:l o~ure·rd ttd suppan. including local coullsd in tbreclosure 

or bankruptcy proc<!edings; and 

• rrco lhc(J I) rogra ~ to ~'lsure compliance wid} stme and fctkrul laws regarding 

scniciog, generally. aud ore.::li)S ure~, in particular. 

In addition. lh~ t'nforcemcnl a~1iQns issued in April require the p3T~'111 hol<.lin g CQmp311ics 

10 subll}il plans 3CCi.'plabJc 10 liKl Federal Rcs.:rvc 10 improl'c holding company \l1'....,;ighl of 

re~idet1 ial mortgage loan servicing and on:cl osu ~ pr()(:es~illg CQnducl"d by bank nnd llunbanJ.. 

subsidiaries. 

We comiuuc 10 review and approve plans required by the Board"s enfOfC(."mcnl actions lu 

ensllre the'Y IIlCC\ the-Foocr:il Rl'li.::rvc:$ supervisory expect:llions, and ~ willI><' workiug 10 

enSUre IMI words are foUow.:cd through with the required <IctioJlS. cQllsiSICfl\ WIth our approach 

wilh regard 10 the engagemenl kl1c1'J', we c.~ pe,,110 disclose ignificant portions orlhe 

dQClInlelllation rdalcd to the fin'll action pllUls. cQnsistenl with Ihe nced 10 protect proprictary 

linuncial inromlalion and pen;ollal privacy, 

'111 e Federal ~n e II ill conlinue 10 monilor, on an ougoing t;.a.~is . Ille COJTeC'!il'~ 

m~ 1Il) 1I1\:s that are being l<Lk<."11 by the servicl'flj and bank holding cOl1lpani.::s il supervisc!;, <1$ 

qll ir~ d by the ord.!~. Addilionally. each in51illllion is rc quir~ 10 5tlbmil quanerly report~ to 

the Federal Reserve detailing the lII e:lSllres it l\.~ tak~n 10 comply Wilh Ih.:: i!nforcement tt.:'lion 

IUld Ihe results and progress tOll'ard meeting those measures· )~ F~ernl RCf;erve will closely 

review the ~nicers ' and baul. holding comp:tnii'S· progress reports ami will also evndt..;t 

l';o.;aruil1:lI;QlIS 10 C'llsnre thai the piaus life ;mplem~nted as approved alld thallh~ chaugcs are 

dll!cli'o'e. '111,' Fed..'r.ll Resen't will take nppropri:llC supervisory uction including :l cellSe and 
190 

·8· 

di.'Sist ordcr or monetary pttI3ltics \0 address any inadellU3cics or laliOl\ s of the cnronxm~n1 

actions. 

As we hav~ previously Sialed. the Federal Rcsm'c believes mon~'\:IJ)' srulctions in these 

cases are appropriate and plans 10 UllOOUIK'e monet3/)' penalties. These monclary pi.'flaities II ill 

be in addition \0 the compensation provided to oorrow~rs in the indcpendcm revielV process. 

llie Federal Reserve continues to work \Iith other federal and Slate agencies to resolve these 

matters. 

Conclusion 

llie Fed<.'ral Reserve lakes seriously its responsibility to oversee the implementation and 

exceulioll otlhe requir~meuts ofits .. ApriJ 2011 enforcement actions. including Ihe Foreclosure 

Review and other requiremems described abol'e. We understand that implementing and 

~'Culin g those TC!.luiremcnlS effectively i~ ctilil'al to ensuring Ihn! the ddicicncies idcntilicd by 

examiners during reviews CQndu~ted from November 201 0 to JunUl1ry 2011 arc corrected: thnl 

fUIUn: muses in the loan modification snd foreclosure prOCdS are prevented: and that borroll'~'I'S. 

are cOllJ]Xnsated for finJncia l injury they suffered (lS B result of errors, misreJmsentatiolls, or 

other deficiencies in the forecloslIN process. 

llmnk you for the 0ppoT1unity to submit this stJtemcnl onlhc status orthe Fo~ osur .. 

Review proem and oI h~T progr~'Ss made in impl n~ntin g the. enforcement actions that the 

Federal Reserve issued in April 2011 .