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S. HRG. 113–34 

OUTSOURCING ACCOUNTABILITY? EXAMINING THE 

ROLE OF INDEPENDENT CONSULTANTS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

FINANCIAL INSTITUTIONS AND CONSUMER 

PROTECTION 

OF THE

COMMITTEE ON 

BANKING, HOUSING, AND URBAN AFFAIRS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON 

EXPLORING THE ROLE OF INDEPENDENT CONSULTANTS IN FINANCIAL 

REGULATION WITH A FOCUS ON THE USE OF INDEPENDENT CONSULTANTS BY THE OFFICE OF THE COMPTROLLER OF THE CURRENCY AND THE FEDERAL RESERVE BOARD 

APRIL 11, 2013 

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

( 

Available at: http://www.fdsys.gov/ 
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS 

TIM JOHNSON, South Dakota, Chairman 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

SHERROD BROWN, Ohio 

JON TESTER, Montana 

MARK R. WARNER, Virginia 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

JOE MANCHIN III, West Virginia 

ELIZABETH WARREN, Massachusetts 

HEIDI HEITKAMP, North Dakota 

MIKE CRAPO, Idaho 

RICHARD C. SHELBY, Alabama 

BOB CORKER, Tennessee 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

PATRICK J. TOOMEY, Pennsylvania 

MARK KIRK, Illinois 

JERRY MORAN, Kansas 

TOM COBURN, Oklahoma 

DEAN HELLER, Nevada 

CHARLES YI, Staff Director 

GREGG RICHARD, Republican Staff Director 

DAWN RATLIFF, Chief Clerk 

RIKER VERMILYE, Hearing Clerk 

SHELVIN SIMMONS, IT Director 

JIM CROWELL, Editor 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER PROTECTION

SHERROD BROWN, Ohio, Chairman 

PATRICK J. TOOMEY, Pennsylvania, Ranking Republican Member 

JACK REED, Rhode Island 

CHARLES E. SCHUMER, New York 

ROBERT MENENDEZ, New Jersey 

JON TESTER, Montana 

JEFF MERKLEY, Oregon 

KAY HAGAN, North Carolina 

ELIZABETH WARREN, Massachusetts 

RICHARD C. SHELBY, Alabama 

DAVID VITTER, Louisiana 

MIKE JOHANNS, Nebraska 

JERRY MORAN, Kansas 

DEAN HELLER, Nevada 

BOB CORKER, Tennessee 

GRAHAM STEELE, Subcommittee Staff Director 

MICHAEL BRIGHT, Republican Subcommittee Staff Director 

(II)
C O N T E N T S 

THURSDAY, APRIL 11, 2013 

Page 

Opening statement of Chairman Brown ................................................................ 1 

Opening statements, comments, or prepared statements of: 

Senator Warren ................................................................................................ 3 

WITNESSES 

Daniel P. Stipano, Deputy Chief Counsel, Office of the Comptroller of the 

Currency ............................................................................................................... 3 

Prepared statement .......................................................................................... 37 

Responses to written questions of: 

Chairman Brown ....................................................................................... 55 

Senator Reed .............................................................................................. 59 

Senator Menendez ..................................................................................... 65 

Richard M. Ashton, Deputy General Counsel, Board of Governors of the 

Federal Reserve System ...................................................................................... 5 

Prepared statement .......................................................................................... 41 

Responses to written questions of: 

Chairman Brown ....................................................................................... 88 

Senator Reed .............................................................................................. 90 

Senator Menendez ..................................................................................... 92 

Konrad Alt, Managing Director, Promontory Financial Group, LLC .................. 21 

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

Responses to written questions of: 

Chairman Brown ....................................................................................... 100 

Senator Reed .............................................................................................. 101 

James F. Flanagan, Leader, U.S. Financial Services Practice, 

PricewaterhouseCoopers LLP ............................................................................. 22 

Prepared statement .......................................................................................... 48 

Responses to written questions of: 

Chairman Brown ....................................................................................... 102 

Senator Reed .............................................................................................. 104 

Owen Ryan, Partner, Audit and Enterprise Risk Services, Deloitte and Touche LLP ................................................................................................................. 24 

Prepared statement .......................................................................................... 52 

Responses to written questions of: 

Chairman Brown ....................................................................................... 104 

Senator Reed .............................................................................................. 105 

(III)

(1) 

OUTSOURCING ACCOUNTABILITY? EXAMINING THE ROLE OF INDEPENDENT CONSULTANTS 

THURSDAY, APRIL 11, 2013 

U.S. SENATE, 

SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

AND CONSUMER PROTECTION, 

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS, 

Washington, DC. 

The Subcommittee convened at 10:11 a.m. in room 538, Dirksen 

Senate Office Building, Hon. Sherrod Brown, Chairman of the Subcommittee, presiding. 

OPENING STATEMENT OF CHAIRMAN SHERROD BROWN 

Senator BROWN. The Subcommittee will come to order. 

I thank Senator Reed and Senator Warren for joining us. Senator 

Toomey was planning to be here, is in the middle of negotiations 

with Senator Manchin on the gun safety issue and the background 

checks. I saw them all over television this morning. I know that it 

is ongoing. The vote is going to be at 11 o’clock, so we will—I am 

hoping Senator Toomey can still get here and others on that side 

of the aisle, but we think we should proceed. I know Senator Reed 

and Senator Warren have both stepped out for a minute, but their 

place will be reserved. 

We will recess sometime between 11 and 11:15 for 15 minutes— 

I am going to keep it to 15 minutes—so I can go vote and come 

back. But we do not want to make any of the five witnesses, this 

panel or the second panel, wait any longer than they have to. But 

I wanted to thank you. And there will be opening statements, too, 

after I am done. 

Thanks, all, for being here. This is our first Subcommittee meeting in this session of Congress, in the 113th Congress. Thanks for 

the cooperation of the minority and my staff, all of you, for the 

work that you did in the Senate, the full Committee staff, on helping on a fairly complicated hearing. 

In the financial crisis and its aftermath, we have seen case after 

case of wrongdoing at financial institutions, from money laundering 

for terrorist groups to illegal foreclosures that devastated families, 

communities, and in many ways broke so many people’s lives. 

The rise in enforcement actions combined with the increased 

complexity of banks and bank regulation has led to an increase in 

the use of independent consultants. At the OCC alone, nearly onethird of their legal actions since 2008 have required banks to hire 
2 

an outside consultant to review their actions and to propose solutions. Some top consultants are staffed by scores of former regulators. We are reading more and more about that. And some have 

reportedly—some of these reports have said charges have been as 

much as $1,500 an hour. Because most consulting firms are private 

companies, there is little transparency about their business model 

to either the public or to Congress, leaving us to wonder about financial incentives, leaving us to wonder about business relationships. 

Recently, we have heard about consultants hired at regulators’ 

request to find and to fix illegal activity. In these few high-profile 

cases, they either miss serious problems or gave the banks a free 

pass. 

It has come to my attention that one of seven consulting firms 

participating in the Independent Foreclosure Review, the IFR, was 

given formal written notice, quote, ‘‘of an opportunity to improve,’’ 

unquote, their performance on more than one occasion. According 

to staff reports, there were multiple discussions between and 

among the consultant staff, including senior leadership, and OCC 

regulators. Yet the consultant in question had not cured its deficiencies at the time that the Foreclosure Review Settlement was 

announced. 

In a January 28 letter of this year to me, Comptroller Curry recognized that, quote, ‘‘additional reporting will improve transparency and understanding of the IFR and the agreement,’’ the settlement agreement. But the identity of this consultant has still not 

been made available to the Congress or to the American people. 

This raises serious concerns about the ability of this consultant 

and others in the future to provide thorough work that will help 

impose or bring more accountability to our financial system. With 

so little information about these consultants and whom they report 

to, it is impossible for Congress and for the public to hold them accountable. 

In the case of the mortgage review, the partnership between the 

public sector regulators and private consultants appears to have 

been poorly managed from the start. That is really the subject of 

this hearing. The apparent lack of uniform standards and clear 

procedures undermined any possibility of effective management of 

such a large and amazingly expensive and important endeavor. 

We hope to clarify today this foggy relationship among private 

consultants and public regulators to better understand these arrangements, to identify ways to counteract the risk created by potential conflicts of interest and misaligned or badly aligned incentives. When you consider the potential for what James Kwak calls 

‘‘cultural capture,’’ also somebody at the Peterson Institute called 

it ‘‘cognitive capture,’’ and the influence of the revolving door, 

bright line rules become even more important, become essential. 

I want to thank Mr. Stipano for his suggestion that Congress 

should strengthen the OCC’s authority to discipline rogue consultants. I agree that this is something this Committee should consider. 

Thank you again for joining us. Senator Warren, your opening 

statement. 
3 

STATEMENT OF SENATOR ELIZABETH WARREN 

Senator WARREN. Thank you, Mr. Chairman, and thank you very 

much for holding this hearing. Thank you, Mr. Stipano and Mr. 

Ashton, for coming here today. 

Over the last few months, Congressman Elijah Cummings and I 

have requested documents from your agencies regarding the basic 

data and the processes of the Independent Foreclosure Review. We 

made 14 specific requests to you in January, and despite multiple 

letters back and forth and multiple meetings, you have provided 

only one full response, three partial or minimal responses, and no 

response to nine of our requests. You have provided little specific 

information on what the review actually found, such as the number 

of improper foreclosures, the amount and number of inflated fees, 

or the extent of abusive practices by each of the mortgage servicers. 

So I am hoping in this hearing to give you an opportunity to provide us with some greater clarity than you have thus far offered 

in our meetings and our correspondence. Thank you. 

Senator BROWN. Thank you, Senator Warren. 

I would like to introduce the first panel. Daniel Stipano is the 

Deputy Chief Counsel at the Office of the Comptroller of the Currency. He supervises the OCC’s enforcement and compliance litigation, community and consumer law, and administrative and internal law divisions. He also represents OCC on the Treasury Department’s Bank Secrecy Act Advisory Group and the National Interagency Bank Fraud Working Group. 

Richard Ashton is the Deputy General Counsel for the Board of 

Governors at the Fed. He has supervised litigation enforcement 

and system matters since 2006. He has primary responsibility for 

litigation and formal enforcement activities of the agency. 

Mr. Stipano, if you would begin. Keep it to 5 minutes, because 

we will almost certainly do multiple rounds of questions for both 

panels, so if you could stay close to 5 minutes. Thank you. 

STATEMENT OF DANIEL P. STIPANO, DEPUTY CHIEF 

COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY 

Mr. STIPANO. Thank you, Chairman Brown, Senator Warren. 

Thank you for this opportunity to discuss the OCC’s use of articles 

and enforcement documents that require banks to retain independent consultants. 

It has been our longstanding practice to use such articles in appropriate cases. The purpose of requiring banks to retain independent consultants is to provide expertise and resources to assist 

banks in correcting unsafe or unsound practices and violations of 

law identified through our supervisory process. Their work has resulted in the correction of operational and management deficiencies, led to the filing of thousands of suspicious activity reports 

in Bank Secrecy Act cases, and facilitated the payment of hundreds 

of millions of dollars in restitution to bank customers in cases involving unfair or deceptive practices. 

There are a number of reasons why we may require a bank to 

retain an independent consultant. First, independent consultants 

have subject matter expertise that the bank does not. This is particularly true with respect to community banks. The consultants 

can apply their knowledge and experience to focus on the super-
4 

visory issue, identify its scope, and work with bank personnel to 

correct violations and unsafe or unsound practices. 

Second, independent consultants can provide the resources necessary to correct problems in a timely manner. Once again, this is 

particularly helpful to community banks, which sometimes do not 

have sufficient resources to do so. 

Finally, independent consultants are, as the name suggests, independent from the operational area that needs to be reviewed or enhanced. Thus, rather than having the bank review itself, the OCC 

may require the use of a third party as a fresh pair of eyes to assess the scope of the problem and the remedy. In all cases, however, it is the OCC’s job to determine whether the bank’s corrective 

actions are sufficient. 

Independent consultants have been particularly effective in ensuring that banks address significant management and operational 

deficiencies. For example, in a sizable number of cases, when supervisory concerns have arisen concerning the ability of bank management to perform an accurate review of the quality of a bank’s 

loan portfolio, the OCC has ordered the bank to retain an independent consultant to conduct a review of asset quality until such 

time as the bank develops and implements an internal asset quality review system that is demonstrated to be effective. 

Similarly, in cases in which there are questions about the accuracy of a bank’s books and records, the OCC has required the institution to retain an auditor to review those records to assess their 

completeness and report on any deficiencies. The OCC has also ordered banks to retain independent consultants to perform annual 

reviews of methods used by banks to establish an allowance for 

credit losses. The OCC has required similar engagements by bank 

management to address deficiencies in a variety of other circumstances involving, for example, real estate appraisals, compensation, internal controls, and information technology systems. 

The majority of these cases is concentrated in community bank 

enforcement actions and reflects the fact that those institutions 

often have the greatest need for expertise and resources that an 

independent consultant can provide. However, we have used independent consultants in cases involving institutions of all sizes. In 

all of these cases, the OCC considers the qualifications of the firms 

or individuals proposed for each engagement, and we do not permit 

the bank to retain consultants we believe are unqualified or have 

conflicts that would compromise the objectivity of their work. The 

OCC also oversees and monitors the work of the consultants 

through our supervisory process and we validate the results to ensure that the violations or practices that were the basis of the enforcement action have been corrected. 

The circumstances in which we used independent consultants in 

the Independent Foreclosure Review differed substantially from the 

typical case. The unprecedented breadth, scale, and scope of the reviews, the large number of institutions, consultants, and counsel 

involved in the process, and the complexity of the reviews, which 

involved hundreds, if not thousands, of individual decision points 

for each file distinguished the IFR from the normal type of file review that is conducted by independent consultants. It also required 

an unprecedented level of regulatory oversight and coordination. 
5 

This oversight included the issuance of guidance, examiner visitations to the locations of the consultants, and daily communications 

among consultants, servicers, and the OCC throughout the process. 

While the use of independent consultants has generally served 

the agency well in terms of accomplishing our supervisory objectives, we believe there are lessons to be learned from our experience and we are currently evaluating our use of independent consultants and exploring ways to improve the process. 

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

Senator BROWN. Thank you, Mr. Stipano. 

Mr. Ashton, thank you. Please proceed. 

STATEMENT OF RICHARD M. ASHTON, DEPUTY GENERAL 

COUNSEL, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

Mr. ASHTON. Chairman Brown, Senator Warren, thank you for 

the opportunity to testify regarding the required use of third-party 

consulting firms in Federal Reserve enforcement actions. 

At the outset, it might be helpful to point out that regulated 

banking organizations routinely choose to retain consultants for a 

variety of purposes, apart from any supervisory directive by regulators to do so. Banking organizations decide to retain consultants 

because these firms can provide specialized expertise, familiarity 

with industry best practices, and a more objective perspective in 

staffing resources that the regulated organizations do not have internally. 

In the vast majority of Federal Reserve enforcement actions, the 

organization itself is directed to take the necessary corrective and 

remedial action. In relatively infrequent circumstances, the Federal 

Reserve has required a regulated organization to retain a consultant to perform specific tasks on behalf of that organization. Importantly, consultants are used to conduct work that ordinarily the organization itself would be required to conduct, but has shown that 

it cannot perform itself. 

At all times, the Federal Reserve retains authority to, and does, 

review and supervise the consultant’s work, in the same manner as 

if the organization conducted the work directly. In all cases, the 

regulated organization and not the consultant is itself ultimately 

responsible for its own safe and sound operations and compliance 

with legal requirements. In deciding to require the use of consultants in appropriate cases, the Federal Reserve does not cede its 

regulatory responsibilities or judgments to those consultants. 

As a general rule, our enforcement actions may require the use 

of consultants because of a lack of specialized knowledge or experience or insufficient resources at the particular organization. In addition, it may be necessary to have a third party undertake a particular project because a more objective viewpoint is required than 

would be provided by the organization’s management. Thus, we 

have required the use of consulting firms to review and report on 

a specific area of operations, to review prior transactions to determine whether required reports were filed, and to administer consumer remediation programs. 

When enforcement actions require a regulated banking organization to use a consultant to carry out a particular function, the Fed-
6 

eral Reserve oversees the organization’s implementation of this directive. Our standard practice is to require approval of the particular consulting firm retained by the organization. In making this 

decision, we look at the consultant’s expertise, experience, resources, capacity, and separation from management. We also normally require approval of the letter between the organization and 

the consultant describing the scope, terms, and conditions of the 

particular engagement. Finally, we also oversee the consultant’s 

performance during the course of the engagement, which can involve obtaining and reviewing interim progress reports and periodic 

meetings with the consultant. If a consultant is not meeting the required standards of performance, then we direct improvements 

where necessary. 

I would be pleased to answer any questions from the Committee. 

Senator BROWN. Thank you, Mr. Ashton. Thank you, both of you, 

again, for staying around 5 minutes. I appreciate that. 

Mr. Stipano, I appreciate your testimony. I said in my opening 

statement that one consultant participating in the IFR was doing 

substandard work. When a consultant fails to meet its obligations 

under a consent agreement, that information should be disclosed so 

that—my belief—so that we can be assured that consultants are up 

to the task. Will you tell us—you have not disclosed that yet—will 

you tell us the name of the firm in question? 

Mr. STIPANO. Senator, I am not in a position to do that. It is a 

longstanding policy of the OCC not to disclose confidential supervisory information to individual Senators or Congressmen. There 

are certain legal consequences for us if we do that. There are also 

processes that are available and that we follow to provide confidential supervisory information to Congress in the exercise of its oversight functions. 

Senator BROWN. So how does—OK. I want to talk more about 

that process, but how does disclosing the identity of an underperforming, I guess is the best word, consultant, the third party, prove 

harmful to the relationship between the OCC and the banks that 

you regulate? 

Mr. STIPANO. Well, there are a number of things. I think that, 

in general, to the extent that we are talking about confidential supervisory information, it is a fundamental premise of the whole 

bank supervisory process that we get to have access to all the 

bank’s books and records. We get to see whatever we want. We get 

to form whatever supervisory conclusions that we form and then 

take appropriate action. And we are still in the process of doing 

that with respect to the IFR and the IFR settlement. We are kind 

of in mid-stream. 

If we were to depart from that, there are consequences that could 

undermine a supervisory process. It could make institutions less 

willing to be forthcoming with us during examinations. And to the 

extent that we are contemplating actions, whether it is against an 

institution or an independent contractor, were we to disclose that 

while we are still in the middle of a process, that could potentially 

affect the action that we ultimately take. 

There is also a legal issue concerning the waiver of the bank examination privilege. Courts have recognized that there is such a 

privilege, that the opinions of examiners, their mental processes, 
7 

the iterative process between examiners and between banks is all 

protected and is something that we are not required to disclose. If 

we voluntarily disclose privileged bank examination material, then 

we waive the privilege as to the world. 

Senator BROWN. There is a bigger issue, and we are not probing 

every detail of that relationship. I mean, there is a bigger issue 

here. There is, first of all, the most important thing, the fragility 

of the financial system that Americans, as responding to what Senator Vitter and I and Senator Warren and a number of us are 

doing. We hear all the time that Americans still do not have confidence in the stability of this financial system, and taxpayers have 

not gotten a whole lot out of this settlement so far. Homeowners 

are getting an average of about $300. And you have information 

about a consultant that might be hired in the future in a perhaps 

perilous situation and the people hiring that consultant might not 

know of its failures. So does not the public interest outweigh 

that—— 

Mr. STIPANO. I think it does—— 

Senator BROWN.——knowing who it is, not with all the details of 

what necessarily went wrong, depending on what that consultant 

wants to say at that point. 

Mr. STIPANO. I think it does, and we do intend to—we have 

issued some public reports on the IFR to date. We intend to issue 

more of them. Again, we are kind of in mid-stream in the process 

right now. I mean, we are wrapping up the IFR. We still have a 

couple of institutions that are still conducting the IFR. Plus, we are 

trying to implement the IFR settlement. So we do anticipate doing 

public reporting. 

We are also still in an evaluative phase. I am not really sure at 

this point what the message would be, and part of our evaluation 

is to take a look at the conduct of the servicers themselves and 

take a look at the consultants and then form conclusions. We are 

still doing that. 

Senator BROWN. OK. We expect that. I mean, I know that you 

announced and removed Allonhill and other consultants, so there 

is some precedent. We will get to that. Let me do one more question then turn it to Senator Reed. 

Given that the regular consulting business is lucrative, and we 

have seen certainly examples of this in this situation, consultants 

have a financial incentive to do things that will attract repeat business, and the largest banks have deep enough pockets to use these 

consultants on a pretty regular basis. Independent consultants provide a quasi-public function. It is a peculiar function, obviously, as 

you know, because they are paid by the banks, but they are doing 

work supposedly in the public interest. I think it is useful for us 

to understand this compensation structure. 

My comments and this question is this. Understanding there are 

concerns in the case of the IFR with one consulting firm—I will not 

mention it, but one—to disclose bank-specific compensation information—in other words, they only did one bank, so that might violate the bank’s proprietary knowledge there—do you consider a 

consulting firm’s compensation in a given matter to be confidential 

supervisory information? In other words, would you be comfortable 
8 

with public disclosure of firms’ compensation, both in the IFR and 

on an ongoing basis? 

Mr. STIPANO. I do not consider the disclosure of the compensation 

received for an engagement to be confidential supervisory information unless the disclosure would reveal examination techniques, examination strategies, the iterative process between examiners and 

the bank. 

Senator BROWN. So at some point, we will know what each of 

these seven firms was paid? 

Mr. STIPANO. It is not the OCC’s role to have to approve or disapprove the disclosure of that information. 

Senator BROWN. Two of the consultants—and this is what makes 

me especially curious. We know that these seven firms were paid 

somewhere upwards of $2 billion, which was more than one-fifth of 

the settlement. That speaks of, did that money come out of the settlement? Put that aside for a moment. What is particularly curious, 

two of the consulting firms have told us that the engagements, they 

thought, would generate between $5 and $8 million—$5 and $8 

million. When all was said and done, a firm at the lower end could 

conservatively have made $200 or $300 million. You just take $2 

billion and you divide it by seven and you have a number 25 or 30 

times the $5 to $8 million. 

I assume that consultants regularly provided you with status reports that included their compensation, correct? You got regular reports how much money they were spending? 

Mr. STIPANO. We are knowledgeable about the compensation, yes. 

Senator BROWN. So at what point—when a couple of firms said 

$5 to $8 million that this would cost, at what point did you realize 

there might be a problem with the IFR process? Did it occur to you 

that when the number exceeded $50 million there might be a problem, or when it reached $100 million or $500 million or a billion? 

When did you think there might be a problem? 

Mr. STIPANO. OK. I do not think that that decision was driven 

by the amount of money being paid to the consultants. When we 

created the IFR—and just by coincidence, the Consent Orders that 

started this whole process were issued exactly 2 years ago, and the 

IFR itself has been in place for more than a year—what we were 

trying to do was to set up a process that would allow the institution, with the assistance of the IFR, of the consultants, to identify 

borrowers who were financially harmed by the servicers’ wrongdoing. And then once they identified them, the Consent Orders required the servicer to come back to us with a plan, subject to our 

approval, to remediate the harm, to pay compensation to the affected customers. 

I think that the OCC and the Fed greatly underestimated the 

complexity of the task. The number of the institutions involved, the 

number of consultants involved, the number of borrowers involved, 

the sheer number of decision points, which I am told are in the 

hundreds if not the thousands per file, shifting legal requirements, 

compliance with 50 State laws, compliance with HAMP guidelines, 

GSE guidelines, it was inordinately complex and we did not fully 

appreciate that. It seems easy now. It was not at the time. 

And the best proof of that, if you go back and look at the Consent 

Orders, we gave the servicers 120 days to get this done, which is 
9 

astounding. I mean, we were into it for more than a year and we 

were nowhere near done. 

So notwithstanding all that, we were committed to making this 

work. We did make adjustments along the way. We wanted to see 

this be successful. But as we were getting to the point where we 

were up to a year, we were past a year, and no checks were going 

out to any borrowers, nor did it appear that many checks would be 

going out to any borrowers any time soon, we felt like there had 

to be a better way to do this, and that is what really prompted the 

IFR settlement. 

I am not here to tell you that it is a perfect process, what we 

have done, but the goal behind it, and what we have done and 

what we are going to achieve starting tomorrow, is to quickly get 

cash into the hands of the affected borrowers, and that was something that was not happening under the IFR. 

Senator BROWN. Did any of these consultants, any of the seven 

come to you and say they had concerns about the rate at which the 

costs were growing, or did anybody on your staff? I mean, I just 

cannot imagine when you thought 120 days—and I understand people make misjudgments, but 120 days—you are saying 120 days, 

they are saying $5 to $8 million. When it goes way beyond earlier 

than the 120, you were beginning to see this is tens of millions, 

hundreds of millions, did these consultants, did any of them say 

that they had concerns about the rate it was growing? 

Mr. STIPANO. I think, as with the regulators, the consultants 

were doing their very best to try to follow the guidance and the direction that they were getting from us. There were lots of problems 

and hurdles that arose along the way that slowed the process 

down, all of it really going to the complexity of the task. And, up 

until the time when we decided to settle the matter and not continue the IFR, we were still all committed to trying to make it 

work. 

Senator BROWN. Let me ask one more question and then turn to 

Senator Reed. Were the fees paid by the banks, the two-point—upwards of $2 billion—was that considered in setting a settlement 

amount to be paid by those banks? In other words, did that 

amount, that $2 billion, result in less compensation for borrowers? 

Mr. STIPANO. Not at all. We required—— 

Senator BROWN. How do you know that? 

Mr. STIPANO. As part of the settlement, we required the servicers 

to set up a Qualified Settlement Fund and to put money into that, 

and all of the compensation that goes to the borrowers is coming 

out of the fund. The amounts that they have paid to the consultants is not a factor. 

Senator BROWN. And when was that determined, when the 

fund—the size of the fund? 

Mr. STIPANO. It was negotiated toward the end of last year, the 

beginning of this year. 

Senator BROWN. But if you are the bank and you have realized 

you have spent, pick a number, $328 million or $90 million—— 

Mr. STIPANO. Yes. 

Senator BROWN.——on paying Consultant X, do you not think 

that affected their negotiations on how large a settlement it would 

ultimately be? 
10 

Mr. STIPANO. I cannot speak for the banks—— 

Senator BROWN. How do you know that it did not, is the better 

question. 

Mr. STIPANO. I do not know that it did not, because I cannot get 

inside their head. We had certain goals in mind in terms of negotiating to an amount that we thought would be sufficient, and we did 

not factor in the amount that they were paying to the consultants. 

Senator BROWN. OK. Senator Reed. 

Senator REED. Thank you, Mr. Chairman. 

I have still the same question that I had about a year ago when 

this issue came up. I think, Mr. Stipano, you said it, that basically 

the core of this issue is financial harm to borrowers because of the 

wrongdoing of banks, not because of just the economy moved and 

they were unfortunate. 

Mr. STIPANO. Yes. 

Senator REED. That seemed to me the essence of what the OCC 

and the Federal Reserve, their responsibility as regulators. So why 

would you delegate that responsibility, effectively, to consultants 

who did not have a relationship with you, had a contractual relationship with the bank—— 

Mr. STIPANO. Yes. 

Senator REED.——why? 

Mr. STIPANO. Well, we thought it was the best alternative. There 

is clearly—— 

Senator REED. Do you still think it is the best alternative? 

Mr. STIPANO. No. I think if we had it to do over again, we would 

take a different approach. 

Senator REED. You will have it to do over again. So what today 

is the policy of the Office of the Comptroller of the Currency with 

respect to investigating wrongdoing of banks? Is it to hire, augment 

your staff with a contractual relationship with these consultants directly? 

Mr. STIPANO. Yes. 

Senator REED. Or is it to let the banks pick their favorite consultant? 

Mr. STIPANO. Well, there are a number of alternatives. All of 

them have different pros and cons. The problem with having the 

OCC do this work itself is that it is just beyond the means of any 

Federal banking agency to do this. I mean, again, the size, the 

scale, the scope, the complexity. It is not a question of bringing on 

some more examiners. We would probably have to triple or quadruple the size of our staff or pretty much shut down our bank supervision operations. That is not an option. 

We could contract directly ourselves. The problem that we run 

into there are Federal procurement rules and Federal procurement 

requirements. These types of engagements have to be competitively 

bid. In this kind of an engagement, where there is a lot of money 

at stake, there would be a lot of interest among many consultants 

in getting that business, so we would expect there would be lots of 

bids. There would be contests and challenges. We might still be at 

a point now where we have not even begun the IFR because we are 

still going through the procurement process. So we felt that was too 

unwieldy and not a good option. 
11 

And the only other option would be to have the banks themselves 

do it, but they were the ones that caused the problem in the first 

place. 

So given the alternatives, we felt that this was the best option. 

I think there are different approaches that we could have taken 

that we did not take in the design of the problem. And what we 

are doing right now, and I have to be honest with you, Senator, I 

do not have all the answers as I sit here, but we are looking back 

at what we did. We are evaluating it and we are going to come up 

with ways to do this better in the future. 

Senator REED. So your bottom line was because it had to be competitively bid, you felt that was not the appropriate approach. 

Mr. STIPANO. Yes, and maybe that—— 

Senator REED. And—— 

Mr. STIPANO.——and I am not an expert on Federal procurement 

rules, but we have experts in my agency that we consulted with, 

and the advice that we were given was that if we were to go down 

that road, the process would go on for a very, very long period of 

time and it would delay getting money into the hands of the affected borrowers. 

Senator REED. Unlike the process you chose, which is going on 

for a long time, has not gotten a lot of money into the borrowers, 

and has been deemed a total failure. 

Mr. STIPANO. That process did not work, either. 

Senator REED. Yes. So I think you have got to have a new process, and I think if the process requires modification of Federal 

rules and regulations, that is something that the OCC and the Fed 

should immediately demand of us. 

Mr. STIPANO. OK. 

Senator REED. Because, essentially, what you described, what is 

the core activity of the OCC, stopping the wrongdoing of regulated 

institutions and protecting consumers, I mean, among safety and 

soundness, so those are sort of the three critical issues. And if you 

do not have the statutory framework to do that effectively, you 

have got to tell us, one. 

But two, I would go back very strongly, because that is some of 

the shibboleth around here. Oh, competitive bidding is so difficult, 

et cetera. There are contests. Every major sort of program in the 

Federal Government usually has an aspect of competitive bidding, 

and yet it gets done. So I would suggest that you adopt a policy 

immediately that you are not going to rely upon bank-selected or 

regulated-selected consultants, that they will be directly hired by 

the OCC. 

To raise an issue, and I want to raise the same question with the 

Fed, is that I would presume that because they were able—they 

did, in fact, conduct contractual relations with—those contracts 

were drafted and approved by the institutions, and I would assume 

that the obligations of the consultants were primarily to the person 

they had the contract with, not the OCC. 

Mr. STIPANO. No, I do not think that is accurate. We did require 

that the contracts be submitted to us for our review and we directed the servicers to put language into the contracts that made 

it clear that the independent consultants were acting pursuant to 

our direction, not the servicers. 
12 

Senator REED. In reality, did the independent consultants act at 

your direction? 

Mr. STIPANO. I believe so, yes. 

Senator REED. Can you provide us documentation to that effect? 

Mr. STIPANO. I do not know if there is documentation. We would 

be happy to discuss it with your staffs. 

Senator REED. Let me ask the Federal Reserve, because you have 

a slightly different legislative structure. Do you feel that you had 

to retain consultants through the banks and not directly hire them 

by the Federal Reserve? 

Mr. ASHTON. Senator, when we set up the process with the OCC, 

we started out with the model that Mr. Stipano has described, and 

we had had a history of requiring banks to retain independent consultants to do certain discrete tasks, like find situations where a 

suspicious activity report had to be filed. And I think we thought 

at the time that that model could be adopted for something as extensive as this. What we found out in practice was that the scope 

of the review—that independent consultants had to find every single injury—was so extensive and time consuming that the model 

was just not effective. And that is why we decided to change it. 

Senator REED. But let me ask you a question. Does the Federal 

Reserve have the authority and the resources to contract directly 

with the appropriate consultants to conduct reviews of banks or financial holding companies in which you select the contractor, they 

have a contractual obligation directly to you, not through a third 

party? Do you have that authority? 

Mr. ASHTON. Senator, I think if we were going to do this again, 

we probably would have to consider different types of models and 

that would be one model. 

Senator REED. I—— 

Mr. ASHTON. I do not think we have looked into the authority 

question. 

Senator REED. Well, I would suggest you look into the authority 

question, and I would suggest that both the OCC and the Federal 

Reserve adopt that approach. It seems to me there is this inherent—and you are talking about people who are professionals on 

both sides. But there is an inherent conflict between hiring your inspector or having your inspector come from the Federal Government, even as an augmentee through a contract. And that tension 

is always going to be there, even if it is a different context. And 

I just think to delegate the way you did an essential regulatory 

function by essentially asking the banks to choose their inspector 

just does not work and will not work. 

And if there are authorities you need, and I am very—the Fed 

has such expansive authorities, I would be shocked—because I 

would like to see the competitive bidding that you have done in the 

past on lots of issues. I would be shocked if you needed the authority. But that seems to be the lesson of this. We can go back and 

do—and we will—the post-mortem on how it happened and what 

you are going to do to fix it. But going forward, I think that is the 

lesson that has to be drawn. 

Mr. Chairman, I thank you. I think this is very important. Do 

you have—— 
13 

Senator BROWN. Yes, I am going to go, and then Senator Warren 

will be back and we will do a second round. 

Thank you for your insight into Senator Reed’s questions. You 

talked about an inherent conflict, and the underlying problem here 

is, I think, pretty clear. There is the independence. There is the 

qualifications of these consultants. And let me kind of take it in a 

different way. 

Do your agencies have clear, objective, independent standards— 

independence standards for these consulting firms? These firms, 

these seven firms, most of them have done, obviously, a lot of work 

with OCC, with the Fed, and more directly with the banks. Does 

OCC have clear, objective standards for these consulting firms, and 

share them with us if you do. 

Mr. STIPANO. The critical factor in our minds, first and foremost, 

is that any consultant that is brought on have the right resources 

and expertise to do the job. I mean, that is separate, really, from 

independence, but nonetheless very important. 

On the independence point, it is not realistic in most cases to expect that independent consultants would have no prior ties to the 

institution. I mean, they are used so widely throughout the industry that most consultants that have the resources and the expertise 

have done work before. So trying to find consultants that are totally pristine in that regard is not really practicable. 

However, what we do look for are situations where, because of 

prior work, the consultant is conflicted in such a way that it could 

compromise their objectivity. And on the IFR, there were a couple 

of factors, in particular, that we were focusing on. The one was if 

the consultant had done work before such that by taking on the 

IFR engagement, they would essentially be reviewing or re-reviewing their own work, that was something that we would consider to 

be disqualifying. 

And, similarly, if the consultant was involved in an advocacy 

role, like if they were involved, for example, in negotiating with us 

on the cease and desist orders or negotiating with the State Attorney Generals on the National Mortgage Settlement, we would consider that to be disqualifying. And we did disqualify some of them 

on those grounds. 

Senator BROWN. We are not—you used the word ‘‘pristine.’’ We 

do not expect pristine here. That sounds—— 

Mr. STIPANO. I—— 

Senator BROWN.——too difficult. But we do expect, I think, clearer standards in what ‘‘qualified’’ means. For instance, if a consulting firm, and there is one in this situation, has repeatedly been, 

for lack of a better term, at the scene of a crime, what would it 

take before they are viewed as not qualified? What if they—for instance, what if they underestimated the value of an institution’s 

money laundering transactions by $250 billion or presented watered-down reports to regulators? That would not be enough for disqualification under your standards? 

Mr. STIPANO. Well, again, I think you have to look at the total 

context, but I do believe this is an area where there are lessons to 

be learned for us and we are committed to exploring ways to do 

better. Maybe that results in some kind of written standards. We 
14 

do not presently have them. But I think this is an important area 

and we are committed to doing a better job. 

Senator BROWN. Has there been a process started to write these 

standards? 

Mr. STIPANO. I think we are still in an evaluative phase, but I 

think the goal is to have—— 

Senator BROWN. Well, wait. You are in an evaluative phase. This 

is not just the IFR. This is since 2008—— 

Mr. STIPANO. Yes. 

Senator BROWN.——the number of—— 

Mr. STIPANO. I know. 

Senator BROWN. You are still in an evaluative stage on whether 

you are going to write standards—— 

Mr. STIPANO. No, we—— 

Senator BROWN.——for the future? 

Mr. STIPANO. No—— 

Senator BROWN. You are evaluating the other, but before you 

begin to write these standards? 

Mr. STIPANO. I think that, to a certain extent, the standards that 

get produced will be informed by our experiences with the IFR. We 

still need to wrap up the IFR and discern what those lessons 

learned are. 

Senator BROWN. Since you are—I mean, understanding you have 

to farm out many things because of consultants and the size of 

OCC, but can you not sort of process all of this evaluative IFR and 

other consulting at the same time another part of OCC starts to 

write these standards of what ‘‘qualified’’ means? 

Mr. STIPANO. It is—we are at a beginning stage. We have not 

really reached a point of putting pen to paper. 

Senator BROWN. I hope that point starts this afternoon. 

One other question about that and then I will turn to Senator 

Warren. Alan Blinder, a founder and, I believe, still director at 

Promontory—this is according to Bloomberg—said that the foreclosure reviews were, quote, ‘‘outside Promontory’s sweet spot, requiring the firm to hire hundreds of people.’’ It has been reported 

they did not just—and I will, of course, direct this question to the 

second panel and give them a chance, give the gentleman from 

Promontory a chance to speak to this. But it has been reported 

they just did not outsource outside the firm, they went outside the 

country to the Philippines, which I would think would have a major 

impact on their dollar per hour charge of Promontory, and I would 

like information on that later, too. 

But how does a firm with so little capacity—and my understanding is Promontory was probably the largest, but certainly a 

large chunk of the $2 billion—how does a firm with so little capacity acting in an area that is outside their traditional expertise— 

Blinder’s words—how does it wind up with the most responsibility 

under this process? What does OCC—what is the process of OCC 

to take a firm that this is not in their sweet spot and award them 

contracts, arrangements, that go into the hundreds and hundreds 

and hundreds of millions of dollars? 

Mr. STIPANO. Well, I would start by just saying the entire IFR 

process was unprecedented, unlike any situation we had ever encountered before. I think one reason why we put in our Consent 
15 

Orders that it had to be done in 120 days is that we, perhaps naively, looked at it as a file review and we direct banks all the time 

to hire consultants to do a file review. This proved to be much more 

than that. 

I am not intimately involved in the details of Promontory’s engagement, and I cannot really speak to that. I do know that they 

hired—they themselves hired large numbers of consultants—or 

consultants, contractors—to assist in their portion of the IFR. And 

given the enormity of the task, that does not seem inappropriate. 

Senator BROWN. Thank you. 

Senator Warren, I have done a second round. You can sort of 

take two rounds at once. I think probably the vote will be called, 

so why do you not proceed as long as we can go until the vote is 

called. 

Senator WARREN. Thank you very much, Mr. Chairman. 

I apologize for having to leave. I had the distinct honor, though, 

of being able to introduce Gina McCarthy for her hearing to head 

up the Environmental Protection Agency. She is a proud daughter 

of Massachusetts and so I wanted to be there to be able to do it. 

So I want to turn to another aspect of the Independent Foreclosure Review. Earlier this year, your agencies entered into a settlement with the mortgage servicers based on their foreclosure 

practices and the settlement was for about $9 billion. And at that 

time, your agency said that they achieved this number, arrived at 

this number, based at least in part on the fact that servicers had 

made mistakes or broken the law in about 6.5 percent of the cases. 

Now, I assume if you had believed that the banks had broken the 

law in 90 percent of the cases, that you would have settled for a 

much larger amount of money and that the homeowners would 

have been paid more, and that if you had found that they broke 

the law in only 1 percent of the cases, that you would have settled 

for less money and the homeowners would have been paid less. Is 

that basically right, Mr. Ashton? 

Mr. ASHTON. Senator, at the time the Board accepted the settlement with the servicers, we had some preliminary error data. It 

was preliminary. We also had other data available—— 

Senator WARREN. Oh, I understand that. 

Mr. ASHTON.——and it was only one of the factors that we took 

into account in deciding whether—— 

Senator WARREN. I understand. But the question I am asking is 

if you had believed at the time you were putting the settlement together that, in fact, the banks had broken the law in more than 

90 percent of the cases, presumably, you would have settled for a 

lot more money, is that right? 

Mr. ASHTON. I think that the error rate was a factor. It was not 

the only factor. 

Senator WARREN. OK. It is the only factor [sic], but it certainly 

would have mattered if you thought that the banks broke the law 

90 percent of the time as opposed to, say, 6.5 percent of the time. 

Mr. ASHTON. That is true, but there were other factors that led 

the Board to accept the settlement, especially the delay that would 

have been involved—— 

Senator WARREN. Fair enough. I understand the delay. But it 

matters how many homeowners were the victims of illegal practices 
16 

by the banks in terms of determining the settlement amount, does 

it not? 

Mr. ASHTON. The approach that was taken in the settlement 

agreement is focused on trying to get cash to the borrowers as 

quickly as possible. 

Senator WARREN. But the question is not getting cash to them, 

$300. The question is getting the right amount of cash to the right 

people, the people who are the victims of illegal activities of the 

banks, is that right? 

Mr. ASHTON. The settlement agreement is not based on findings 

of individual injury. It is a different approach. We gave up looking 

for individual injury and decided—— 

Senator WARREN. So, I read your press release at the time that 

this came out, and you said one of the things that your agency and 

the Federal Reserve said is that the banks had broken the law or 

made errors in approximately 6.5 percent of the cases. And my 

question is, if you had found that they had broken the law in 90 

percent of the cases, would you have demanded more money from 

the banks? 

Mr. ASHTON. It would have been a factor, I believe, but—— 

Senator WARREN. I will take that, then, as a ‘‘yes,’’ because what 

I take it to mean, since you used it in your press release and since 

it is relevant to how much money the people who have been injured 

are going to get, that the number is critical. It tells us how much 

illegal activity there was and how much the banks should pay. 

The problem is that the 6.5 percent is not accurate. Your staff 

admitted to us in a meeting earlier this week that the number is 

not based on a random sample, not on a review of these cases. It 

was determined based on whatever files had been reviewed by the 

time you shut down this process. 

And then it gets worse on the numbers. A week after announcing—a few weeks after announcing the settlement, your agency revised the 6.5 percent number down to 4.2 percent. The Wall Street 

Journal reported that the error rate, that is, the rate of breaking 

the law, was—or making mistakes—was 11 percent at Wells Fargo, 

9 percent at Bank of America, and there are reports that the error 

rate at JPMorgan Chase was only six-tenths of 1 percent. In other 

words, the 6.5 percent number was just a made-up number. 

So Congressman Cummings and I have asked for information 

about how you came up with the number. We still do not have 

enough facts to check it. But the question I have is, what is the 

right number? Is it six-tenths of 1 percent? Is it 6.5 percent? Nine 

percent? Eleven percent? Twenty percent? Fifty percent? Ninety 

percent? 

If you cannot correctly tell how many people were the victims of 

illegal bank actions, how can you possibly decide how much money 

is an appropriate amount for settlement? 

Mr. ASHTON. Senator, I can only reiterate that the decision that 

was made to accept the agreement, and we recognize that that was 

not a perfect option, was based on the delay that would have been 

involved in any alternative to continue the Independent Foreclosure Review. 

Senator WARREN. Mr. Ashton, I am sorry. I understand the point 

about delay, but it does not mean you pick a number out of the air. 
17 

The number has to be based on at least some understanding of how 

often the banks engaged in illegal activity and how many homeowners got hurt. And you needed some way to estimate that to 

come up with a number. Is that not right? 

Mr. ASHTON. To estimate the number with more precision would 

have required additional delay in providing payments, and so the 

decision was made not to go down that course, not to continue the 

Independent Foreclosure Review, which we could have done, and 

instead to accept a settlement which resulted in payments to borrowers in a much quicker timeframe. 

Senator WARREN. Mr. Ashton, I cannot believe that you are saying that the only reason the number $9 billion was settled on was 

so that it could be done quickly, and that you are saying that the 

OCC did not have an estimate in mind of how many banks had 

broken the law and how many homeowners were the victims of illegal activities. 

Mr. Stipano, is that the case for the Federal Reserve Bank, as 

well? 

Mr. STIPANO. Senator, I am not an expert on the IFR settlement. 

I was not directly involved in it. I can answer general questions, 

and I will do my best to do that. 

My understanding is that, when it comes to the error rate—I do 

not really know how it was calculated, to be honest. There are people in the agency who do. They are not here. I do believe that we 

did review a substantial number of files—— 

Senator WARREN. I am sorry. Mr. Stipano, we met with your 

staff. 

Mr. STIPANO. Yes. 

Senator WARREN. And your staff has made clear you did not review a random sample. 

Mr. STIPANO. No, it was not a random sample—— 

Senator WARREN. And without a random sample—— 

Mr. STIPANO. No—— 

Senator WARREN.——can you then generalize to the accurate 

number, even an estimate, of how many banks broke the law? 

Mr. STIPANO. Not—my understanding is not in a statistically 

valid way. However—— 

Senator WARREN. OK. That is no. 

Mr. STIPANO. But can I finish, though. I do think that the review 

of 100,000 files plus is not valueless. I mean, it does inform your 

decision to some extent. 

Senator WARREN. So you are telling me it is not a random sample, but you think you know something. 

Mr. STIPANO. It has some value. That is a fact. 

Senator WARREN. And what is it that you know, since we have 

seen different numbers reported—— 

Mr. STIPANO. I am assuming that is where the error rate came 

from, but I am only assuming, Senator. I was not involved in—— 

Senator WARREN. So if we are to draw an inference from those 

100,000 files, it seems to me we need more information about the 

100,000 files, that is, how they were drawn and how much illegal 

activity was found in those files. Is that accurate? 

Mr. STIPANO. I think that is accurate. 

Senator WARREN. So far, you have not given us that information. 
18 

Mr. STIPANO. Yes. As I stated earlier, Senator, there are processes for us to provide confidential supervisory information to Congress in its oversight capacity and we are prepared to follow those 

processes. 

Senator WARREN. So let me just make sure I understand this 

completely. I want to know on a bank-by-bank basis the number 

of families that were illegally foreclosed on. Will you give me that 

information? 

Mr. STIPANO. Eventually, we are going to issue a statement to 

the public where we provide additional information, but if we go 

through the processes that I described previously, we can share it 

to Congress in its oversight capacity. 

Senator WARREN. So you are saying you will make that information publicly available? 

Mr. STIPANO. I did not say that. I said that we are planning on 

issuing a public statement that wraps up the IFR that provides additional information—— 

Senator WARREN. That is not what I am asking for. 

Mr. STIPANO. Yes. 

Senator WARREN. What I am asking for is a bank-by-bank analysis of how many families they illegally foreclosed on. Will you give 

us that information? 

Mr. STIPANO. We can provide that to Congress in its oversight capacity if we go through the normal processes that we are prepared 

to follow. 

Senator WARREN. And why are you not making that public? I 

just want to make sure I understand. 

Mr. STIPANO. I do not know that there has been a decision not 

to. I think that we are still evaluating—— 

Senator WARREN. Are you claiming—— 

Mr. STIPANO.——what we are going to release publicly. 

Senator WARREN. Are you claiming that the information about illegal activity is privileged and confidential? 

Mr. STIPANO. It is all confidential supervisory information, but 

that does not mean that we will not at some point release some of 

that information. That decision just has not been made at this 

point. 

Senator WARREN. So you are saying, when you find evidence of 

illegal activities—— 

Mr. STIPANO. Yes. 

Senator WARREN.——by the banks—— 

Mr. STIPANO. Yes. 

Senator WARREN.——when they have illegally foreclosed-—— 

Mr. STIPANO. Yes. 

Senator WARREN.——against homeowners, that that information 

is privileged and you will not release it without a letter from Congress. 

Mr. STIPANO. If it is derived from the bank examination process, 

yes, it is—— 

Senator WARREN. How else would you get it? 

Mr. STIPANO. Well, sometimes you get information through third 

parties, through outside sources. But in this case, that is not the 

case. 
19 

Senator WARREN. So unless someone throws a rock through the 

window with this information tied to it, you will not release it, is 

that what you are saying? 

Mr. STIPANO. To the extent that the information is confidential 

supervisory information derived from the exam process, it is subject to privilege. We do not ordinarily make that public. However, 

in this case, we do plan on making public issuances describing further findings and further analysis of the process. 

Senator WARREN. On a bank-by-bank basis of illegal activity? 

Mr. STIPANO. I do not know if that has been determined yet. 

Senator WARREN. All right. So let me ask it from the other point 

of view. You now have evidence in your files of illegal activity, I 

take it, for some of these banks. I get that from the evidence you 

have released about the charts, who is going to get paid what. So 

if someone believes that they have been illegally foreclosed against, 

will they still have a right under this settlement to bring a lawsuit 

against the bank? 

Mr. STIPANO. Yes. 

Senator WARREN. All right. Now, if a family wants to bring a 

lawsuit—you are both lawyers—would it be helpful, if you are 

going against one of these big banks, would it be helpful for these 

families to have the information about their case that is in your 

files? Mr. Ashton? 

Mr. ASHTON. It would be helpful to have information related to 

the injury. Yes, it would. 

Senator WARREN. OK. So do you plan to give the families this information? That is, those families that have been victims of illegal 

foreclosures, will you be giving them the information that is in your 

possession about how the banks illegally foreclosed against them? 

Mr. Ashton? 

Mr. ASHTON. That is a decision that we are still considering. We 

have not made a final decision yet. 

Senator WARREN. So you have made a decision to protect the 

banks but not a decision to tell the families who were illegally foreclosed against? 

Mr. ASHTON. We have not made a decision about what information we would provide to individuals. 

Senator WARREN. Mr. Stipano? 

Mr. STIPANO. We are in the same position. 

Senator WARREN. So I want to just make sure I get this straight. 

Families get pennies on the dollar in this settlement for having 

been the victims of illegal activities or mistakes in the banks’ activities. You let the banks, and you now know individual cases 

where the banks violated the law and you are not going to tell the 

homeowners, or at least it is not clear yet whether or not you are 

going to do that? 

Mr. STIPANO. We have not made a decision on what we are going 

to tell the homeowners. 

Senator WARREN. You know, I just have to say, I thought this 

was about transparency. That is what this is all about. People want 

to know that their regulators are watching out for the American 

public, not for the banks. And the only way that we can evaluate 

whether or not you are doing your job is if you make some of this 

information publicly available. And so far, you are not doing that. 
20 

And without transparency, we cannot have any confidence, either 

in your oversight or that the markets are functioning properly at 

all, and that people are going to receive proper compensation for 

what went wrong. 

So do we have time for another round of questions? 

Senator BROWN. We do not. We do not. 

Senator WARREN. OK. I—— 

Senator BROWN. The vote started about 8 minutes ago. 

Senator WARREN. All right. 

Senator BROWN. Thank you, Senator Warren. 

I think her points are very well taken. I think back to Attorney 

General Holder’s comments about that, in response to Senator 

Grassley’s and my letters asking when he—the Department of Justice said that they were concerned about prosecution because of 

the—he did not quite use the words fragility of the financial system, but that it could have repercussions, and I think this is along 

those same lines, that the public—and the public over and over 

seems to think that this institution and the regulators and the Senate and the House are more interested in protecting the banks 

than they are the public. I think Senator Warren’s comments speak 

to that. I think the back and forth between the Department of Justice and our office speaks to that. And I am hopeful that this starts 

a new era in transparency and in helping those families that have 

been wronged. 

The vote is about 10 minutes in. We will recess and I thank the 

first panel for joining us. There will be follow-up from Senator 

Warren, I am sure, and Senator Reed and me to the two of you, 

but you are dismissed and we will call up the second panel within 

about 15 minutes. 

So we stand in recess. 

[Recess.] 

Senator BROWN. The Subcommittee will come to order. 

Thank you for your patience, and thank you especially to the second panel for waiting around while Senator Warren and I voted. 

I will introduce the next panel and then we will proceed with questions. 

Konrad Alt is the leader of Promontory’s San Francisco Office, 

where he advises clients on compliance, enterprise risk management, governance, and regulatory communications, and particular 

expertise in retail lending. He is a former counsel to this Committee. He served as Senior Deputy Controller for Economic Analysis and Public Affairs at the Office of the Comptroller of the Currency. 

James Flanagan is the U.S. Leader of the 

PricewaterhouseCoopers Financial Services Practice, where his responsibilities include the banking and capital markets, insurance, 

and asset management sectors. He is actively involved with 

PricewaterhouseCoopers’ Global Financial Services Leadership 

Team, as well as U.S. firms’ Audit Leadership Team. 

Owen Ryan heads Advisory Practice at Deloitte and Touche. He 

has experience in areas that include capital markets, mergers and 

acquisitions, corporate finance, strategic consulting, auditing, tax, 

and practice management. He serves on both the Deloitte Board of 

Directors and Executive Committee. 
21 

Mr. Alt, if you would. Try to keep it close to 5 minutes, each of 

you, and I very much appreciate all three of you joining us, all of 

you. Thank you. 

STATEMENT OF KONRAD ALT, MANAGING DIRECTOR, 

PROMONTORY FINANCIAL GROUP, LLC 

Mr. ALT. Thank you, Mr. Chairman. Good morning, Senator Warren. 

So Promontory Financial Group’s core business is helping financial institutions understand how to meet their business challenges 

consistent with regulatory expectations. Clients come to us for help 

in strengthening their risk management or corporate governance, 

and frequently, they want an independent assessment. Our work 

runs from testing risk models to running stress tests to reviewing 

board performance. We can recommend improvements to strengthen corporate governance or risk management, bolster capital and liquidity, or better protect consumers. 

Promontory Financial Group is not a regulator. We do not and 

cannot perform regulatory activities. We do not make regulations. 

We do not issue guidance. We do not assign examination ratings. 

And we do not bring enforcement actions. These activities are the 

domain of public officials, accountable through Congress to the 

American people. Private consultants can only make recommendations, even when acting as an independent consultant pursuant to 

a regulatory order. 

Expertise, experience, and integrity have been fundamental to 

our success. Many of our senior professionals have spent decades 

working in this area. They know the laws and regulations and they 

believe in them. 

Independent judgment is central to all of our engagements, 

whether or not we are formally designated as independent. Our expertise is in identifying issues and solutions. We have to have the 

integrity to deliver bad news to top management and the board. 

In several dozen engagements, regulatory agencies have formally 

designated Promontory Financial Group to serve as an independent 

consultant pursuant to a regulatory enforcement action. These engagements have involved over a dozen different regulatory and law 

enforcement authorities, both in the U.S. and abroad, and a variety 

of different types of reviews. We believe these assignments fit well 

with the strengths of our firm and we believe we have handled 

them well. But as a percentage of our total number of engagements, they have been a small portion of our practice. 

We believe the most important qualifications for an independent 

consultant are subject matter expertise and integrity. Expertise is 

fundamental, but a consultant who lacks the integrity to deliver a 

tough message will probably fail to clearly define the problem and 

the solution. 

The nature of regulatory oversight in our independent consulting 

assignments varies. In a small project, it might consist of presenting our final report to an examination team. A larger complex 

assignment might entail more extensive oversight, including regular status reports and sign-offs and validation of our results. 

Regulators use these techniques to establish and maintain transparency so that they can quickly address any concerns that might 
22 

arise during our review. We support that approach. Both with the 

regulator and with the financial institution, we want to avoid surprises and build confidence that our review will identify and address the issues. 

Conflicts of interest have the potential to compromise the quality 

of an independent review or to diminish confidence in its results. 

Managing those conflicts is, therefore, important to our work, as it 

is to the work of all reputable professional services firms. Sometimes prior work will completely preclude us from taking on an 

independent review. More frequently, the question is whether we 

can establish appropriate ethical safeguards to ensure that past relationships do not compromise our independence. We work through 

those issues in consultation with both the regulator and the institution involved. Ultimately, of course, it is the regulator’s decision 

whether we are suited for an independent consulting assignment. 

Your invitation asked about our legal obligations to the regulated 

financial institution and the regulator in an independent review. 

Our legal obligations are set out in our engagement letters. Regulatory authorities often review and approve those letters and frequently require specific language relating to independence. 

Finally, your invitation letter asked how we ensure quality and 

consistency in providing oversight to financial institutions. As I 

have said, we are not regulators and we are not in the business of 

providing regulatory oversight. But quality and consistency matter 

to us and we pursue them by hiring top-quality, experienced experts and giving them great support. In this way, we have built 

what we believe is the world’s leading consultancy in our field. 

In summary, the use of private sector resources to support the 

activities of Federal regulators raises legitimate public policy questions. We applaud this Subcommittee’s interest in seeking assurance that the firms enlisted in such roles can pursue the public interest without compromise. 

Thank you, Mr. Chairman. 

Senator BROWN. Thank you, Mr. Alt. 

Mr. Flanagan, thank you for joining us. 

STATEMENT OF JAMES F. FLANAGAN, LEADER, U.S. FINANCIAL SERVICES PRACTICE, PRICEWATERHOUSECOOPERS 

LLP 

Mr. FLANAGAN. Thank you. Thank you, Chairman Brown, thank 

you, Senator Warren, for the opportunity to appear today on behalf 

of PwC. 

I lead PwC’s Financial Services Practice, which means I help to 

manage and oversee the firm’s diverse businesses in banking capital markets, insurance, and our asset management sectors. We are 

a partnership of over 37,000 professionals in the U.S. and 180,000 

globally. Together, we provide professional services to public and 

private companies, the Federal Government, State and local governments, and individuals. The foundation of our brand is the quality of our services, which are built on integrity, objectivity, and professionalism. 

PwC’s Financial Services Practice offers clients audit, tax, and 

consulting services. We understand that this Subcommittee has expressed particular interest in the role of independent consultants 
23 

in relation to Agency Enforcement Orders. The vast majority of our 

consulting engagements do not arise from Agency Enforcement Orders, but from time to time, we do Enforcement Order-related work 

and I would be happy to give the Subcommittee a flavor of our 

views about such engagements based on our experiences. 

Independent consultants are often retained in enforcement-related matters because of the independent consultants’ specialized 

expertise or because in larger complex cases independent consultants can provide the scale of assistance and review beyond that 

that the institutions or the regulatory agency can or would like to 

deploy, given other needs and obligations. 

The particular nature of a regulatory proceeding and final order 

in an enforcement action will define the qualifications necessary for 

an independent consultant. There are, however, certain baseline 

expectations for any independent consultant: Appropriate subject 

matter expertise and experience, a reputation for integrity, objectivity, and impartiality, significant experience managing projects of 

the size or complexity at issue, and sufficient trained and dedicated 

professionals to perform the quality work in a prompt and cost effective manner. 

The Independent Foreclosure Reviews, or IFRs, are a recent example of work with companies who are subject to regulatory enforcement proceedings. As the Subcommittee knows, we were engaged by four mortgage servicers to act as their independent consultants under the terms of their respective settlements with the 

Fed and the OCC. According to the terms of the Fed and the OCC 

Consent Orders, as elaborated in our engagement letters, which 

were reviewed and approved by the regulators, we were engaged to 

identify errors related to the foreclosure proceedings in 2009 and 

2010, regardless of whether they were financially harmed borrowers, but also to identify which errors resulted in financial harm 

to borrowers. 

The scale of the IFR engagements was unprecedented. As the 

GAO said in its report last week, the IFR engagements required 

application of hundreds of procedures to thousands of loan files to 

test for potential errors in dozens of categories. Over the course of 

the engagement, the scope and the procedures underlying PwC’s 

work continued to evolve. As they learned more about the servicer 

files, the regulators provided updated guidance and instruction on 

the scope and content of PwC’s testing. Independent legal counsel 

engaged by the servicers pursuant to the orders provided new 

iterations of guidance as the reviews proceeded to address the challenges of evaluating the servicers’ compliance with the laws of 

more than 50 relevant Federal and State jurisdictions. 

While the complexity and scale of the IFR engagements posed 

challenges to the independent consultants, we are proud of our 

work. This is because, on the IFR engagements, we performed our 

file reviews and made our observations objectively and impartially. 

Our teams were comprised of experienced, talented, and well 

trained PwC professionals. We cooperated fully with the regulators 

and followed their guidance, and we endeavored to communicate 

transparently and on a regular basis with the regulators who were 

overseeing and monitoring our work. 
24 

We appreciate your time and consideration of our perspectives 

and I thank you for the opportunity to appear before you and I look 

forward to answering your questions. 

Senator BROWN. Thank you, Mr. Flanagan. 

Mr. Ryan, thank you for joining us. Welcome. 

STATEMENT OF OWEN RYAN, PARTNER, AUDIT AND 

ENTERPRISE RISK SERVICES, DELOITTE AND TOUCHE LLP 

Mr. RYAN. Chairman Brown, other Members of the Subcommittee, good morning. My name is Owen Ryan and I lead the 

Advisory Practice at Deloitte and Touche LLP. 

Our Advisory Practice offers a wide range of services to clients 

in most major industries. Our services include cyber security and 

privacy, governance, regulatory, and risk management, finance operations and controls transformation, financial accounting and 

valuation, internal auditing, and mergers and acquisitions. I am a 

Certified Public Accountant and have more than 28 years of professional experience. I serve on both the Deloitte and Touche LLP 

Board of Directors and its Executive Committee. 

In your invitation, you asked our firm to discuss our role as independent consultant for financial institutions and the role of independent consultants more generally. Before I do so, I would note 

that we served as the independent consultant on the Mortgage 

Foreclosure Review for JPMorgan Chase. My remarks, I believe, 

will be responsive to your invitation letter and generally be applicable to our Foreclosure Review engagement. 

I would also note that Deloitte is not a law firm, and, therefore, 

my testimony today is not based on legal analysis but is instead 

based on my professional experiences. 

Deloitte member firms employ more than 190,000 individuals 

globally, and the United States firms employ almost 60,000 people. 

We provide professional services in four key areas: Audit, advisory, 

tax, and consulting. Our business framework allows us to provide 

a wide range of professional services based on the needs of our clients. While independent consulting engagements do not represent 

a substantial portion of our business, I can assure you that we take 

our role seriously. We strive to fulfill our professional obligations 

to provide independent, objective, and quality services consistent 

with the highest standards of our profession. 

Before accepting a role as independent consultant, our firm determines if we have the requisite experience, qualifications, and appropriate number of professionals to execute our responsibilities. 

Our professionals serving on these types of engagements generally 

have auditing, consulting, industry, or regulatory experience. Supplemental training on rules and regulations pertinent to each engagement may be necessary. In addition, it may be important for 

these professionals to have experience working on or handling 

large-scale complex and evolving engagements. We believe we were 

well qualified to serve as the independent consultant for the Foreclosure Review. 

We know from our experiences that it is important to maintain 

open communication and an appropriate working relationship 

amongst the independent consultants, the regulators, and the institutions being monitored. Frequently scheduled meetings and timely 
25 

reporting are important mechanisms for communicating our approach and progress. 

Independent consultant engagements often result from regulatory directives. As such, these engagements are subject to the 

oversight of regulators as determined by their requirements. These 

requirements generally include regulatory approval of the independent consultant and the scope and methodology to be used. 

Given the relatively small number of firms with the scale and expertise required to serve as an independent consultant on large engagements, it is often the case that a firm will have some previous 

relationships with an institution. Our policies and procedures are 

designed to ensure that each engagement is approached with due 

professional care, objectivity, and integrity, consistent with American Institute of Certified Public Accountants consulting standards. 

These policies and procedures include disclosing to the regulator 

our previous relationships with the institution before accepting the 

engagement. Circumstances may also dictate the need for us to decline the engagement altogether. 

The engagement letter generally defines our professional obligations. As part of our engagement acceptance procedures, we would 

identify any regulatory considerations that are not within our purview and expertise as an independent consultant. To the extent we 

became aware of compliance issues outside the scope of our purview, we would obviously fulfill all reporting obligations to the regulator. Deloitte policies and procedures promote the delivery of consistent, high-quality services in our independent consultant engagements. Quality control and assurance are integral to the success of 

all of our engagements and we take care to build them into the design, execution, and review of our projects. We conduct mandatory 

training for our professionals and monitor the quality of our work 

on our independent consultant engagements. 

As a firm, we have been in business for over 100 years. We know 

that our reputation is our most important asset. As such, independence, integrity, and objectivity are of paramount importance to us. 

We take very seriously our professional obligations. We have an 

overriding commitment to excellence in everything we do. 

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

will be happy to answer any questions you have. 

Senator BROWN. Thank you, Mr. Ryan. Thanks to the three of 

you. 

All of you were here for the prior panel and heard some of the 

questions that I want to ask. I want to fill in the blanks with some 

questions that were asked and fully answered or partially answered from the prior panel. 

Five consultants of the IFR are not here today. Three of you are. 

I want to ask each of you whether any of your organizations was 

given formal written notice from OCC of an opportunity to improve 

its performance. 

Mr. Alt? 

Mr. ALT. No, sir. 

Senator BROWN. OK. Mr. Flanagan? 

Mr. FLANAGAN. No, sir. 

Senator BROWN. And Mr. Ryan? 

Mr. RYAN. No, sir. 
26 

Senator BROWN. OK. Thank you for that. I like those ‘‘yes’’ or 

‘‘no’’ quick answers. Thanks. 

I addressed the issue of compensation with the regulators. Did 

any of you—and I asked the question, did any of your firms notify 

regulators that they, you, had concerns about the rate at which 

your compensation was growing. We have, as I mentioned earlier, 

at least two firms said that—I am not going to disclose which two, 

but said that they initially thought $5 to $8 million would be the 

charge. Obviously, it grew much bigger than that. 

My question, as I said, is did any of you notify the regulators you 

had concerns about the rate at which your compensation was growing, far beyond those numbers? 

Mr. ALT. Senator, we discussed with the regulators on several occasions the cost of the review and the amount of resources required, and we instituted in consultation with them many efforts 

to improve the efficiency of the review. So they certainly were 

aware that this was a concern for us. 

Senator BROWN. Did it surprise you, the size? The amount? 

Mr. ALT. Senator, we recognized from the very outset that this 

would be a very large and complex undertaking, that it would require a lot of resources over an extended period of time, and we 

clearly built that into our methodology and we communicated with 

the regulators about it. And we were also clear about the potential 

for changes in scope to increase the amount of resources. So we 

did—we anticipated—it was a large review right from the outset. 

It was a large review and we simply staffed up to handle it. 

Senator BROWN. What did you first think when you saw the 120- 

day standard, if that is a standard, the 120-day goal or deadline 

that they initially set? 

Mr. ALT. I am not—— 

Senator BROWN. Did you think that was attainable? 

Mr. ALT. No, Senator. I think it was pretty clear from the outset 

that that was not attainable and—— 

Senator BROWN. Did you tell them? 

Mr. ALT. I am sorry? 

Senator BROWN. Did you tell OCC that? 

Mr. ALT. I believe they told me that. 

Senator BROWN. That 120 was not attainable? 

Mr. ALT. I think, from the outset, what we heard from them was 

that our priority should be doing the job right and not to worry 

about the time table, and let them know if we needed an extension. 

Senator BROWN. Mr. Flanagan, same sets of questions, if you 

would. 

Mr. FLANAGAN. Certainly. 

Senator BROWN. Did you notify the regulators? 

Mr. FLANAGAN. Yes. So we had an ongoing dialogue with the regulators throughout the process, as they acknowledged in the first 

panel. So they were aware of the scope, the change in the findings 

as the process was playing out. So they were well aware throughout the evolution of the exercise and the level of effort that was 

being incurred. 

Senator BROWN. What did you think when you saw the 120 days? 

Mr. FLANAGAN. I guess I would say, at the outset, we did not 

really know what the process was going to be. So I do not think 
27 

we started it saying there is no way we will be done in 120 days. 

It became obvious very quickly that we would not, as the process 

played out. 

Senator BROWN. Did the—and you talked to OCC about that 

early? 

Mr. FLANAGAN. Yes. We had, you know, regular meetings with 

the OCC and the Fed. Our teams met with them virtually daily to 

talk about what was going on in the field. There were weekly calls 

with larger groups from the OCC and the Fed. So there was a regular dialogue with them about the activities. 

Senator BROWN. Mr. Ryan? 

Mr. RYAN. So, similarly—is it on? So, yes, we also let the regulators know about the change in scope, and, in fact, by the time our 

engagement letter was formally signed, the estimate of our professional fees was commensurate with where we ended the project. 

Senator BROWN. Mr. Alt and Mr. Flanagan—Mr. Ryan, I understand, cannot answer this, I accept that, because he had one bank. 

His firm had one bank that they worked with. The other two of you 

had at least three and also at least one of you, I know, did some 

subcontracting, were both a subcontractor and subcontracted to 

others, which confuses me a bit, but would you disclose to us how 

much you were paid by OCC and how much you were paid by the 

banks, by your clients? Again, I am not asking Mr. Ryan because 

he would have to disclose his one bank, JPMorgan Chase. You had 

multiple clients. I am asking for the aggregate number. Would you 

disclose that to the Committee now, Mr. Alt? 

Mr. ALT. Senator, to be honest, I do not know the exact number 

that we were paid in total and I am under the impression, notwithstanding—well, maybe I could tell you the total if I had it. I do not 

think I can give you bank-specific information, consistent with the 

information that I have received, or the direction that I have received from the OCC. 

Senator BROWN. Would you be willing to notify the Committee 

early next week on that final figure, that total figure? 

Mr. ALT. We could obtain the total figure for you, yes. 

Senator BROWN. OK. Good. We would appreciate that early next 

week. 

Mr. Flanagan, would you be willing to disclose that today? 

Mr. FLANAGAN. Yes, I would. 

Senator BROWN. And it is—— 

Mr. FLANAGAN. We had a conversation with our counsel coming 

into today’s hearing because of the interest in the topic and our 

counsel discussed with the servicers’ counsel, as well, to allow us 

to disclose the fees associated with the individual banks, as well. 

So the answer to your question is, for U.S. Bank, our fees were 

approximately $190 million. For Citibank, our fees were approximately $175 million. And for SunTrust Bank, our fees were approximately $60 million. 

Senator BROWN. Six-O? 

Mr. FLANAGAN. Six-O. 

Senator BROWN. OK. Thank you. Mr. Ryan, that does not make 

you get an urge to disclose JPMorgan Chase, I presume? 

[Laughter.] 
28 

Senator BROWN. You are free to, if you would like, but I understand the agreement was you would not have to. 

Mr. RYAN. So what I would say is, based on the testimony this 

morning, if we can get approval from the OCC to disclose that to 

you, then we would not be adverse to disclosing that to you. So we 

will do that after the meeting if we receive approval. 

Senator BROWN. Thank you very much for that. 

Two of you note in your testimony, Mr. Flanagan and Mr. Ryan, 

that your auditing firms must adhere to independent standards set 

by the American Institute of Certified Public Accountants. What is 

ironic here is—maybe it is not ironic. What is illustrative, perhaps, 

is that the private sector trade association, the professional association AICPA, has very specific, strict standards on behavior and 

qualifications and all that. Apparently, the OCC does not and at 

least as of an hour ago had not yet started writing sort of their prescriptive direction here. 

To Mr. Ryan and Mr. Flanagan, does that put you and your firms 

at some disadvantages to your competitors in following those rules? 

Mr. FLANAGAN. I will take that first. We are bound by the AICPA 

standards, but we believe we hold ourselves to those standards or 

higher. I go back to my earlier comments. I mean, our brand is defined by the way we execute our work, the objectivity, the independence that we bring. And so the AICPA standards are good and 

helpful in giving us a guideline, but ultimately, we believe that we 

have to demonstrate that in a market and stay true to our brand. 

Senator BROWN. Mr. Ryan. 

Mr. RYAN. I do not believe that our adhering to our professional 

standards puts us at a competitive disadvantage. In fact, I believe 

it enhances our competitive advantage because the regulators and 

institutions that have to go through consent orders and things of 

that nature understand that we will exercise our responsibilities 

with due professional care, with objectivity, and with the integrity 

that everyone would expect. 

Senator BROWN. Did it surprise you, the answer from Mr. 

Stipano earlier today from OCC, surprise you when he said that 

they had not written standards in judging who could be consultants 

with these banks? Let me ask the two of you, did that surprise 

you? 

Mr. RYAN. Well, I will go. We are going to alternate going first 

and second here. I do not know that it surprised me, per se. I do 

know that they ask us to provide a lot of information prior to our 

retention and it is thorough, their request. And, obviously, we try 

to provide them everything that we can to be responsive. And so 

it would seem like they have the same information that we would 

be using to make our own determination, because we would not 

proceed with an engagement if we did not think we would be appropriately objective. And so I guess it was surprising that there 

might not be a formal policy written, but I would imagine when 

they go into their room to have a conversation, that they are thinking the same things that we would be thinking about. 

Mr. FLANAGAN. I would say I had not considered whether they 

had a formal policy in place as they went through the process. I 

can tell you that as they vetted us before being allowed to be appointed for our four servicers, there were many questions asked of 
29 

us about the nature of the assignments and the work we had done 

with the financial institutions that we were being asked to do the 

IFR work for. But I was not aware that they had—did not have a 

specific policy in place. 

Senator BROWN. OK. I have other questions along the same lines 

of qualifications and standards, but I have gone 5 minutes over my 

time. Let me go to Senator Warren. Then we will do one more 

round of questions after she is complete with her seven or 8 minutes. Go for it. 

Senator WARREN. Thank you very much, Mr. Chairman. 

You know, I am going to ask you some questions about numbers 

and how this review was designed, but I never want to forget in 

this that the particular instance we are talking about here involved 

four million families, and it involved people who lost their homes, 

whose lives were turned upside down, people who did not sleep, 

people who had to tell their children that they were going to have 

to change schools. This is a terrible process that we have gone 

through. 

And the whole point of this review was to bring some justice, to 

give these families some compensation for what happened, to try 

to help them, but also to identify the wrongdoing and hold the financial institutions that broke the law accountable. So that was 

the whole idea behind this. 

And now the OCC and the Federal Reserve have announced a 

settlement, and the OCC has described this as it is based, at least 

in part, on a 6.5 percent error rate. I think I said earlier it was 

in their press release. I think that actually was a statement from 

the head of the OCC. 

But that means this is all the families are going to get from the 

regulators who were supposed to be looking out for them, the regulators who were supposed to be watching that this never happened 

in the first place, and the regulators who were supposed to conduct 

the investigation afterwards to make sure that these families were 

taken care of and that the banks were held accountable. 

So the questions I have are around how accurate the OCC and 

Federal Reserve settlement is. Does it really identify the law 

breaking that went on and appropriately hold these banks accountable? So I am really asking the question, have the families been 

protected or have the banks been protected? 

So I want to go back to one that I asked in the first panel, just 

to make sure I have got this right, and that is, I understand that 

you looked at about 100,000 files of the 700,000 or so that were initially collected for you. That is a subset of the four million families 

for which the review was designated. So you looked at about 13 

percent of the files that came to you, about 2 percent of the overall. 

And as I understand it, you just looked at the files as they came 

to you. 

So I just want to ask this question again. Mr. Alt, did you look 

at a random sample so that you could draw an inference about 

what had happened to all four million people? 

Mr. ALT. Senator, our sampling methodology was designed to include extensive random sampling and we were seeking to obtain results at a high level of statistical confidence. 
30 

Senator WARREN. That is right. And so when the work that you 

were doing was halted, had you completed a random sample of the 

four million families who were under review? 

Mr. ALT. No, Senator, we had not. 

Senator WARREN. All right. And I understand that you were not 

the ones who halted this process, that the OCC and the Fed halted 

this process. But I want to be clear about that. Does that mean, 

then, that what you found tells us whether or not the illegal practices of the banks occurred in 1 percent of the cases or occurred in 

90 percent of the cases? 

Mr. ALT. Senator, we were not in a position to conclude that 

based on the results at the time of the settlement. 

Senator WARREN. All right. Thank you for clearing that up, Mr. 

Alt. I appreciate it. 

I have another question, again, about what you were asked to do 

by the Federal Reserve and the OCC. Whenever something—you 

have to code these cases, basically. You have got to read these 

cases—I know they were very complicated—and, in fact, decide 

what box they belong in. Was there illegal activity? Did it cause 

someone to lose a home? No illegal activity, that sort of thing, all 

the way through. And it is a fairly complicated process. 

So it is pretty standard when you are putting something together 

like this that you worry about whether or not the person doing the 

evaluation gets it right. Your judgment call might be different from 

his judgment call. Shoot, you might have a lazy examiner, right, 

who says, yeah, it is all just great, and passes them all through. 

So the way we deal with that is you take some number of those 

cases and they are slotted in to be coded a second time and then 

there is a comparison between the first time and the second time 

and you figure out what the error rate is that your own evaluators 

are putting into it. 

So the first question I have is what did the OCC and the Fed 

require of you in terms of this sort of double-coding to figure out 

the error rate? Mr. Alt? 

Mr. ALT. Senator, we built in processes exactly as you describe 

into our methodology and we presented them to the OCC, and I 

infer that they were satisfied because they accepted them. But that 

was not their express requirement. Perhaps they would have required it if we had not built them in ourselves. 

Senator WARREN. That is all right. So what was your rate of double-coding? 

Mr. ALT. I do not know that I could give you an overall rate. We 

could perhaps obtain that. It—— 

Senator WARREN. So, let me ask it a different way. What was 

your error rate? 

Mr. ALT. It changed over time and it depended on which files we 

were looking at. There were—I mean, we were reporting error rates 

to ourselves weekly, so we monitored that all the time. 

Senator WARREN. Can you give me an idea of what your error 

rate was? 

Mr. ALT. Uh—— 

Senator WARREN. What was the range? 
31 

Mr. ALT. Senator, I really—I do not think I could do that off the 

top of my head. I would have to go and perform that research. I 

would be happy to look into it for you. 

Senator WARREN. All right. And was the error rate coming down 

over time? 

Mr. ALT. I believe it was, yes. 

Senator WARREN. All right. So I would like to know about the 

error rate. 

Mr. Flanagan, the same question for you. 

Mr. FLANAGAN. So, specific to the error rate, unlike the prior 

comments about being able to disclose to you the fee information, 

the error rate information, we believe we are not allowed to disclose at this point in time by the terms of the engagement letters 

that we have signed. 

Senator WARREN. You cannot tell me whether you had an error 

rate of 1 percent or 90 percent? 

Mr. FLANAGAN. That is my understanding, is that at this point, 

we are not able to do that. 

Senator WARREN. Mr. Ryan? 

Mr. RYAN. We are under the same confidentiality provisions. 

What I will tell you is that the error rate that has been reported 

in the media for our work is mischaracterized. 

Senator WARREN. All right. I think I will stop there, Mr. Chairman, since it is clear that we do not have the information we need 

to determine the numbers on which the OCC has based—and the 

Fed—has based this settlement. Thank you. 

Senator BROWN. Thank you, Senator Warren. We will do a second round. 

Let me go back to the standards. The GAO’s report on the Independent Foreclosure says, clearly, the lack of common criteria— 

their term, common criteria—I guess that would be a synonym of 

standards—but the lack of common criteria increased the likelihood 

of inconsistent outcomes, and we have seen the mess that this has 

created. Would you each support more consistent standards for consultants’ engagement, including a description of qualifications and 

independence? Mr. Alt? 

Mr. ALT. I suppose I would want to know exactly what the standard is, but we certainly support having standards in place and 

qualified independent consultants and so forth. Yes. 

Senator BROWN. Mr. Flanagan? 

Mr. FLANAGAN. I think it would be a helpful—I mean, as was 

commented on in the earlier panel, to take the learnings from this 

exercise and determine what additional standards might be put in 

place. 

Senator BROWN. Mr. Ryan? 

Mr. RYAN. I think the insights that were in the GAO report were 

very helpful and informative, and hopefully, those lessons will be 

learned going forward. 

Senator BROWN. OK. I want to ask you a question I asked the 

regulators about qualifications. If a consulting firm has been, repeatedly been, for lack of a better term, at the scene of the crime, 

what would it take before they are viewed as not qualified? How 

would you answer that? I will start this time with you, Mr. Ryan. 

Mr. RYAN. I am sorry. Could you repeat the question, please? 
32 

Senator BROWN. If a consulting firm has repeatedly been at the 

scene of a crime, what would it take before they are viewed as not 

qualified? 

Mr. RYAN. I am not sure exactly what you are referring to, at the 

scene of the crime—— 

Senator BROWN. Well, I will give you a couple of examples. One 

consulting firm aggressively undervalued an institution’s money 

laundering transactions, yet was chosen by OCC to be one of the 

IFAR. So—— 

Mr. RYAN. I believe that our firm would report everything that 

we had experiences with to the OCC to allow them to make any 

determination if they believed that we would be appropriately 

qualified or not, and if, for example, if we felt we were not appropriately qualified, we would recuse ourselves from providing those 

types of services if we thought there was something that we could 

not do professionally appropriate. 

Senator BROWN. Mr. Flanagan? 

Mr. FLANAGAN. My thought is that we would not put ourselves 

in a position to judge at what point some would say, you should 

not use a firm. What we focus on is not putting ourselves in that 

position, to execute the work in a thorough, thoughtful, and objective way, and to not be in a spot where someone is questioning 

whether, in fact, such an action should occur to our firm. 

Senator BROWN. Mr. Alt? 

Mr. ALT. Senator, I guess it would depend on whether you are 

present at the scene of the crime as a witness or a perpetrator or 

a detective, but we would certainly expect our prior experience to 

be taken into account, and if it was—if we did not perform well, 

we would expect that to be considered. 

Senator BROWN. Thank you. I am still—I know there is a limited 

universe of people who have the expertise. I also understand some 

of you had to do a lot of new hiring. In the case of Mr. Alt, I think 

they were both a subcontractor and someone who subcontracted to 

someone else. But I guess when I look at the aggressive undervaluation of an institution’s money laundering transaction, that another consulting firm watered down reports to regulators, I just 

wonder how we continue to do this. 

And fundamentally, I mean, the problem here that I do not think 

anybody has really gotten their arms around is that these—that 

you work for the banks. They pay you. But you are supposed to 

represent the public interest here. On the case of—and I do not 

want to go into this in more detail on the specific money laundering issue, but, I mean, that is sort of an example that your job 

is to help the Government get to the bottom of this, as Senator 

Warren suggests, and knowing these numbers and understanding 

this. At the same time, you are paid by the banks and that is— 

so almost—and that speaks to Senator Reed’s comments. That is 

almost an automatic inherent conflict of interest. 

And then when you have got the banks—when you have got the 

other issues of past behavior, just for my last question, just talk 

that through to me, why this is a system that works. Why, when 

you have worked, every one of you, because of your size and generally good work, has worked for a number of these financial institutions, you will be asked again, you are supposed to represent the 
33 

public interest but ultimately you are representing this private interest, the bank that hires you, how does that—why should the 

public think that is a good arrangement? How do I go back to 

Cleveland or Dayton and explain this is a good arrangement instead of something else that nobody has figured out perhaps yet? 

I will start, Mr. Flanagan, with you. 

Mr. FLANAGAN. Sure. So, let me go back to your beginning comments as it relates to the people that we use and what we execute, 

or what that relates to PwC. Over the course of the engagement, 

we probably had close to 3,000 people work on the varying assignments. There were 1,500 people that were working on this assignment at the time of its termination. They were all PwC people. 

They were trained by our firm. They were deployed by our firm. 

And they are still working in our firm today. So just to be clear, 

for the record, about the nature of the people we used—and I would 

suggest some confidence that people should take, then, in the objectivity that we applied in executing the work. 

As was mentioned in the earlier panel, the options in terms of 

bringing a firm like ours in and who was going to pay, it was either 

the servicers or the OCC and the Fed directly. In this example, the 

decision was made to have the fees go directly to the servicers and 

have them pay us. 

I can assure you, the approach we took was that we were going 

to do the job well and stay true to our firm, our brand and our objectives. That is the approach we were going to take. We have done 

that for 100-plus years and it has served us well, and we think 

that is the way the market should look at us and, in fact, why the 

OCC and the Fed in their earlier comments commented upon why 

firms like ours are important for them to be able to leverage. 

Senator BROWN. Mr. Ryan? 

Mr. RYAN. So, a very similar answer in the sense that, first of 

all, we did not hire anyone additional to work on the Foreclosure 

Review. We had all the professionals within our firm. And, similarly, they are still all here with us and they have been trained appropriately. 

I think, importantly in the Foreclosure Review, we made it very 

clear that our client principally was the regulators. We let—made 

everyone on our team understand that. We communicated that numerous times to ensure that everyone knew that we had a responsibility to execute on behalf of the regulators who were trying to 

do their work on behalf of those borrowers who were harmed, similar to what Senator Warren described. 

And so I think we have done that very well, and I believe that 

our impartiality, our objectivity, really came through in the way we 

conducted our responsibilities. And all the feedback we received 

from the regulators are that they were satisfied with the work we 

were doing and how we were doing it. 

Senator BROWN. Mr. Alt, and then putting a little bit different 

aspect to the question, one of your principals and founders, Alan 

Blinder, said this was not in your sweet spot. You hired a number 

of people, I understand, including, and correct me if I am wrong, 

a number of them were foreign nationals, I guess. There is nothing 

wrong with that, but I just—and you both subcontracted and were 

a subcontractor. If you would sort of explain that. 
34 

Mr. ALT. Senator, a project of the scale and complexity of the 

Independent Foreclosure Review, I would submit, is not in anybody’s sweet spot. But it was a large, complex review and we have 

done large, complex reviews before. It was a review with a subject 

matter in mortgage servicing and we have familiarity with that 

subject matter. We were confident that we could put together a 

team that could handle the review, and we believe that we did that 

and we believe we faithfully carried out the directions of the OCC 

at a high standard of professionalism, and, frankly, we are proud 

of the work that our teams did here. 

The question that you were asking about the conflict between 

being paid by the banks while working for the regulators, I think 

is an important question, and there is an inherent conflict there 

and you are right to focus on it. There are checks in a process like 

this to try and mitigate that conflict and make sure that it does 

not become problematic, in fact, and the primary check is the regulatory oversight. 

And in all of our work as an independent consultant, we are subject to close regulatory oversight. That was especially true in the 

foreclosure review. We met with the regulators constantly. They 

were aware of every aspect of our process. They had absolute transparency into our work papers. They could meet with our personnel 

at any time. They were onsite frequently. Every aspect of this review was subject to very close regulatory oversight, and I believe 

that was an effective check on our independence. 

Senator BROWN. Thank you. 

Senator Warren. 

Senator WARREN. Thank you. 

So, I just want to take a look at the Independent Foreclosure Review payment agreement details. I think you have probably all 

seen this one-page agreement that lists all of the things that the 

banks did wrong and then boxes for how many people fall into each 

category and how much money they are going to be paid. Is that 

right? Have you all seen this? 

Mr. RYAN. Yes. 

Senator WARREN. And this was put out—who put this out? Mr. 

Flanagan? 

Mr. FLANAGAN. [Nodding head.] 

Senator WARREN. I think this was put out by the OCC and the 

Federal Reserve, is that right—— 

Mr. RYAN. Yes. 

Senator WARREN.——as a part of the settlement details. So I just 

want to ask you about this. It has some pretty amazing categories 

here. The first category is about servicemembers who were protected by Federal law whose homes were unlawfully foreclosed. It 

has got people who were current on their payments whose homes 

were foreclosed. It has got people who were performing all of the 

requirements under a modification who lost their homes to foreclosure. And it tells how many people fall into each category and 

how much money the people in that category will receive. And it 

ultimately resolves what will happen to 3,949,896 families. 

So the question I have is, having resolved this nearly four million 

families, who put the people, the families, into each of these boxes? 

Is that what your firms did? Mr. Ryan? 
35 

Mr. RYAN. No, Senator, we did not. 

Senator WARREN. So who put them in? 

Mr. RYAN. Well, I am not sure how that schedule was prepared. 

I saw it for the first time yesterday. 

Senator WARREN. Mr. Flanagan? 

Mr. FLANAGAN. Same response. We were not involved in the accumulation of that information. 

Senator WARREN. Mr. Alt? 

Mr. ALT. Senator, I have seen this schedule, but I am not familiar with the basis for its preparation. 

Senator WARREN. So let me understand this. You ran the Independent Reviews, right? That is what you got paid to do. And yet 

I presume the only one left is the banks must have put them in 

these boxes, and you made no independent review of their going 

into these boxes? You were not asked to do that? Mr. Alt? 

Mr. ALT. No, Senator, we were not asked to do that. 

Senator WARREN. Mr. Flanagan? 

Mr. FLANAGAN. No, we were not. 

Senator WARREN. Mr. Ryan? 

Mr. RYAN. We were not, Senator. 

Senator WARREN. So that leaves us with the banks that broke 

the law were then the banks that decided how many people lost 

their homes because of their law breaking, and as a result, how 

many people would collect money in each of these categories. Is 

that right, Mr. Alt? 

Mr. ALT. Senator, as I said, I am not familiar with the basis for 

the schedule—— 

Senator WARREN. But there is no, so far as you know, no independent review of the banks’ analysis of how many families broke 

the law. You looked at 100,000 cases and the banks have now put 

four million people into categories and resolved, finally, how much 

they will get from this review by the OCC and by the Federal Reserve, is that right? Mr. Ryan? 

Mr. RYAN. Senator, my understanding was the banks were supposed to put this together and the OCC was going to look at it, but 

I do not know exactly what transpired. 

Senator WARREN. All right. But you made no independent review 

of this, were not asked to make any independent review of this. 

Mr. RYAN. We did not. 

Senator WARREN. Mr. Flanagan? 

Mr. FLANAGAN. PwC was not involved in the settlement or the 

preparation of that schedule. 

Senator WARREN. All right. Mr. Alt? 

Mr. ALT. Same answer, Senator. We were not involved. 

Senator WARREN. All right. I just wanted to make sure, because 

it appears that the people who broke the law are the same people 

now who have determined who will be compensated from that law 

breaking. I just find this one amazing. Thank you. Thank you for 

your help. 

Mr. Chairman, I do not have any other questions. 

Senator BROWN. Thank you, Senator Warren. 

To all of you, Mr. Ryan, thank you. Mr. Alt, thank you. Mr. 

Flanagan, thank you. The record will be open for 1 week for Committee Members, those here or those not here, to ask you questions 
36 

in writing. If you would get those back to us as quickly as you can, 

if Members do that. 

The hearing is adjourned. Thank you very much. 

[Whereupon, at 12:17 p.m., the hearing was adjourned.] 

[Prepared statements and responses to written questions supplied for the record follow:] 
37 

*Statement required by 12 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. 

PREPARED STATEMENT OF DANIEL P. STIPANO 

DEPUTY CHIEF COUNSEL

OFFICE OF THE COMPTROLLER OF THE CURRENCY * 

APRIL 11, 2013 

I. Introduction 

Chairman Brown, Ranking Member Toomey, and Members of the Subcommittee, 

I welcome this opportunity to discuss the role of independent consultants in the Office of the Comptroller of the Currency’s (‘‘OCC’’) enforcement process. In its letter 

of invitation, the Subcommittee expressed interest in the OCC’s use of enforcement 

actions to require regulated institutions to retain independent consultants, and the 

OCC’s oversight of the independent consultants when they are required. 

The OCC uses its supervisory and enforcement authorities to ensure that national 

banks and Federal savings associations (‘‘banks’’) operate in a safe and sound manner, provide nondiscriminatory access to financial services, treat customers fairly, 

and comply with applicable laws and regulations. As described below, the OCC and 

the other Federal banking agencies (‘‘FBAs’’) have a broad range of supervisory and 

enforcement tools to achieve this purpose. The FBAs’ powers include the power to 

require banks to take specific actions to address and correct violations of law and 

unsafe or unsound practices. Pursuant to this authority, the OCC may require 

banks to retain independent consultants to work with them to identify the underlying causes of the violation or unsafe or unsound practice and to facilitate their 

correction. 

The OCC has used its enforcement authority to require banks to retain independent consultants in a significant number of cases and for a variety of purposes. 

For example, the agency has required banks to retain independent consultants to 

provide expertise needed to correct operational and management deficiencies; to 

comply with legal requirements, such as the Bank Secrecy Act (‘‘BSA’’); and to provide restitution for violations of consumer protection statutes. In these and other instances, the use of independent consultants provides banks with the additional 

knowledge, experience, and resources required to address deficiencies identified 

through the supervisory process. While we have found the use of independent consultants useful in many circumstances, it can be particularly valuable for community banks, which may lack the necessary expertise and resources to correct the 

problem on their own. In such cases, the use of independent consultants is not only 

helpful, but necessary, to ensure that the bank takes the requisite corrective action 

to operate safely and soundly and in compliance with the law. The use of independent consultants does not, however, absolve bank management and the bank’s 

board of directors of their responsibilities. In this regard, a bank’s board of directors 

is responsible for ensuring that all needed corrective actions are identified and implemented. 

Similarly, it is important to note that the independent consultants are not substitutes for the supervisory judgment of the OCC. The OCC retains sole responsibility for supervising the bank, including overseeing and assessing the bank’s compliance with an enforcement action. 

The use of independent consultants as part of the Independent Foreclosure Review (‘‘IFR’’) differed substantially from the agency’s normal practice in many significant ways. The breadth, scale, and scope of the reviews were unprecedented, as 

were the large number of institutions, independent consultants, and counsel involved in the process. The file reviews provided to be much more complex and challenging than we anticipated, and involved a number of decision points, all of which 

required substantial oversight by the OCC. In retrospect, it is clear that our approach under the IFR process did not serve the agency’s objectives which were, first 

and foremost, to compensate borrowers in a timely manner for the financial harm 

they suffered from faulty foreclosure practices. Our failure to fully appreciate the 

breadth, scale, and complexity of the reviews and to define a comprehensive and effective project plan at the outset hampered the process. 

While the use of independent consultants can be an effective supervisory tool, 

there are certainly lessons to be learned from our experience, and we believe we can 

improve the process going forward. To that end, we plan to draw on our recent experiences when requiring banks to retain independent consultants and to enhance our 

oversight of the consultants when they are utilized. 
38 

1OCC’s Enforcement Action Policy, which was publicly released as OCC Bulletin 2011–37, 

provides for consistent and equitable enforcement standards for national banks and Federal savings associations and describes the OCC’s procedures for taking appropriate administrative enforcement actions in response to violations of laws, rules, regulations, final agency orders, and 

unsafe or unsound practices or conditions. 

The Subcommittee’s interest spans a broad range of topics. My testimony covers 

five key areas: 1) the OCC’s authority to require the use of independent consultants; 

2) the circumstances in which the OCC has ordered banks to engage independent 

consultants; 3) the OCC’s oversight of independent consultants; 4) an overview of 

some of the significant results of the use of independent consultants; and 5) the future use of independent consultants in OCC enforcement actions. 

II. The OCC’s Enforcement Authority 

The OCC’s enforcement process is directly related to our supervision of banks. The 

OCC addresses operating deficiencies, violations of laws and regulations, and unsafe 

or unsound practices at banks through the use of supervisory actions and civil enforcement powers and tools. Our enforcement policy 1 is to address problems or 

weaknesses before they develop into more serious issues that adversely affect the 

bank’s financial condition or its responsibilities to its customers. Once problems or 

weaknesses are identified and communicated to the bank, the bank’s management 

and board of directors are expected to correct them promptly. 

Banks are subject to comprehensive, ongoing supervision that enables examiners 

to identify problems early and obtain corrective action quickly. Because of our regular, and in some cases, continuous, onsite presence at banks, we have the ability 

in many cases to stop unsafe or unsound practices or violations of law without ever 

having to take an enforcement action. This approach permits most bank problems 

to be resolved through the OCC supervisory process. 

When this normal supervisory process does not result in bank compliance with 

the law and the correction of unsafe or unsound practices, or circumstances otherwise warrant a heightened enforcement response, the OCC has a broad range of enforcement tools. Among those tools is the ability to take formal enforcement action. 

Section 8 of the Federal Deposit Insurance Act (‘‘FDI Act’’), 12 U.S.C. § 1818, gives 

the OCC the power to take formal enforcement actions to require the cessation of 

unsafe or unsound practices and ensure compliance with any law, rule, or regulation 

applicable to banks. For example, the OCC may issue a Formal Written Agreement 

or a Cease and Desist Order (‘‘C&D’’) requiring a bank to take actions necessary 

to correct or remedy the conditions resulting from a violation or unsafe or unsound 

practice. It is pursuant to this power that the OCC requires banks, when necessary, 

to retain consultants to provide independent expertise and resources to correct deficiencies. 

III. OCC Use of Independent Consultants in Enforcement Actions 

It has been a longstanding practice of the OCC in enforcement actions to require 

banks to engage independent consultants. The nature and expertise of such consultants may vary, depending on the particular issues facing the bank and have included, for example, certified public accountants, lawyers, financial consultants, and 

information technology specialists. From 2008 through 2012, the OCC required 

banks to retain independent consultants in approximately 190 of 600 formal enforcement actions. The majority of actions taken have involved operational and compliance deficiencies, primarily in community banks. 

The OCC requires banks to retain independent consultants for a number of reasons. First, independent consultants have subject matter and process knowledge, 

and often have experience in dealing with similar situations. They can apply that 

knowledge and experience to focus on the supervisory issue, identify its scope, and 

work with bank personnel to correct the bank’s conduct and to remedy the consequences of the violation or unsafe and unsound practice. Second, independent consultants can provide the resources necessary to carry out a task in a timely manner. 

Finally, independent consultants are, as the name suggests, independent from the 

activities being conducted. Thus, rather than having the bank review itself, the OCC 

may require the use of a third-party to exercise independent judgment in assessing 

the scope of the problem and the remedy. In all cases, however, the OCC retains 

the final decision in determining whether the bank’s corrective actions are sufficient. 

The OCC has long required banks to retain independent consultants to assist the 

bank in addressing significant management and operational deficiencies. For example, in a sizable number of cases, when the OCC has supervisory concerns about 

bank management’s ability to accurately assess the credit quality of a bank’s port-
39 

folio, the OCC has ordered the bank to retain an independent consultant to review 

asset quality until such time as the bank implements an effective internal asset 

quality review system. In cases in which there is a question about the accuracy of 

a bank’s books and records, the OCC has required banks to retain auditors to review 

those records, to assess their completeness and report on any deficiencies. The OCC 

has also ordered banks to retain independent consultants to perform annual reviews 

of methods used by banks to establish an allowance for credit losses. The OCC has 

required similar engagements by bank management to address deficiencies in a variety of other circumstances involving real estate appraisals, compensation, internal 

controls, and information technology systems. The majority of these cases are concentrated in community bank enforcement actions and reflect the fact that those institutions often have the greatest need for the expertise and resources that an independent consultant can provide to the banks’ efforts to address deficiencies. 

More recently, in a substantial number of cases, the OCC has ordered banks of 

all sizes to retain independent consultants to address deficiencies in compliance 

with the BSA and anti-money laundering laws and regulations. These actions sometimes require the retention of an independent consultant to conduct a review of a 

bank’s BSA staffing, risk assessment, and internal controls. The goal of such an engagement is to secure a thorough analysis of the responsibilities and competence of 

existing bank BSA staff; to assess the levels of risk to the bank given its account 

activity, customers, products, and the geographic areas in which it operates; and to 

review the adequacy of internal controls given the risks posed by the bank’s profile. 

Based upon that analysis, the orders typically require the independent consultant 

to provide a report to bank management and the bank’s board of directors that includes recommendations for improvements to the bank’s BSA program to ensure future compliance with regulatory requirements. 

In other instances, the OCC has required the engagement of an independent consultant to conduct a review of the adequacy of actions already taken by the bank 

pursuant to its BSA program. These ‘‘look-backs’’ involve reviews of filings made by 

a bank pursuant to the BSA requirements. For example, a number of orders issued 

by the OCC have required banks to retain independent consultants to review transaction activity to determine whether Suspicious Activity Reports (‘‘SARs’’) need to 

be filed by the bank, whether SARs filed by the bank need to be corrected or amended to meet regulatory requirements, or whether additional SARs should be filed to 

reflect continuing suspicious activity. The OCC has ordered similar look-backs by 

independent consultants of a bank’s currency transaction reporting. Following these 

look-backs, OCC enforcement actions have required banks to amend or correct existing filings and make other filings as required for any previously unreported activity 

that falls within the regulatory requirements. 

The OCC has also ordered banks to engage independent consultants in consumerrelated enforcement actions. For example, in a number of actions to remedy significant consumer law violations, including violations of Section 5 of the Federal Trade 

Commission Act regarding unfair or deceptive practices, the OCC has ordered banks 

to engage independent consultants to identify affected consumers, to monitor payments to such consumers, and to provide written reports evaluating compliance with 

specific remedial provisions in the enforcement actions. Similarly, the OCC has 

mandated the retention of an independent consultant to assist banks in developing 

and implementing a restitution plan provided for in the action. Finally, the OCC 

has required the engagement of independent consultants with claims administration 

experience to assist in carrying out the payment of required restitution to customers 

harmed by unfair or unsafe or unsound practices. 

In these and other engagements mandated by OCC enforcement actions, the independent consultants are providing expertise and resources to banks to promote compliance with regulatory obligations. The independent consultants are not playing a 

regulatory role. That is solely the province of the OCC. 

IV. OCC Oversight of the Use of Independent Consultants in Enforcement 

Actions 

The OCC oversees independent consultants in a number of ways. At the outset, 

the OCC can compel the bank to submit the independent consultant’s qualifications 

to the OCC for prior review and non-objection permitting the agency to assess 

whether the independent consultant has the requisite expertise and resources. This 

determination is based upon the OCC’s exercise of informed supervisory judgment 

given the particular circumstances of the bank and the deficiency that gave rise to 

the enforcement action. The OCC also considers the proposed consultant’s existing 

and prior relationships with the bank and potential conflicts of interest to determine 

whether there is a reason to believe that the independent consultant should not be 

engaged by the bank. 
40 

In addition, prior to the engagement of the independent consultant, the OCC often 

reviews the engagement agreement to determine whether the scope of the work, the 

resources dedicated to the project, and the proposed timeline for completion are consistent with the intent of the enforcement action. If at any time the OCC determines 

that the scope of the engagement is not consistent with that intent, we can require 

the bank to modify or terminate the agreement. 

Thereafter, the OCC oversees the consultant and the progress of the engagement 

through its supervisory authority over the bank. The types and frequency of interactions between the OCC, the bank, and the independent consultant depend upon 

the particular facts and circumstances covered by the enforcement action, the expertise and resources of bank management, and the nature of the independent consultant’s engagement. For example, in some cases, the issue may be discrete and the 

independent consultant’s role is limited to the remedial steps the bank must take 

to comply with the enforcement action. In such circumstances, the appropriate oversight may involve very limited interaction. In other cases, the seriousness of the violation and its consequences may require more frequent interactions between the examiners, the bank, and the independent consultant, including periodic reports and 

meetings, to make certain that the engagement is proceeding properly and that the 

bank is taking the appropriate steps to correct the deficiency. If the OCC determines 

that is not the case, the OCC can direct the bank to take the actions necessary to 

put the process back on track. 

At the conclusion of the engagement, the enforcement actions often require a report of the findings and recommendations by the independent consultant to the 

bank’s board of directors and management that is also required to be provided to 

the OCC. This gives the OCC the opportunity to assess whether all matters described in the action were addressed. If not, the OCC can require additional work 

to be performed or, if necessary, direct the bank to retain a different independent 

consultant. In a number of instances, the enforcement action also calls for the bank 

to prepare a plan to address the findings of the independent consultant. Such plans 

are often made subject to OCC review and non-objection before they can be implemented allowing the OCC to determine whether the underlying violations or practices will be corrected and remediation will be appropriately undertaken by the 

bank as called for in the enforcement action. Finally, the OCC examines the results 

of this entire process to validate that the bank, working with the independent consultant, has addressed and corrected the violation or unsafe or unsound practice 

that formed the basis for the enforcement action. 

The circumstances in which independent consultants were used under the IFR 

pursuant to the OCC’s April 2011 Consent Orders, differed substantially from the 

typical use of independent consultants in OCC enforcement actions. The unprecedented breadth, scale, and scope of the reviews; the large number of institutions, 

independent consultants, and counsel involved in the process; and the complexity of 

the file reviews, which involved hundreds if not thousands of decision points on each 

file, required substantial regulatory oversight by the OCC and the coordination of 

multiple independent consultants’ efforts. This expanded oversight included the 

issuance of joint guidance with the Federal Reserve Board; examiner visitation to 

the work locations of each of the individual consultants involved in the IFR process; 

and daily communications among consultants, servicers, and OCC supervision staff 

throughout the entire IFR process. 

V. Significant Results 

The enforcement actions in which the OCC has required the retention and use 

of independent consultants have produced significant positive results in many cases, 

and the independent consultants that were retained played key roles in bringing 

about those results. For example, in consumer cases, the independent consultants 

were engaged to facilitate or ensure the payment by banks of hundreds of millions 

of dollars to consumers as a remedy for violations of consumer protection statutes. 

Similarly, in BSA cases, the OCC’s requirement that banks engage independent 

consultants to conduct look-backs has resulted in substantial additional filings of 

SARs and, in certain cases, supported the OCC’s assessment of significant Civil 

Money Penalties in response to the identified systemic failures of the banks to meet 

their anti-money laundering obligations. Over the past 10 years, these BSA lookbacks have resulted in thousands of additional or amended SAR filings covering approximately $23 billion in suspicious activity. 

In all of these cases, the independent consultants, engaged by banks as a result 

of an OCC enforcement action, were instrumental in assisting the banks in addressing and correcting the underlying deficiencies and bringing about a successful supervisory outcome. 
41 

2 In order to take an enforcement action against an independent contractor, the OCC is required to prove that the contractor engaged in knowing or reckless misconduct that ‘‘caused or 

is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the 

insured depository institution.’’ 12 U.S.C. § 1813(u)(4). 3 In Grant Thornton v. Office of the Comptroller of the Currency, 514 F.3d 1328 (D.C. Cir. 

2008), the court held that the OCC must prove that the contractor was involved in the ‘‘business 

of banking’’ to meet the statutory jurisdictional requirements. Despite the fact that Grant 

Thornton was retained by the bank as a result of an agreement with the OCC to engage a nationally recognized accounting firm to conduct an audit of the bank’s mortgage program and related records, the court held that the work performed by Grant Thornton did not fall within 

the business of banking and, therefore, the OCC had no jurisdiction to proceed. 

VI. Future Use of Independent Consultants 

The use of independent consultants has generally served the agency well in promoting banks operating in a safe and sound manner and in compliance with law. 

Given the experience with the IFR, the OCC is currently evaluating its use of independent consultants and exploring ways to improve the process, particularly for situations involving significant consumer harm or law enforcement implications. 

While the OCC believes its authority and use of independent consultants is generally appropriate, there is one area where we believe legislative action could be 

helpful. Under the current statutory scheme, the OCC faces significant jurisdictional 

obstacles if it seeks to take an enforcement action directly against an independent 

contractor.2 A recent court decision has further elevated the standard for taking 

such enforcement actions.3 The OCC would welcome a legislative change in this 

area that would facilitate our ability to take enforcement actions directly against 

independent contractors that engage in wrongdoing. Such a legislative change would 

be useful not only with respect to the use of independent contractors in an enforcement context but also, and perhaps more importantly, in cases where a bank has 

chosen to outsource significant activities to an independent contractor. 

VII. Conclusion 

The OCC’s longstanding practice to require banks to retain independent consultants to help them meet enforcement requirements has generally worked well. 

Through this practice, the OCC has caused banks to address effectively a variety 

of operating and management deficiencies, to come into compliance with laws, rules 

and regulations, and to operate in a safe and sound manner. Nonetheless, we believe there are lessons to be learned from both our recent experience and our many 

years of experience with independent consultants, and we are exploring ways to enhance the process. 

PREPARED STATEMENT OF RICHARD M. ASHTON 

DEPUTY GENERAL COUNSEL

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

APRIL 11, 2013 

Chairman Brown, Ranking Member Toomey, and Members of the Subcommittee, 

thank you for the opportunity to testify regarding the required use of third-party 

consulting firms (consultants) in Federal Reserve enforcement actions. 

Use of Consultants by Regulated Banking Organizations 

At the outset, it might be helpful to point out that regulated banking organizations routinely choose to retain consultants for a variety of purposes apart from any 

supervisory directive by regulators to do so. Banking organizations decide to retain 

consultants because these firms can provide specialized expertise, familiarity with 

industry best practices, a more objective perspective, and staffing resources that the 

regulated organizations do not have internally. In this respect, reliance on consultants can significantly contribute to the overall efficient governance and management 

of these organizations as well as to their safe and sound operation and their compliance with supervisory expectations and legal requirements. 

Use of Consultants in Federal Reserve Enforcement Actions 

In the vast majority of Federal Reserve enforcement actions, the organization 

itself, using its own personnel and resources, is directed to take the necessary corrective and remedial action. In appropriate circumstances, the Federal Reserve has 

found that it can be an effective enforcement tool to require regulated organizations 

to retain a consultant to perform specific tasks on behalf of that organization. However, the mandatory use of a consultant has typically not been a frequent require-
42 

ment in Federal Reserve enforcement actions. And, importantly, consultants are 

used to conduct work that ordinarily the organization itself would be required to 

conduct. At all times, the Federal Reserve retains authority to, and does, review and 

supervise the consultant’s work in the same manner as if the institution conducted 

the work directly. In all cases, the regulated organization is itself ultimately responsible for its own safe and sound operations and compliance with legal requirements. 

As a general rule, our enforcement actions require the use of consultants to perform specific functions that the organization involved should do but has shown that 

it cannot perform itself. This may be because a particular organization lacks the 

necessary specialized knowledge or experience. Similarly, the organization may not 

have sufficient staffing resources internally. In addition, it may be necessary to have 

a third party undertake a particular project because a more objective viewpoint is 

required than would be provided by the organization’s management. Over the last 

10 years, for instance, there were consultant requirements in an average of less 

than 15 percent of all formal enforcement actions taken by the agency. In addition 

to formal enforcement actions, Federal Reserve examiners may informally direct organizations to retain consultants to undertake designated engagements on behalf of 

the organization where circumstances warrant. 

In our enforcement actions, we required the use of consulting firms to perform 

several limited, specialized types of work. In many of these enforcement actions, an 

expert third party must be retained to review and submit a report on a specific area 

of the organization’s operations. These mandated reviews by consultants have often 

involved an evaluation of an organization’s compliance program, its accounting practices, or its staffing needs and the qualifications and performance of senior management. These enforcement directives usually require the organization to incorporate 

the findings of the report into a plan to improve that particular area of operations. 

Federal Reserve regulators may also use the product of a consultant’s work as a 

guide in developing the ongoing supervision of the organization. 

Another type of enforcement action where use of consultants has been required 

involves situations where examiners have found serious past deficiencies in an organization’s systems for monitoring compliance with Bank Secrecy Act and anti-money 

laundering (BSA/AML) requirements. In these cases, our actions have required a 

consultant retained by the organization to review certain kinds of transactions that 

occurred at the organization over a specific past period of time and determine 

whether BSA/AML reports were filed as required with regard to those transactions. 

These reviews require the consultant to identify situations where a suspicious activity report or a currency transaction report should have been filed, rather than to 

perform an assessment of the organization’s compliance program. After receiving the 

results of the consultant’s review, the organization would then file all the required 

reports with the appropriate government agencies. 

Finally, in several recent enforcement actions that required organizations to identify and then compensate or otherwise remediate injured consumers, the organizations have been required to retain consultants to administer that process. In these 

actions, the consultants were required to make recommendations about the appropriate remediation to individual consumers or to make remediation decisions about 

individual consumers or review the organization’s remediation decisions. 

Federal Reserve Oversight of Consultant Performance 

When enforcement actions require a regulated banking organization to use a consultant to carry out a particular function, the Federal Reserve oversees the organization’s implementation of this directive. Our standard practice is to require the organization’s retention of a consulting firm to be first approved by the Federal Reserve. We typically look at the particular expertise and experience of the selected 

consultant. The resources and capacity of the firm to carry out the particular engagement are also examined. Whether the consultant has the appropriate objectivity 

and separation from management is also a key factor in assessing the acceptability 

of the firm. To assess objectivity, we examine the extent and type of work that the 

consultant has done for the organization in the past. One guiding principle is that 

a consulting firm should not be allowed to review or evaluate work that it has previously done for the organization. How these factors are evaluated is necessarily determined on a case-by-case basis, depending on the specific type of task the consultant is being required to perform. However, the approval of particular consultants 

is not perfunctory; where warranted we have disapproved a consultant that has 

been selected by an organization under an enforcement order requirement. 

Additionally, our general practice is to explicitly require that the letter between 

the organization and the consulting firm or other documentation that describes the 

scope, terms, and conditions of the particular engagement be approved by the Federal Reserve. Thus, we are able to assess whether the consultant’s planned work 
43 

1Of the 16 servicing organizations subject to enforcement actions requiring independent foreclosure reviews, 10 are regulated by the Office of the Comptroller of the Currency, four are regulated by the Federal Reserve, and two organizations are regulated by both agencies. 

will be consistent with what was intended in the enforcement action and whether 

effective safeguards of objectivity will be maintained. 

We also oversee the consultant’s performance during the course of the engagement. This oversight can involve obtaining and reviewing interim progress reports 

from the consultant. We also can call for periodic meetings with consultant personnel, which can be as frequently as every week. If a consultant is not meeting 

the required standards of performance, we will inform the organization of the needed improvements, applying the same criteria as if the organization was performing 

the work with its own personnel. 

In sum, it is important to note that consultants retained under Federal Reserve 

enforcement actions work for the organization that retained them, and the organization, not the consultant, is responsible for correcting the deficiencies that triggered 

issuance of the enforcement action and for preventing their reoccurrence. Requiring 

the use of consultants to assist in implementing corrective and remedial measures 

is just one tool available to Federal Reserve regulators in fashioning formal enforcement actions. Our experience has shown that consultants can be expected to provide 

the expertise, experience, and third-party perspective needed by the regulated banking organization to better meet supervisory objectives, including assisting the regulated organizations with correcting particular governance or operational deficiencies 

identified through the supervisory process. However, in deciding to use this tool in 

appropriate cases, the Federal Reserve does not cede its regulatory responsibilities 

or judgment to those consultants. We require that regulated organizations comply 

with the same basic standards of prudent practices and compliance with applicable 

laws and regulations, irrespective of whether an organization has relied on the assistance of a consultant or not. 

Use of Independent Consultants in the Independent Foreclosure Review 

Although it is not the specific subject of this hearing, it might be helpful to note 

briefly the independent foreclosure reviews required by the consent orders issued by 

the Office of the Comptroller of the Currency and the Federal Reserve against major 

mortgage servicing firms, and the role of the independent consultants required 

under those orders.1 In those mortgage servicing orders, the servicers were required 

to retain independent consultants to review foreclosure files of borrowers within a 

2-year period to identify financial injury caused by servicer error. Recently, the regulators and 13 of the servicers subject to the foreclosure orders entered into agreements under which these servicers must make cash payments to borrowers and provide other borrower assistance. These payments and other assistance replace the 

independent foreclosure review by independent consultants that had been required 

of these servicers under the initial orders. 

As we have explained, the regulators accepted these agreements with the 13 

servicers because the agreements provided the greatest benefit to borrowers potentially subjected to unsafe and unsound mortgage-servicing and foreclosure practices 

in a more timely manner than would have occurred under the review process. In 

practice, for these servicers, the scope of the inquiry required of the consultants to 

conduct the independent foreclosure review proved over time to be more expansive, 

time-consuming, and labor-intensive than what is typically required of consultants 

in Federal Reserve enforcement actions. The result was significant delays in providing funds to consumers. Accordingly, the decision to replace the review of individual foreclosure files by the consultants with agreements to pay cash and provide 

other assistance to borrowers was based on the specialized and unprecedented nature of the particular reviews the consultants were required to undertake. 

Thank you again for the invitation to appear before the Subcommittee today. I 

would be pleased to answer any questions you might have. 

PREPARED STATEMENT OF KONRAD ALT 

MANAGING DIRECTOR, PROMONTORY FINANCIAL GROUP, LLC 

APRIL 11, 2013 

Mr. Chairman and Members of the Subcommittee, my name is Konrad Alt. Since 

2004, I have been a Managing Director of Promontory Financial Group, based in our 

San Francisco office. Prior to joining Promontory, I held senior executive positions 

in the financial services industry and at the OCC, and served as counsel to this 
44 

Committee. I am pleased to appear before you. My colleagues and I are grateful for 

your leadership on the important topic of this morning’s hearing. 

My firm, Promontory Financial Group, has served as a formally designated independent consultant dozens of times, in connection with the enforcement activities 

of over a dozen different regulatory and law enforcement authorities, domestic and 

foreign. We believe our firm is well-suited to this role, and we take pride in these 

assignments. We appreciate, however, that the use of private-sector resources to further public purposes can present special challenges. We are pleased to discuss our 

experience with those challenges with this Subcommittee today. 

Your invitation letter raised nine specific questions. I will address each of them 

in turn. 

Promontory’s Business Framework 

Your first question asked that we address Promontory Financial Group’s business 

framework and how independent consulting fits into that framework. 

Broadly speaking, Promontory Financial Group’s business centers on helping financial institutions meet their business challenges in a manner consistent with regulatory requirements and expectations. Clients typically come to us for assistance 

in strengthening a particular aspect of their risk management or corporate governance, or because they want an independent assessment of whether some aspect of 

risk management or corporate governance needs strengthening. Our clients range 

from large, complex broker-dealers and central banks to credit unions and community lenders, and our work takes many forms. For example, we may be enlisted to 

help test risk models, run stress tests, administer compliance reviews, review board 

performance, perform a mock examination, or recommend improvements in operational risk reporting. Depending on the assignment, we can recommend improvements to strengthen corporate governance or risk management, bolster capital and 

liquidity, or better protect consumers. And, when approved to serve in a formally 

independent capacity, we can support the efforts of regulators by providing additional subject matter expertise or simply additional arms and legs. 

Our assignments are often challenging. They require us to synthesize many different types of information, to perform complex analyses, and to formulate and deliver actionable recommendations, often under short deadlines. Our work can have 

important consequences for the institutions we work with, for the individuals who 

work in them, and for their customers. We have a responsibility to take these assignments seriously, and we do. 

We believe that expertise, experience, and integrity are fundamental to our success, and we work hard to build and maintain a team of senior professionals who 

can deliver those qualities to our engagements. Many of our senior professionals 

have decades of experience. They know the laws and regulations deeply, and believe 

that compliance with them is centrally important to the fair and efficient operation 

of our financial system. More than that, they understand the expectations of financial regulators and can draw on their long experience to see where regulatory issues 

may arise. 

Notwithstanding that regulators have approved the Promontory Financial Group 

as an independent consultant many times, these assignments comprise only a small 

part of our caseload, less than 5 percent of the nearly 1,500 engagements we have 

undertaken during the twelve years of our firm’s existence. 

Promontory’s Experience as an Independent Consultant 

Your second question asked that we address Promontory Financial Group’s experience as an independent consultant. 

Promontory Financial Group’s business model requires us to bring a high level of 

independent judgment to all of our engagements, not just when we are formally designated as independent consultants. If we merely told our clients what they want 

to hear, we would lose credibility when the regulators show up and tell them something different, and our business would suffer accordingly. We have to have sufficient expertise to diagnose the issues and the solutions accurately. We have to have 

the integrity to take our diagnosis to the most senior levels of management and the 

board, even when our news and views are unwelcome. And we must have enough 

tact and diplomacy to communicate a tough message in a way that leads to constructive action. 

Our independent consulting assignments have involved over a dozen different regulatory authorities, including securities regulators, banking regulators and other 

law enforcement authorities, both domestically and internationally. These assignments have been disparate in nature. Many have focused on review of a specific 

body of transactions, such as, for example, the recently concluded foreclosure review 

assignments. Others have entailed evaluations of management teams or boards of 
45 

directors. The scale and complexity of these assignments has also varied considerably. Some have been large, complex, and extended projects, but many have been 

quite small and narrowly focused. 

Qualifications of Independent Consultants 

Your third question asked about the qualifications of independent consultants. Let 

me first address our view of the necessary qualifications and then speak to our experience working with regulators as they attempt to evaluate our qualifications. 

Given my preceding comments, it should not surprise you that we believe the 

most important qualifications for independent consultants are subject matter expertise and integrity. Expertise is particularly important. A consultant without sufficient expertise cannot accurately identify issues or appreciate their significance, and 

may not notice when something seems a little off and know to dig deeper for an 

explanation. That consultant is at risk both generally of doing a poor job and specifically of being unduly influenced by management views. But expertise is not enough. 

A consultant who lacks the integrity to deliver a tough message will, if a tough message is in order, deny the institution an adequately clear understanding of both the 

problem and the solution. 

In our experience, regulators look for essentially the same qualities. Characteristically, before approving our firm to serve as an independent consultant, a regulator 

will ask us to answer a number of questions that go to both our expertise and our 

independence. To judge by the questions they pose in evaluating our credentials, 

most regulators take similar approaches to evaluating expertise. Typically, they will 

want to know both about our firm’s experience working in the subject matter under 

review, and about the qualifications of the individual or individuals proposed to lead 

and carry out the engagement. For example, if Promontory were proposed to perform an independent review of a consumer compliance issue, we would expect the 

regulator to inquire about our firm’s experience in performing similar reviews, and 

about the specific qualifications and experience of the individual or individuals slated to conduct the review on behalf of our firm. 

The questions we receive relating to independence, by contrast, are more varied, 

and tend to focus on the presence or absence of red flags suggesting a potential conflict. For example, in my own recent experience, one agency seemed particularly concerned with establishing that members of our team were free from past employment 

relationships or personal investments that could compromise their independence. 

Another focused on the nature and extent of past business relationships. A third 

wanted assurance that we would structure the working relationships with the institution to maintain our independence appropriately, for example, by memorializing 

all communications with the institution for potential regulatory review. Regardless 

of the specific concerns of the agency involved, we cooperate fully with all requests 

for information and, of course, accept the regulator’s judgment as to our fitness for 

service as an independent consultant. 

Working Relationships with Regulators and Financial Institutions 

Your fourth and fifth questions asked about the working relationship between 

independent consultants, regulators, and financial institutions and the nature of 

regulatory oversight we experience. As these questions are related, I will address 

them together. 

In our experience, regulatory agencies all employ a range of oversight methods 

with regard to the independent consultants that work for them. Not surprisingly, 

the nature and extent of regulatory oversight we experience varies according to the 

nature and complexity of the review in question. In a small project—for example, 

a short, independent review of the management team at a community bank—regulatory oversight may consist simply of presenting our final report to a regulatory 

examination team and responding to any questions they may have about our findings and recommendations. In larger, more complex assignments, regulators will 

commonly deploy additional oversight methods, which can include review and 

signoff on our review methodology; receipt of regular status reports, usually in writing and often in combination with periodic in-person or telephonic meetings; sampling of our results; review of our workpapers; review and signoff on preliminary 

findings and recommendations; and deployment of field examiners to monitor the 

conduct of our review teams. We welcome all of these oversight methods and cooperate fully with them. 

Recognizing that the goal of an independent review is to satisfy the regulator’s 

requirement and that, in performing an independent review, we are working for the 

regulator, we generally try to structure a working relationship with the regulator 

that is as transparent as we can make it. Transparency helps to ensure that any 

questions or concerns the regulator may have about our work surface proactively, 
46 

and allows the regulator to have confidence that we are pursuing our responsibilities thoroughly and professionally. To facilitate transparency, we will often incorporate into our working relationship with the regulator some of the same practices 

I have just mentioned. For example, we may on our own initiative solicit regulatory 

feedback on a proposed methodology or initiate periodic written or in-person status 

updates to the regulators. 

Our practices in regard to the financial institutions involved are similar. In general, we strive to be transparent, to avoid surprises, and to build confidence that 

we are approaching the review in a manner well-suited to identify and address the 

issues that have triggered regulatory concern. And, as with the regulators, we pursue this objective primarily through regular communication. 

Unless regulatory direction or some special characteristic of the assignment dictates otherwise, we commonly will provide the financial institution with our preliminary results, either as we develop them or in the form of a preliminary report. We 

do this primarily for purposes of fact checking. The institution has a strong incentive to highlight any information we may have missed or misunderstood, and we 

want our work to be as factually accurate and as complete as possible. Not incidentally, this practice is also helpful in enabling management to begin to understand 

and accept the results of our review. To help ensure that management pushback in 

this process doesn’t compromise the independence of our review, we make it clear 

to management that we are soliciting factual corrections only, and often provide the 

same preliminary results simultaneously to the regulators. We carefully track both 

the responses we receive from the institution and the changes, if any, we make in 

response to them, so that regulatory personnel will have a complete audit trail in 

case they wish to evaluate whether we have maintained appropriate independence. 

Potential for Compromised Quality 

Your sixth question concerns the potential for preexisting contractual or business 

relationships to compromise the quality of consultant services. 

In some circumstances, prior work with a particular institution will constitute an 

absolute bar to taking on an independent review assignment. We could not, for example, undertake to review as an independent consultant issues or programs we 

had previously reviewed, and we have declined work in such circumstances. 

More commonly, however, our prior work will not be related to the subject matter 

of the independent review. In those circumstances, prior to applying for the independent consulting assignment, we will try to make a judgment taking into account 

the nature of the prior work, the extent of past dealings, how long ago they occurred, and whether we have the ability to establish appropriate ethical safeguards 

to ensure that past relationships do not compromise our independence. We typically 

make these judgments in consultation with both the regulator and the institution 

involved. The regulator always has the final say. 

The challenges we face in this area are not unique to our firm or to the work we 

do as a formally designated independent consultant. All professional services firms, 

if they stay in business for any length of time, develop a history of past assignments 

and past clients, and must develop techniques for recognizing and mitigating the 

conflicts that such a history can present. 

Promontory Financial Group seeks to safeguard its independence and the quality 

of its reviews in three ways. 

First, we pay attention. We know that conflicts could compromise the quality of 

our work, or undermine confidence in our work, and we try to adopt and maintain 

reasonable safeguards to mitigate these risks. Depending on the issues presented, 

these safeguards have included the establishment of ethical walls, the prohibition 

of individuals with personal relationships or past employment histories with the client from serving on an engagement team, and prohibitions on soliciting other business from institutions where we have ongoing independent consulting responsibilities. In the recently concluded foreclosure review, for example, we established tollfree hotlines to allow all project team members to raise anonymously any concerns 

they might have about breaches of independence, and we supplemented those hotlines with recurring internal communications efforts, underscoring our commitment 

to independence, integrity, and professionalism. When such safeguards are not sufficient, we can decline and have declined assignments. 

Second, we can often structure the engagement in such a way as to enhance our 

independence, for example, by establishing that, in our dealings with the institution, 

we will report to an independent unit of management, such as the internal audit 

or risk function, or to an independent committee of the board of directors. Regulatory enforcement actions requiring the use of an independent consultant not infrequently require the establishment of a committee of independent directors to over-
47 

see the consultant’s work. We have found such arrangements a useful safeguard in 

many engagements. 

Finally, and most importantly, we maintain a senior team of professionals with 

strong personal stakes in their individual reputations, and the firm’s collective reputation, for integrity and professionalism. We constantly impress upon that team 

the importance of maintaining those reputations by executing our engagement responsibilities with uncompromising professionalism. We have turned down and will 

continue to turn down business when we feel we cannot pursue it at a level of professionalism consistent with our standards. 

Legal Obligations to Institutions and Regulators 

Your seventh question asked what legal obligations Promontory Financial Group 

has to both the regulated financial institution and the financial regulator during an 

independent review. 

Promontory Financial Group is not a regulated entity and we rarely contract directly with regulatory authorities. As a general matter, our legal obligations are set 

forth in detailed engagement letters that we enter into with the financial institutions that are the subject of our reviews. In situations where we serve as formally 

designated independent consultants, these engagement letters will often incorporate 

portions of the relevant enforcement action by reference. Although executed by 

Promontory Financial Group and the financial institution, these letters are commonly subject to regulatory review and, at regulatory direction, often include express language describing our obligations to regulatory authorities while serving as 

an independent consultant. Although the financial institution may be our contractual counterparty in these engagements, the regulator is effectively our client and 

we serve at the regulator’s pleasure. 

Regulatory Activities that Independent Consultants Cannot Perform 

The eighth question in your invitation letter asked that we address regulatory activities that independent consultants cannot perform, and inquired how we might 

report compliance issues we identify that are outside the scope of a particular assignment. 

We believe the answer to the first part of this question is simple: consultants cannot perform regulatory activities. Regulation is the domain of public officials, accountable to Congress and the American people. Private consultants, independent 

or otherwise, are advisors, nothing more. We don’t make regulations. We don’t issue 

guidance. We don’t assign examination ratings. And we don’t bring enforcement actions. We can make recommendations to regulators but we cannot and do not perform regulatory activities. Even when we act as a formal independent consultant 

pursuant to a regulatory enforcement action, our findings and recommendations 

have no effect until and unless the regulators adopt them. In our experience, regulators all over the world take that review and approval responsibility seriously. 

As to the second part of your question, our engagements always have a defined 

scope. We do not actively look for issues outside of that scope. How we would proceed if we nonetheless found such an issue would depend on the facts and circumstances of the situation. Whether we would escalate it to the attention of regulatory authorities might depend, for example, on whether the institution had already escalated the issue on its own initiative. 

Other Relevant Policies and Practices 

Your invitation letter’s final question asks us to describe other practices that 

Promontory Financial Group has established to ensure high quality and consistent 

oversight of financial institutions. 

In general, Promontory Financial Group is not in the business of providing oversight. As I have noted, we are consultants, not regulators. We may assist an institution in self-monitoring, a form of internal oversight, or we may, pursuant to a regulatory enforcement action, assist the oversight efforts of an agency at a particular 

institution. 

In these activities, and in all of our activities, quality and consistency matter to 

us. Both domestically and internationally, my Promontory Financial Group colleagues and I have worked to build what we believe is the world’s leading 

consultancy in our area of practice. We seek to promote quality principally by hiring 

the most experienced and expert talent we can find to lead our engagements, and 

then by giving those leaders the support they need to do their very best work. That 

support includes an outstanding pool of mid-level and junior talent to staff their engagements, as well as systems resources and education, training, and quality assurance programs to help them recognize and address consistency issues. 
48 

Concluding Observations 

The use of private sector resources to support the activities of Federal regulators 

raises a number of legitimate public policy questions. My colleagues and I applaud 

this Subcommittee’s interest in seeking assurance that the firms enlisted in such 

roles are qualified, and can be depended upon to support the public interest without 

compromise. I hope my responses to the questions your invitation letter posed have 

been helpful. I will be pleased to address any additional questions you may have 

for me this morning. 

PREPARED STATEMENT OF JAMES F. FLANAGAN 

LEADER, U.S. FINANCIAL SERVICES PRACTICE

PRICEWATERHOUSECOOPERS LLP 

APRIL 11, 2013 

Chairman Brown and Ranking Member Toomey, thank you for the opportunity to 

provide this written testimony on behalf of PricewaterhouseCoopers LLP (‘‘PwC’’). 

I lead PwC’s financial services practice. In this role, I help manage and oversee the 

firm’s diverse services to the banking and capital markets, insurance, and asset 

management sectors. 

While the vast majority of our consulting engagements are unrelated to Government enforcement proceedings, from time to time we have served as an independent 

consultant in relation to regulatory safety and soundness or compliance enforcement 

orders involving financial institutions. The most recent examples of such work are 

the Independent Foreclosure Review (‘‘IFR’’) engagements that the firm performed 

for four mortgage servicers, under the oversight and guidance of the Federal Reserve Bank (the ‘‘Fed’’) and the Office of the Comptroller of the Currency (‘‘OCC’’). 

I was one of the senior firm leaders who oversaw our IFR engagements for the past 

2 years. 

In this written testimony, I will first describe briefly the full range of services that 

our firm provides for financial institutions, with emphasis on the history, nature, 

and scope of our financial services regulatory advisory practice. Next, I will provide 

the Subcommittee with our perspective on the usual role of the independent consultant in matters relating to agency enforcement orders. In so doing, I will specifically 

address the standards of professionalism and objectivity to which PwC adheres 

when performing regulatory consulting engagements, including ones related to agency enforcement orders. Finally, as an example of recent experience in this type of 

work, I will share some observations about our role as Independent Consultant in 

the IFR engagements. 

I. PwC and its Financial Services Practice 

PwC is a U.S. partnership with over 37,000 dedicated employees, principals, and 

partners. We provide an array of professional services to public and private companies, the Federal Government, State and local governments, and individuals. We 

have built our brand through the delivery of quality services to our clients and by 

performing those services with integrity, objectivity, and professionalism. 

We provide professional services to clients in more than 16 industry categories, 

including financial services. Our financial services practice provides audit and other 

permitted services to financial services clients, as well as a full range of expertise 

and services—including tax, regulatory, compliance, and risk management services—to our non-audit clients. Our clients include national, regional and local banks, 

mortgage servicers, asset managers, insurance companies, and private equity firms. 

Through the provision of diverse services to the full range of financial service entities, we have developed broad and deep experience in considering and helping our 

clients address regulatory and compliance matters. Our work on such matters on 

behalf of our audit and tax clients has contributed to—and regularly benefits from— 

the expertise of the financial services regulatory advisory practice. 

Although regulatory advisory work to financial services clients is just a small fraction of the overall work that we do, I will discuss it further given the Subcommittee’s interest in these services. For PwC, this year marks the 25th anniversary of 

our financial services regulatory advisory practice. The practice began just before 

the passage of the Financial Institutions Reform, Recovery, and Enforcement Act of 

1989 and the Federal Deposit Insurance Corporation Improvement Act of 1991. Understanding these landmark laws, their implementing rules, and their impact on our 

clients, was important to performing our core client services. As a consequence of 

the deep learning we developed in the evolving financial services regulatory arena, 
49 

financial institutions increasingly came to us for advice as they developed their approaches to regulatory compliance. 

From our vantage point, the demand for financial services regulatory advisory 

services has only increased with the enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (‘‘Dodd-Frank’’). As the Subcommittee 

knows, Dodd-Frank made scores of important changes to banking and securities 

laws, including the creation of new types of regulation, new ways of regulating financial institutions, new regulatory agencies, new regulation for some firms, and 

new regulators for other firms. To meet our clients’ needs, we have been expanding 

our regulatory advisory practice, tapping risk, technology and other areas within our 

firm, and hiring a number of experienced professionals. These individuals—and our 

regulatory practice as a whole—do not lobby Congress or the agencies or otherwise 

advocate for our clients before the agencies. Rather, we combine our regulatory expertise and experience with our accumulated market knowledge to advise clients 

that operate in a highly regulated industry on solutions to their complex business 

challenges. 

Because there is a regulatory aspect to virtually every service or product financial 

institutions offer, regulatory considerations play a central role in our clients’ strategies and business models. We consequently view our regulatory advisory practice as 

an important part of the full range of client services we provide. While most of our 

financial services advisory work involves assisting clients in their efforts to better 

understand and comply with emerging regulatory matters, we are occasionally engaged in connection with regulatory enforcement proceedings to assess historical 

practices, advise on remediation of past regulatory infractions, or evaluate compliance with a regulatory mandate. 

II. Matters in which Financial Institutions Are Subject to Consent Orders 

or Decrees 

A. The Role of the Independent Consultant 

In our experience, the scope and substance of an independent consultant’s work 

depends on the agency order and on the particular circumstances of the financial 

institution. There is neither a one-size-fits all consent order nor a typical independent consultant role. 

While the nature of the independent consultant’s role will depend on the agency 

order, a few general observations based on our experience may help the Subcommittee: 

• Though not all agency or law enforcement orders require financial institutions 

to hire independent consultants in connection with required remediation, financial institutions subject to enforcement actions often hire outside consultants to assist in responding to adverse regulatory actions. In those circumstances, the outside consultant is usually hired both for its substantive 

expertise and experience in the area and for its objectivity. 

• Independent consultants often are retained in enforcement-related matters 

because of their specialized expertise in areas that the financial institution 

is required to remediate. Those areas often include: corporate governance; 

credit, market, or enterprise risk management; technology; internal audit; 

compliance; and regulatory reporting. While financial institutions often have 

experienced professionals working in those areas, they may lack specialized 

expertise to address matters of particular complexity. 

• In particularly large or difficult cases, independent consultants can be used 

to provide the scale of assistance and review that neither the financial institution nor the enforcement agency can dedicate to the matter. 

• In some instances, the independent consultant is retained to make an independent assessment of whether an institution has done what the agency required and/or to monitor the institution’s satisfactory compliance with the order’s requirements. 

Although the appropriate qualifications for an independent consultant vary depending on the nature of the underlying proceeding, the usual prerequisites for an 

independent consultant include: 

(1) Significant subject matter experience and expertise; 

(2) A track record of integrity, objectivity, and impartiality, such that the consultant’s advice will be respected; 

(3) Significant experience managing projects of the size or complexity at issue; 

and 
50 

(4) Sufficient dedicated personnel and resources to perform quality work promptly 

and in a cost-effective manner. 

Of these qualifications, project management is an often overlooked but an invaluable skill, given that many independent consulting roles involve substantial matters 

of great complexity. While a professional services firm might be a subject-matter expert and have a sterling ethical reputation, those attributes alone may not ensure 

a successful project when the scope of the work requires substantial dedication of 

resources. For that reason, large or complex projects require a consultant that has 

relevant experience managing significant engagements and is able to organize a 

comprehensive undertaking that includes: appropriate professional training and supervision; consistent, reliable, and robust processes, procedures, and controls; and 

efficient and cost-effective service delivery. Moreover, the independent consultant 

must possess the competence and reputation for integrity necessary to have frequent, meaningful, and reliable interaction with regulators. 

B. PwC’s Objectivity 

Our regulatory advisory engagements generally are performed under the consulting standards promulgated by the American Institute of Certified Public Accountants (‘‘AICPA’’). Among other things, the AICPA standards require that we 

perform our work objectively and free of any conflicts of interest. 

In an effort to maintain our objectivity and impartiality on all of our professional 

services engagements, PwC has implemented a system of processes and controls 

that governs which engagements we will pursue and accept, the scope of services 

that we can and will provide to a client, and any engagement-specific measures that 

need to be implemented. Further, we may tailor additional processes and controls 

to address circumstances that are particular to an engagement or set of engagements. For example, given the nature of the IFR engagements, we implemented additional procedures to identify and monitor any potential new engagements that reasonably could be viewed as implicating our ability to perform the IFR engagements 

with objectivity and impartiality. As a consequence of those controls, we declined 

to pursue several engagement opportunities. 

III. The IFR Engagements 

We believe that it may be helpful to the Subcommittee to briefly discuss our experiences with the IFR engagements, in light of the general principles that we have 

discussed above. 

A. PwC’s Retention and Approach to the IFR Engagements 

As the Subcommittee knows, in April 2011, the Fed and the OCC entered into 

consent orders with 14 residential loan servicers that required, among other things, 

that those servicers retain Independent Consultants to review their foreclosure-related actions in 2009 and 2010. Four servicers retained PwC as their Independent 

Consultant. 

Our engagements were performed in accordance with (1) the consent orders that 

the servicers entered into with the Fed or the OCC; and (2) the specific terms of 

the engagement letters with each servicer, which required regulatory review and approval before they were final. The four servicers for which PwC acted as Independent Consultant are: GMAC Mortgage (‘‘GMAC’’) and SunTrust Mortgage 

(‘‘SunTrust’’), both of which are regulated by the Fed, and U.S. Bank National Association (‘‘U.S. Bank’’) and Citibank N.A. (‘‘Citibank’’), both of which are regulated 

by the OCC. Three of the servicers for which PwC acted as Independent Consultant 

joined the January 2013 settlement. Our IFR work on the GMAC engagement continues. 

While much of the recent focus has been on the goal of identifying and remedying 

financial harm to individuals, the Fed and the OCC directed the Independent Consultants to: first, identify servicer errors, regardless of whether they caused financial harm to borrowers; and, second, determine which servicer errors caused financial harm to the borrowers. The consent orders and regulator-approved engagement 

letters established the Independent Consultants’ scope of work and specified many 

of the procedures to be followed. Moreover, the regulators guided and supervised the 

work as it was performed. 

Despite the detail in the consent orders and in the engagement letters, the scale 

and complexity of the IFR engagements were unprecedented and had not been entirely anticipated before the engagements began. As the Government Accountability 

Office (‘‘GAO’’) noted in its report last week, the IFR engagements involved applying 

hundreds of procedures to thousands of loan files to identify potential errors in dozens of different categories. No two borrower files were the same and often lacked 

relevant documentation, requiring that engagement teams identify gaps or defi-
51 

ciencies in documentation and request the missing material from the servicers. Further, servicers’ legal obligations varied by State, and legal advice provided to the 

Independent Consultants evolved, as the Independent Legal Counsel (engaged by 

the servicers pursuant to the orders to provide advice on the laws of the more than 

50 relevant State and Federal jurisdictions) took stock of the distinct and sometimes 

inconsistent Federal and State laws. As the engagements progressed, the regulators 

also added to the elements of the loan file that needed to be reviewed. Indeed, aspects of the legal and regulatory guidance remained unresolved even as late as January 2013. Together, these challenges placed a particular premium on the thoroughness of reviewer training and the quality and competence of the reviewers themselves. 

B. The Objectivity of Our IFR Engagement Teams 

From even before our formal engagement, we adopted procedures to maintain our 

objectivity and impartiality: 

• In advance of our engagements by the servicers, we disclosed to the Fed and 

the OCC all recent and ongoing relationships with the servicers that were considering engaging us as Independent Consultant. We were engaged only after 

the Fed and the OCC considered that information and approved both our engagement by the servicer and the terms of our engagement letters; 

• Our engagement letters mandated that we perform our IFR engagements with 

objectivity and impartiality and that we report to the regulators any attempts 

by a servicer to interfere with our efforts; and 

• We tailored our controls to mitigate any risk that our IFR engagement teams 

might be subject to inappropriate information or influence. 

When, in May 2012, the OCC requested that the Independent Consultants submit 

for regulatory approval certain types of prospective engagements, we set up an internal process to identify any potential covered engagements and agreed to seek regulator approval for certain types of prospective engagements. 

C. Our Services Were Rendered by Experienced, Talented, and WellTrained Professionals 

We staffed our IFR engagement teams with qualified PwC professionals and provided them with substantial, multi-week training. At its peak, our IFR engagements 

involved over 1,500 PwC professionals working at multiple locations around the 

country. We addressed the complex and dynamic nature of these engagements by 

establishing processes designed to take advantage of the scale of that effort while 

providing appropriate controls for our work. 

Critical to large and complex engagements is having systems that provide for consistently applied standards and procedures within the engagement. For the IFR engagements, each engagement team performed three core levels of review: (1) the primary review teams examined each of the files designated for examination; (2) a secondary team of professionals reviewed that work to provide coaching and guidance 

to the primary reviewers; and (3) our tertiary reviewers then assessed the overall 

work. The tertiary reviewers were responsible for examining all of those files identified as containing potential errors and selected samples of files for review based on 

a variety of factors. PwC supplemented the training provided to the professionals 

assigned to these tasks based on the complexity of certain loan files, with particular 

attention to issues such as errors related to the Servicemembers Civil Relief Act. 

In addition to the three-tiered review within each engagement, PwC formed a centralized Quality Assurance (‘‘QA’’) team that tested the work of each IFR engagement team. The QA team consisted of experienced file review professionals. The 

team’s charter was to assess the quality of the engagement teams’ file reviews, to 

provide feedback to those teams on the quality of the file reviews, to follow up on 

any identified issues to help train the professionals assigned to review files, and periodically to report the QA team’s observations to the OCC and the Fed. 

Finally, within the bound of our obligations to maintain client confidentiality, the 

leaders of the PwC IFR engagement teams regularly communicated with each other 

to share their experiences and to address common issues of process, technology, and 

regulator guidance. This collaboration played an important role in promoting efficient execution of our engagements. 

D. PwC Cooperated Fully and Was Transparent with the Regulators 

The Fed and the OCC directed the scope and detail of the IFR process from its 

inception. The regulators established the initial scope of work through the April 

2011 consent orders and through review of the procedures set forth in each of the 

engagement letters that they approved. Throughout the IFR engagements, the regu-
52 

lators provided additional procedures, issued new instructions, and adjusted the 

scope of work. These modifications came through written and informal guidance 

from the regulators’ Examiners-in-Charge (‘‘EICs’’) and through regulators’ periodic 

discussions with the Independent Consultants, as a group and individually. 

PwC worked closely with the OCC and the Fed throughout the IFR engagements. 

Shortly after the file review segment of the IFR engagements began in earnest, we 

provided the regulators with weekly written and oral status updates on our work; 

we met with the regulators for more extensive discussions about the IFR effort on 

a number of occasions; beginning in 2012, we provided cost and hours reports to the 

regulators; and we interacted regularly with the servicers’ EICs. The regulators assessed the progress of PwC’s IFR work, visited the loan review sites, and met with 

our engagement teams. When necessary, PwC sought and received guidance on uncertain or unresolved issues. 

Because of PwC’s role as an objective and impartial Independent Consultant—and 

our consequent sensitivity to being perceived as an advocate for the servicers—we 

were careful to avoid exerting inappropriate influence over the ongoing execution of 

the IFR process. PwC instead followed the procedures mandated by the regulators, 

raised questions with the regulators when challenges arose or became apparent, and 

continued as efficiently and effectively as possible to satisfy the engagement letters’ 

mandate to (1) identify servicer errors related to foreclosure proceedings in 2009 and 

2010, irrespective of borrower harm, and (2) determine instances where borrowers 

suffered financial harm because of servicer error or misconduct. 

IV. Conclusion 

On behalf of my partners and colleagues at PwC, I would like to thank the Subcommittee for the opportunity to provide this written testimony. I look forward to 

the opportunity to discuss these matters further and to answer your questions during the upcoming hearing. 

PREPARED STATEMENT OF OWEN RYAN 

PARTNER, AUDIT AND ENTERPRISE RISK SERVICES

DELOITTE & TOUCHE LLP 

APRIL 11, 2013 

Chairman Brown, Ranking Member Toomey, other Members of the Subcommittee, 

good morning. My name is Owen Ryan and I lead the Advisory practice at Deloitte 

& Touche LLP (‘‘Deloitte’’). Our Advisory practice offers a wide range of services to 

clients in most major industries. Our services include: 

• Cyber, security and privacy; 

• Governance, regulatory and risk management; 

• Finance operations and controls transformation; 

• Financial accounting and valuation; 

• Internal auditing; and 

• Mergers and acquisitions. 

I am a certified public accountant and have more than 28 years of professional 

experience. I serve on both the Deloitte & Touche LLP Board of Directors and its 

Executive Committee. 

In your invitation you asked our Firm to discuss our role as independent consultant for financial institutions, and the role of independent consultants more generally. Before I do so, I would note that we served as the independent consultant 

on the mortgage foreclosure review for JPMorgan Chase. My remarks, I believe, will 

be responsive to your invitation letter and generally be applicable to our foreclosure 

review engagement. I would also note that Deloitte is not a law firm, and therefore 

my testimony today is not based on legal analysis, but is instead based on my professional experiences. 

Deloitte member firms employ more than 190,000 individuals globally and the 

United States firms employ almost 60,000 people. We provide professional services 

in four key areas—audit, advisory, tax and consulting. Our business framework allows us to provide a wide range of professional services, based on the needs of our 

clients. While independent consulting engagements do not represent a substantial 

portion of our business, I can assure you that we take our role seriously. We strive 

to fulfill our professional obligations to provide independent, objective and quality 

services, consistent with the highest standards of our profession. 
53 

Before accepting a role as independent consultant, our firm determines if we have 

the requisite experience, qualifications and appropriate number of professionals to 

execute our responsibilities. Our professionals serving on these types of engagements generally have auditing, consulting, industry or regulatory experience. Supplemental training on rules and regulations pertinent to each engagement may be 

necessary. In addition, it may be important for these professionals to have experience working on, or handling, large-scale, complex and evolving engagements. We 

believe we were well qualified to serve as the independent consultant for the foreclosure review. 

We know from our experiences that it is important to maintain open communication and an appropriate working relationship among the independent consultants, 

the regulators and the institutions being monitored. Frequently scheduled meetings 

and timely reporting are important mechanisms for communicating our approach 

and progress. 

Independent consulting engagements often result from regulatory directives. As 

such, these engagements are subject to the oversight of regulators, as determined 

by their requirements. These requirements generally include regulatory approval of 

the independent consultant and the scope and methodology to be used. 

Given the relatively small number of firms with the scale and expertise required 

to serve as an independent consultant on large engagements, it is often the case 

that a firm will have some previous relationships with an institution. Our policies 

and procedures are designed to ensure that each engagement is approached with 

due professional care, objectivity and integrity, consistent with American Institute 

of CPAs Consulting Standards. These policies and procedures include disclosing to 

the regulator our previous relationships with the institution before accepting the engagement. Circumstances may also dictate the need for us to decline the engagement altogether. 

The engagement letter generally defines our professional obligations. As part of 

our engagement acceptance procedures, we would identify any regulatory considerations that are not within our purview and expertise as an independent consultant. 

To the extent we become aware of compliance issues outside the scope of our purview, we would obviously fulfill all reporting obligations to the regulator. 

Deloitte policies and procedures promote the delivery of consistent, high quality 

services in our independent consulting engagements. Quality control and assurance 

are integral to the success of all of our engagements, and we take care to build them 

into the design, execution and review of our projects. We conduct mandatory training for our professionals and rigorously monitor the quality of our work on our independent consulting engagements. 

As a firm, we have been in business for over 100 years. We know that our reputation is our most important asset. As such, independence, integrity and objectivity 

are of paramount importance to us. We take very seriously our professional obligations. We have an overriding commitment to excellence in everything we do. 

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

to answer any questions you have. 

(55) 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN 

FROM DANIEL P. STIPANO 

Q.1. In response to a question regarding the OCC’s current standards for determining the independence of consultants hired by financial institutions, you stated that the OCC had not ‘‘reached the 

point of putting pen to paper’’ to outline its policies for a consultant’s independence, despite the fact that the OCC has required financial institutions to retain independent consultants in approximately one third of its approximately 600 formal enforcement actions over the past 5 years. 

Has the OCC established a procedure to develop these requirements, including the factors to be considered, the parties to be consulted, and the timeline for rules? 

Given the issues raised and recent concerns about independent 

consultant conflicts and performance, does the OCC feel that it is 

appropriate to continue requiring institutions to hire independent 

consultants without having a policy in place? 

Will this policy be available for review by financial firms, consulting firms, Members of Congress, and the public? 

A.1. The OCC is currently in the process of developing guidance for 

the use of independent consultants in enforcement actions. The 

guidance will cover the due diligence expected of an institution in 

proposing potential independent consultants, the review conducted 

by the OCC of the proposed consultants, the criteria for assessing 

the competence and independence of the consultants, the level of 

oversight by the OCC of the consultant engagement, and the validation conducted through the examination process of the work of 

the independent consultants. 

As noted in my testimony, the majority of the enforcement actions requiring the retention of an independent consultant were put 

in place as a result of operational and compliance deficiencies in 

community banks. In many of those instances, the community bank 

lacked the necessary expertise and resources to correct the problems on their own. The use of independent consultants was essential to ensure that the bank took the requisite corrective action to 

operate safely and soundly and in compliance with the law. In such 

circumstances, the consultant’s expertise, available resources and 

independence from the activity under review were critical factors 

for the success of the engagement. At the conclusion of these engagements, the OCC verified that the bank, working with the independent consultant, had addressed and corrected the violation that 

gave rise to the requirement in the enforcement order. These cases 

raise few, if any, issues concerning conflicts and performance and 

the OCC intends to continue to require banks, including community banks, to hire independent consultants in appropriate circumstances. 
56 

In these and other more complex cases, it is important to ensure 

that the independent consultant has not been involved in the activities under review and has no potential conflicts of interest or 

current or former relationships with the bank that indicate that 

the consultant should not be engaged by the bank. These current 

standards of the OCC, derived from the agency’s successful past 

use of independent consultants, will be formalized in the guidance 

together with appropriate additions derived from our ongoing evaluation of the use of independent consultants and exploration of 

ways to improve the process. 

The OCC intends to issue the guidance to examiners as a Supervisory Memorandum. 

Q.2. In your testimony you noted that the ‘‘types and frequency of 

interactions between the OCC, the bank, and the independent consultant depend upon the particular facts and circumstances’’ and 

that in some cases ‘‘the appropriate oversight may involve very limited interaction.’’ In light of the issues found during the ‘‘expanded 

oversight’’ of consultants’ work during the Independent Foreclosure 

Review and reports of consultants’ poor performance during reviews resulting from poor Bank Secrecy Act anti-money laundering 

compliance, does the OCC see any need for changes in its oversight 

of the work of independent consultants? 

A.2. In my testimony, I was referring to the range of interactions 

between the OCC, the bank, and the independent consultant. I 

noted that such interactions depended upon the particular facts 

and circumstances covered by the enforcement action, the expertise 

and resources of bank management, and the nature of the consultant’s engagement. In cases with discrete issues and a limited role 

for the independent consultant, ‘‘appropriate oversight may involve 

very limited interaction.’’ 

A typical example would be an order requiring a community 

bank with insufficient expertise to engage an independent consultant to conduct reviews of a bank’s loan portfolio until the bank is 

able to demonstrate that it has an effective internal asset quality 

review system. The discrete nature of the engagement together 

with the fact that the OCC regularly examines the results of the 

loan review mean that there is limited need for ongoing oversight 

of the engagement. We would reach the same conclusion where we 

require a community bank to engage an independent consultant to 

address other operational or managerial deficiencies. As noted in 

my testimony, those situations account for the majority of the orders issued by the OCC requiring the engagement of independent 

consultants. 

That simple scenario is very different from a more complex engagement represented by the Independent Foreclosure Review 

(IFR). As noted in my testimony, the cases involving significant 

consumer harm and law enforcement implications require additional oversight and, in the case of the IFR, the OCC engaged in 

an unprecedented level of interaction with the independent consultants. The OCC is currently evaluating its use of independent consultants in such circumstances and exploring ways to improve the 

process. The conclusions reached by the OCC will be reflected in 

the guidance currently under development. 
57 

Q.3. While the OCC and the Federal Reserve sought to increase 

transparency in the use of independent consultants in the case of 

the Independent Foreclosure Review by publishing engagement letters between servicers and their consultants, in many cases 

redactions removed information that could shed light on the consultants’ independence and the quality of reviews. For instance, in 

Bank of America’s engagement letter with Promontory Financial 

Group, Promontory’s more than two and a half page conflicts of interest policy (Attachment C) is fully redacted. Why was this policy 

fully removed when it was put in place to ensure transparency and 

quality reviews, and how would the affect of disclosing such a policy negatively impact the supervisory and enforcement process? 

A.3. Only limited proprietary and personal information was redacted from the public engagement letters. Examples of information that was redacted included: names, titles and biographies of 

individuals; references to proprietary systems information; fees and 

costs associated with the engagement; specific descriptions of past 

work performed by the independent consultants for other clients; 

and negotiated contract terms and provisions (such as indemnification provisions, specifics of conflict of interest policies, RUST Draft 

statement of work). 

I would note that the OCC made available for review unredacted 

versions of all OCC engagement letters to Congressional staff in 

2011; several staff representatives reviewed these materials onsite 

at the OCC. 

Q.4.1. You stated that banks were required to hire independent 

consultants to conduct Independent Foreclosure Reviews because 

‘‘it is just beyond the means of any Federal banking agency’’ to conduct a review of this size and scope, and direct hiring of consultants by the OCC would be too drawn out because of competitive 

bidding requirements in Federal procurement process. 

Would direct contracting between independent consultants or 

outside experts and the OCC improve transparency and mitigate 

conflicts of interest? 

A.4.1. The contracting of consultants by the banks directly does 

not, in and of itself, pose concerns for the OCC in terms of transparency and conflicts of interest. As we have discussed, the OCC 

has used independent consultants in the past with success through 

its monitoring and oversight of the engagements. With respect to 

the IFR, each of the independent consultant engagement letters 

contained specific language stipulating that consultants would take 

direction from the OCC and prohibited 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 servicers’ 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. 
58 

• 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 servicers’ 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 servicers’ 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. 

Accordingly, under the IFR independent consultants took their 

direction from the OCC and Federal Reserve Board (FRB), not the 

servicers; and in one case the OCC directed the servicer to terminate an independent consultant (IC) for compromising the IFR 

independence standards. Further, the OCC and FRB had direct, in 

some cases daily, access to the ICs and unfettered access to the 

independent consultant’s work and reporting. Thus, the concerns 

regarding the structure of the IFR did not emanate from a lack of 

direct control or authority over the independent consultants and 

did not hinder transparency by any means. 

Q.4.2. If so, what additional authority would the OCC need to 

enter into direct contracts in a timely manner? 

A.4.2. Congress could provide the OCC with additional authority 

for streamlined contracting that would allow the OCC to award one 

or more contracts without justifying the lack of competition i.e., ex-
59 

empt such contracts from the Competition in Contracting Act, 41 

U.S.C. § 253. This authority could be used during the examination 

and enforcement process for unusually complex or time sensitive 

matters. 

Q.5. Will homeowners who have been wrongfully foreclosed upon 

have their credit reports cured as part of the settlement? Will anything be done to correct consumers’ credit histories? 

A.5. The Amendments to the Consent Orders do not provide for determinations of ‘‘harm’’ or ‘‘no harm’’ on individual cases, except in 

a few limited categories (Servicemembers Civil Relief Act and Borrower Not in Default); thus, there are no determinations of errors 

on individual credit reports. Borrowers can avail themselves of customer assistance from OCC Customer Assistant Group 

(helpwithmybank.gov), FRB (federalreserve.gov), or the CFPB 

(consumerfinance.gov), where applicable, to submit a complaint to 

support that their credit report requires correction due to servicer 

error, or they may choose to work with their servicer directly. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 

FROM DANIEL P. STIPANO 

Q.1. Please provide copies of all contracts, in unredacted form, that 

were executed between the banks subject to the consent orders and 

the consultants they hired, which were reviewed and approved by 

the Office of Comptroller of the Currency (OCC) in connection with 

the Independent Foreclosure Review (IFR) process. 

A.1. In 2011, upon the publication of the independent consultant 

engagement letters, the OCC made available for review unredacted 

versions of all OCC engagement letters to Congressional staff; several staff representatives reviewed these materials onsite at the 

OCC upon their publication. We would be pleased to coordinate 

with your staff to accommodate this same review. 

Q.2. Please explain in detail why the OCC decided not to engage 

consultants directly to conduct the foreclosure review process. 

Please identify by name the offices, departments, and employees 

that participated in this decision. If there are statutes in place 

which prevent direct engagement, please provide the relevant citations. In addition, please provide legislative suggestions that will 

give the OCC more flexibility to directly engage in the future. 

A.2. 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. This determination resulted from discussions 

among our legal and supervisory divisions. 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 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. 
60 

The procurement process requires that the OCC develop a request for proposals, advertise its requirements, 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. 

Although the OCC has confidence that outside independent consultants can effectively be engaged pursuant to OCC Consent Orders, Congress could provide the OCC with additional authority for 

streamlined contracting that would allow the OCC to award one or 

more contracts without justifying the lack of competition i.e., exempt such contracts from the Competition in Contracting Act, 41 

U.S.C. § 253. This authority could be used during the examination 

and enforcement process for unusually complex or time sensitive 

matters. 

Q.3. Please provide copies of all opinions or memoranda (legal or 

otherwise) that were considered by the OCC that examined alternatives to the foreclosure review process eventually adopted, including alternatives that considered the agency engaging consultants directly to perform the foreclosure review. 

A.3. The OCC did not prepare any formal analysis, nor generate 

any opinions/memoranda regarding alternatives to the adopted 

foreclosure review process or use of independent third parties to 

conduct the review. The foreclosure examinations conducted by 

OCC examiners during the fourth quarter of 2010 revealed situations where servicers may have lacked standing to foreclose, may 

have foreclosed on borrowers in violation of the SCRA or U.S. 

Bankruptcy code, may have charged improper or excessive fees 

with respect to the foreclosure action, or may have improperly administered loss mitigation programs—any of which may have 

caused financial harm to the borrower. As a result, the OCC determined that certain borrower files should be independently reviewed 

by someone other than the servicer itself to determine whether 

servicer errors resulted in borrower financial harm that should be 

remediated. It has been a longstanding practice of the OCC in enforcement actions to require banks to engage independent consultants, particularly in situations requiring file reviews. Independent 
61 

consultants have subject matter and process knowledge, and they 

can also provide the resources necessary to carry out the task in 

a timely manner. The contracting of consultants by the banks directly does not, in and of itself, pose concerns for the OCC in terms 

of transparency and conflicts of interest. With respect to the IFR, 

each of the independent consultant engagement letters contained 

specific language stipulating that consultants would take direction 

from the OCC and prohibited servicers from overseeing, directing, 

or supervising any of the reviews. 

Q.4. In testimony provided at the Subcommittee on Financial Institutions and Consumer Protection on Thursday, April 11, 2013, Deputy Chief Counsel Daniel Stipano, acknowledged that the OCC had 

sought and received advice on the advisability of the OCC directly 

hiring consultants to engage in the foreclosure review process. 

Please explain whether the advice obtained considered applicable 

Federal procurement statutes, regulations, and guidance. If so, 

please explain in detail the analysis and reasoning behind this advice and what form it took. To the extent such advice was in writing, please provide these documents. 

A.4. Please see responses to Questions 2 and 3 above. 

Q.5. Please provide a list of all competitive procurement contracts 

entered into during calendar year 2012 involving the OCC. 

A.5. A list of all competitive procurement contracts for calendar 

year 2012 is attached as Appendix B. 

Q.6. The GAO report published this March on the IFR process recommended a series of best practices at the remaining three financial institutions who haven’t yet settled. Have you instituted all of 

these guidelines (improved sampling, improved communication 

with homeowners, more transparency, etc.) with OneWest, 

Everbank, and Allied? Why or why not? 

A.6. Yes, we have taken action related to all three of the GAO’s 

recommendations. The first recommendation was to improve oversight of sampling methodologies and mechanisms to centrally monitor consistency. The OCC has communicated with and continues to 

communicate with the remaining independent consultants to ensure consistent sampling methodologies are used and that those 

methodologies conform to the OCC Sampling Handbook. 

Another recommendation was to identify and apply lessons from 

the foreclosure review process, such as enhancing planning and 

monitoring activities to achieve goals, as they develop and implement the activities under the amended Consent Orders. The OCC 

developed a thorough project plan covering the remaining work related to the (1) independent foreclosure review, (2) calculation and 

distribution of payments under the settlement, and (3) the additional requirements of the amendments to the Consent Orders. Additionally, we have drafted and will implement an examination 

plan that each of the resident teams will use to test compliance 

with the Consent Orders. The completion of the examination plan 

will be overseen by headquarters staff and will be supported by a 

small examination team that will work with the resident staffs at 

each institution to ensure the examination plan is implemented 

consistently. 
62 

The final recommendation was to develop and implement a communication strategy to regularly inform borrowers and the public 

about the processes, status, and results of the activities under the 

amendments to the consent orders and continuing foreclosure reviews. The OCC, working with the FRB, continues to execute a 

communication strategy to provide timely, accurate information regarding the IFR, specifically the IFR Payment Agreement, codified 

in the amendments to the Consent Orders, which were published 

on February 28. The communication strategy involves actions 

taken by the IFR payment administrator—Rust Consulting, Inc.— 

as well as Federal banking regulators and includes direct outreach 

to affected consumers, mass media, and outreach to community 

groups and Congress. 

Direct Outreach 

Direct outreach to affected borrowers has proven to be the most 

effective means of communication through this process. The IFR 

payment administrator sent postcards to all 4.2 million eligible borrowers in March 2013 alerting them that they would receive a 

check by mail. On April 12, 2013, the IFR payment administrator 

began sending checks and an accompanying letter to eligible borrowers. Checks were sent in a number of waves. As of June 7, 

2013, more than 3.9 million checks were mailed to eligible borrowers worth more than $3.4 billion. As of June 7, 2013, 2.7 million 

checks have been cashed or deposited worth almost $2.4 billion. According to Huntington Bank, which is processing the checks, IFRrelated checks are clearing at nearly 4 times the rate of their previous experience with 53 other consumer settlements. The clearing 

rate demonstrates both the importance of this issue to eligible borrowers as well as the effectiveness of the outreach and previous 

awareness building activities. 

Mass Media 

Mass media efforts involve a variety of communication tactics including news releases and media interviews, public speeches, Web 

site material, email, social media, and public service announcements (PSA). 

Since January 2013, the OCC has published 11 separate news releases regarding the IFR Payment Agreement. Each was provided 

to dozens of relevant reporters, posted to OCC.gov and 

HelpWithMyBank.gov, distributed to more than 34,000 email subscribers, distributed through Twitter and Facebook, and made 

available through online syndication (via RSS). For the most significant of these news releases OCC used PRNewswires multicultural distribution service that provides the news release to more 

than 9,000 outlets throughout the country, targeting outlets that 

serve African American, Asian American, Hispanic and Native 

American communities. These releases were translated into both 

Spanish and Chinese for distribution to outlets that provide news 

in those languages. The PSA explaining the IFR Payment Agreement was posted to the OCC Web page, translated into Spanish, 

and included in a toolkit of resources provided to community 

groups and advocates for their use. 
63 

Since January 2013, the OCC has also responded to 185 interviews or media queries to provide background information to reporters, highlight key messages, emphasize certain facts, or correct 

public misperceptions regarding the IFR Payment Agreement. 

When announced, the OCC conducted a conference call for dozens 

of members of the press to explain the terms of the agreement and 

answer their questions. 

As a result of these news releases and other media activity, there 

have been nearly 300 news articles in national, regional, and local 

media outlets with an audience of more than 110 million. 

On January 7, 2013 , the Comptroller of the Currency issued a 

personal statement regarding the IFR Payment Agreement. On 

February 13, 2013, he delivered a public speech explaining the IFR 

Payment Agreement before the Women in Housing and Finance 

group in Washington, D.C. Both the statement and speech were released to the public through formal news releases, and the press 

widely covered the Comptroller speech in February. 

The OCC has provided additional information on its Web site as 

a resource to consumers and other interested parties at 

www.occ.gov/independentforeclosurereview. The information includes frequently asked questions, IFR Payment Agreement details, Consent Orders and amendments, and daily updates on the 

volume and value of IFR-related checks that clear each day. At the 

regulators direction, the IFR payment administrator also has provided updated frequently asked questions on its Web site at 

https://independentforeclosurereview.com/settled.aspx and important tax-related information for borrowers included in the IFR Payment Agreement. 

Community and Congressional Outreach 

Since February 2012, regulators have produced five nationwide 

Webinars to familiarize counselors and consumer groups with the 

IFR and later the IFR Payment Agreement. We have conducted 

two Webinars on the Payment Agreement specifically. The 

Webinars are posted on the agencies’ Web sites along with transcripts in English and Spanish. 

IFR 

• February 2012—IFR: Helping Homeowners Request a Review 

• March 2012—IFR: Helping Homeowners Request a Review 

• September 2012—IFR: What You Need to Know 

IFR Payment Agreement 

• March 2013—IFR: Important Changes 

• May 2013—IFR: Important Changes 

Consumer and counseling groups were central to developing and 

implementing the Phase II marketing plan for the IFR. Regulators 

have used this same network to provide information on the IFR 

Payment Agreement, creating a toolkit of information, available on 

each regulator’s Web site, that includes detailed information about 

the agreement itself, what will happen next for borrowers and, additional marketing material. The Comptroller and senior OCC staff 

have met numerous times with community groups and consumer 
64 

advocates during this process and will continue to engage these important stakeholders. 

The OCC has placed a high priority on ensuring that Members 

of Congress and their staff have timely and accurate information 

about the implementation of the amended Consent Orders. To this 

end, we have held numerous communications, including meetings, 

phone calls, letters and emails, with Members of Congress and 

their staff from the initial announcement of the agreement in principle and throughout the implementation of the amendments to the 

Consent Orders. We have provided timely responses to questions 

and concerns, and sought feedback from the Members and staff to 

factor into decisions we were making about the implementation of 

the settlement and future reports. Finally, we routinely share public information including statements and press releases with Congress so they can remain current on the status of the settlement 

actions and provide information to their constituents where they 

deem appropriate. 

Going Forward 

The OCC recognizes the importance of continuing to provide 

timely, accurate information to all stakeholders in the process and 

will continue to use mass media and other outreach to keep stakeholders informed. Specifically, the OCC is in the process of determining content and timing of public reports to provide additional 

relevant information to the public and external stakeholders. In determining theses reports, the OCC is considering input from a variety of stakeholders including community groups and consumer advocates, Congress, and industry. When publicizing these reports, 

the OCC plans to uses news release, media outreach, social media, 

and subscription servicers to provide the widest possible distribution and greatest possible awareness. These reports will address 

both the IFR Payment Agreements, the status of reviews for 

servicers who did not join the agreements, and servicer compliance 

with other articles of the original foreclosure-related Consent Orders published in April 2011. 

The OCC has already instituted daily updates on the number 

and value of IFR-related checks to its Web site and social media 

sites. In addition, the agency has instituted weekly news releases 

to highlight this information. 

Because access to borrower records used in the conduct of the 

IFR is of great interest to borrowers, advocates, and Congress, the 

OCC is working with Federal banking regulators to increase consumer awareness of their right to certain information by submitting a qualified written response under the Real Estate Settlement 

Procedures Act (RESPA). The OCC plans to issue letters to the IFR 

payment administrator and participating servicers that such factual information requested by the borrower should be provided 

under RESPA. In addition, the OCC is planning a news release and 

PSA to increase awareness of this process, and is inviting other 

Federal banking regulators to join the release and PSA. 
65 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ 

FROM DANIEL P. STIPANO 

Q.1. I led the efforts in the Senate to request that the Government 

Accountability Office assess the independence, transparency, accountability, and consistency of the independent foreclosure review 

process. One of the concerns I’ve had since the beginning of the 

IFR process is whether the Federal Reserve and OCC were sufficiently contacting those in our underserved communities. I know 

there were several marketing efforts made throughout the process 

to improve outreach, but from my understanding, there were certainly deficiencies in these efforts. With the payouts announced 

this week, it appears that in some cases many of the borrowers 

who requested a review will receive almost twice the payout as 

those who did not request a review. With the issues surrounding 

the IFR’s outreach efforts, does this mean those in our underserved 

communities, who were not contacted or made aware of the independent review, get will get less money? Why are we giving more 

to those who were contacted and less to those who were not contacted, when we know there were major hurdles to finding affected 

borrowers? 

A.1. The efforts undertaken to publicize the IFR were unprecedented. The $35 million campaign exposed more than 130 million 

people to IFR messages at least four times during the campaign. 

The outreach effort was tested and monitored. General awareness 

of the campaign increased from approximately 30 percent, under 

the initial marketing efforts, to more than 50 percent, under the 

expanded outreach, among those likely to be in the in-scope population. This level of awareness typically requires four years of advertising to accomplish. 

Borrowers who made an effort to submit a Request for Review 

had an expectation that they would receive an individualized review and in some cases they may have gone to efforts to locate documents and support to accompany their Request for Review. Thus, 

both FRB and OCC felt it necessary to recognize the efforts of borrowers who submitted a Request for Review and who believed they 

were financially injured. 

Q.2. The agreement reached by the OCC and Federal Reserve with 

the 13 mortgage servicers provides roughly $5.7 billion in foreclosure prevention assistance (or soft money) and $3.6 billion in 

cash payments, which will certainly help the millions of borrowers. 

Because of the deficiencies and issues that we read about in the 

GAO study, I’d like to get a better understanding of how these dollar amounts (both soft dollars and cash payout) were determined, 

because it seems as though we still do not have a solid understanding of the level of harm to borrowers. In fact, the new agreement that replaced the foreclosure review with a compensation 

framework does not rely on determinations of whether borrowers 

suffered financial harm. So can you explicitly explain how these 

amounts were determined? 

A.2. The amounts were negotiated. The $3.6 billion in cash payments was informed by several considerations, including the remaining amount of projected IC costs to finish the reviews, other 

direct costs associated with finishing the reviews (such as the ad-
66 

ministrator costs), and the projected payments that may have been 

paid to borrowers for harm findings had the reviews been completed. We believe the $3.6 billion is several times the projected 

amount that may have been paid out for harm under the IFR. 

The $5.7 billion in foreclosure prevention action credit will result 

in meaningful relief to borrowers still struggling to keep their 

homes, and this assistance can make a real difference for those 

families and their communities. However, this requirement should 

not be viewed in isolation. The $5.7 billion was intended to be an 

additional incentive to servicers to enhance their foreclosure prevention actions and compliments the incentives provided by HAMP 

and similar programs, the National Mortgage Settlement, and the 

State AGs. Similarly, this requirement also complements other 

parts of our Consent Orders, which have numerous and significant 

requirements addressing loss mitigation and foreclosure prevention 

activities. These items require servicers to achieve and maintain effective loss mitigation and foreclosure prevention activities, and we 

will ensure that objective is met. 

Q.3. The agreement reached by the OCC and Federal Reserve with 

the 13 mortgage servicers provides $5.7 billion in foreclosure prevention assistance (or soft dollars), which will certainly help the 

millions of affected borrowers. However, my understanding is that 

if one of these servicers does a loan modification or principle reduction for $10,000, and the home is worth $250,000, the servicer will 

be credited $250,000 in foreclosure prevention assistance or consumer relief under the settlement, instead of just $10,000 for the 

loan modification or principle reduction. Are we giving the mortgage servicers credit for financial assistance that they didn’t necessarily provide? Do you plan to continue this practice moving forward? Can you explain the policy behind crediting these servicer 

dollar-for-dollar for consumer relief? 

A.3. The Amendments to the Consent Orders, which implemented 

the IFR settlement, are specific about the standards the regulators 

will use to measure the servicers’ performance on loss mitigation 

and foreclosure prevention. They emphasize sustainable and meaningful home preservation actions for qualified borrowers and that 

preference should be given to activities designed to keep borrowers 

in the homes or otherwise provide significant and meaningful assistance to qualified borrowers. 

The unpaid principal balance (UPB) is straightforward, transparent, and an easily measurable barometer of the value of the 

foreclosure that was prevented. It does not measure the expense of 

the action taken or the economic benefit for the consumer, but simply measures the foreclosure that was prevented based on what the 

borrower owes, which therefore reflects the amount of assistance 

received. Complicated crediting formulas are not transparent, and 

people tend to find ways to manipulate complicated formulas, 

which can often have unintended consequences. Further, sustainable modifications come in numerous forms, not only through principal reductions, but also through, for example, reduced interest 

rates. 

Finally, the OCC will focus on the overall efforts and results of 

the loss mitigation and foreclosure prevention programs of each 
67 

servicer as we evaluate compliance with the remainder of the 

Amendments to the Consent Orders. In doing so, we will evaluate 

the effectiveness of all servicer loss mitigation and foreclosure prevention activities, not just those they request credit for under the 

Amendments to the Consent Orders. We intend to ensure that loss 

mitigation efforts will be done in a manner consistent with the 

principles we described in the Amendments to the Consent Orders. 

Q.4. Many of the borrowers who were part of the IFR still live in 

their homes, but I’m concerned about their ability to stay in their 

homes as part of the IFR Payout and consumer relief. For example, 

I believe actions such as principal reductions and loan modifications will help keep these people in their homes, but short sales 

would remove these borrowers from their homes. What steps have 

you taken, and will you take, to ensure that the soft dollars are 

used to keep people in their homes? What procedures and/or mechanisms are in place to discourage the servicers from providing relief through short sales? 

A.4. Well-structured loss mitigation actions should focus on foreclosure prevention, which should typically result in benefiting the 

borrower and reducing loss. A servicer’s foreclosure prevention actions should reflect the following guiding principles: (a) preference 

should be given to activities designed to keep the borrower in the 

home; (b) foreclosure prevention actions should emphasize affordable, sustainable, and meaningful home preservation actions for 

qualified borrowers; (c) foreclosure prevention actions should otherwise provide significant and meaningful relief or assistance to borrowers; and (d) foreclosure prevention actions should not disfavor 

a specific geography within or among States or discriminate 

against any protected class of borrowers. 

While the amendments to the Consent Orders express the priority of such efforts, it is important to recognize that different borrowers can benefit from different actions. While effective loan modifications help populations seeking to retain ownership of their 

home, other actions, including simplified short sales, can provide 

important benefits to other borrowers, including those who cannot 

be assisted through modification. Therefore, the evaluation must be 

made based on the facts and circumstances of each borrower, and 

cannot be prescribed in advance. The OCC will assess the overall 

effectiveness of the servicer’s loss mitigation and foreclosure prevention activities as we test compliance with the Consent Orders. 

Q.5. The GAO reports on the IFR cite little stakeholder consultation within the IFR process. While some access to Treasury HAMP 

officials was cited as being helpful in providing information on loss 

mitigation and loan modification, why wasn’t there a greater focus 

on using housing counseling agencies that have much more experience working through the difficult and time consuming process of 

foreclosure modifications than most big consulting firms? 

A.5. The OCC and FRB sought extensive input from community 

groups, including groups providing access to housing counseling 

services, throughout the IFR process. Since November 2011, the 

OCC has engaged community groups on numerous topics, such as 

readability, marketing and outreach, resources for non-English 

speakers, borrower financial injury, and improving transparency. A 
68 

number of changes to the IFR process, including but not limited to, 

revisions to the draft Financial Remediation Framework, the expanded marketing campaign, additional in-language resources, and 

servicer funding provided to community groups, all occurred as a 

direct result of the OCC and FRB’s extensive interactions with 

community group stakeholders. A listing of these efforts can be 

found attached hereto as Appendix A. 

Q.6. One of the main purposes of the IFR process was to have data 

to enable the OCC and Federal Reserve Board to tell whether a 

bank had a particular kind of file or type of mistake that it was 

repeating, so the consultants could dig deeper into their other files. 

Since the OCC and Federal Reserve abandoned the review, to what 

extent will they be able to further examine whether certain banks 

committed systematic errors in their foreclosures based on either 

preliminary results or based on information that they gathered 

through regular bank examinations or other sources? 

A.6. The OCC has learned a great deal about the nature of servicer 

errors through the horizontal examinations that were the basis for 

our Consent Orders, the work done by the independent consultants, 

and the examination work we have completed since the Consent 

Orders were executed. We have used this knowledge as we have assessed changes in servicing practices, and we will also use that 

knowledge as we evaluate the servicer’s compliance with the 

Amendments to the Consent Orders. 

Q.7. The Foreclosure Review Payment Agreement provides 

$125,000 to those most harmed by these foreclosure abuses, and at 

least $300 to those who may not have been harmed at all. Can you 

specifically explain how these payments will be administered and 

what steps will be taken by the OCC and FRB to ensure that borrowers receive the relief they need? Specifically, how are we administering these thousands, sometimes over a hundred thousand dollars, to these borrowers? What types of mechanisms are in place 

to ensure transparency and accountability? 

A.7. As of June 7, 2013, more than 2.7 million borrowers have 

cashed or deposited nearly $2.4 billion in checks related to the IFR 

Payment Agreement. The total number of checks sent through this 

date is more than 3.9 million and worth more than $3.4 billion. 

According to Huntington Bank, the IFR Payment Agreement 

check cash rate is four times that of their historical experience for 

other consumer-related class action settlements. 

The OCC has committed to providing public reports regarding 

the receipt of payments under the agreement. 

Q.8. The National Mortgage Settlement and Independent Foreclosure Review addressed foreclosure abuses by many large mortgage servicers from 2009–2010. Now that we have two distinct avenues of relief for these borrowers, what mechanisms are in place 

to ensure there is no overlap in assisting these borrowers? Or of 

more concern to me, what steps are in place to ensure that no borrowers are left behind? 

A.8. Pursuant to the terms of the Amendments to the April 13, 

2011 Consent Orders, foreclosure prevention action for which the 

servicers seek credit for must be ‘‘in addition to’’ any foreclosure 
69 

prevention action for which the servicer has sought credit for under 

the National Mortgage Settlement. Servicers are expressly prohibited from any double counting under the Amendments to the Consent Orders. 

Also, the April 13, 2011 Consent Orders require servicers to 

achieve and maintain effective loss mitigation and foreclosure prevention programs. Additionally, the Amendments to the Consent 

Order provide guiding principles for foreclosure prevention activities, which emphasize affordable, sustainable, and meaningful 

home preservation actions, or other significant and meaningful assistance for qualified borrowers. 

Q.9. In their April 2013 report, the Government Accountability Office states that the uniqueness of each servicer’s population and 

their processes for keeping borrowers’ information posed challenges. In fact, the OCC and Federal Reserve Board said it was not 

feasible to design one file review process that would apply to all 

servicers in the IFR, and the consultants would be required to tailor their review processes. How do you believe the leeway given the 

consultants to tailor their own reviews, without proper guidance, 

led to the abandonment of the IFR? 

A.9. We do not believe the leeway given to consultants to tailor 

their reviews was a significant factor in changing our direction. 

While the independent consultants were employing different processes and methodologies, they were working toward the same objectives, which were provided in the Consent Orders. Further, we do 

not agree the independent consultants did not have proper guidance. The OCC did provide appropriate guidance to the independent consultants to help them develop their review processes. 

First, the sections of the April 2011 Consent Orders outlining the 

purpose of the foreclosure review for all banks were nearly identical. This similarity in the Consent Orders was intended to ensure 

that the reviews covered the same issues and resulted in similar 

results for similarly situated borrowers. Second, between May 2011 

and October 2012, the OCC and FRB issued 29 joint pieces of guidance to the independent consultants on various topics to help them 

frame the file review process and promote consistency in its implementation. Certain guidance was designed to be a unifying factor 

among all the reviews by helping ensure that similarly harmed borrowers received similar remediation. Other guidance was issued in 

response to similar questions received from multiple consultants or 

examination teams, which oversaw the reviews at the local level, 

to help promote consistency in the reviews. 

For example, guidance on the review for compliance with the 

SCRA was designed to provide consistent results for all affected 

borrowers. In addition to consistent Consent Orders and guidance, 

the OCC implemented regular and robust communication mechanisms to help foster consistency in the reviews, including regular 

meetings involving independent consultants, servicers, examination 

team staff overseeing the consultants’ work, and OCC headquarters 

and Federal Reserve Board staff to discuss challenges with the file 

review process and help promote consistency among the reviews. 

Q.10. From May 2011 to October 2012, the OCC and FRB issued 

29 joint pieces of guidance to the consultants, and regulators had 
70 

regular weekly meetings with the consultants to clarify guidance. 

When you continually clarified guidance to the consultants, what 

impact did that have on the loan files that had already been reviewed, prior to the new guidance? When changes were made to 

how files should be reviewed, is it logical to assume that those 

changes must be retroactively applied to the already reviewed files? 

Were these previously reviewed files reviewed again? 

A.10. In most situations, the OCC and FRB issued guidance to provide clarity or address inconsistencies in practices among some of 

the independent consultants, with many of the consultants already 

fully complying with the formal guidance. For those consultants not 

fully complying with the guidance, change in practice was necessary and, when applicable given the nature of the guidance, certain files required some amount of re-review. Often, only a portion 

of a previously reviewed file focusing on a specific subject area 

needed to be re-worked to achieve compliance with the guidance 

rather than are review of all aspects of the file. 

Appendix A 

Engagement with Consumer Groups on the IFR 

May 2013 

• The OCC began meeting and talking regularly with a crosssection of consumer and legal aid organizations about the Independent Foreclosure Review in November 2011. Our series of 

regular meetings and frequent discussions have informed our 

decisionmaking in numerous areas, including: marketing and 

outreach, extension of the deadline for borrowers to request reviews, types of financial harm, and remediation. The groups 

also offered extensive comments on the IFR Remediation 

Framework, which was provided to them in draft. 

• These frequent meetings and discussions have continued about 

implementation of the IFR Payment Agreement. 

• Two meetings with Americans for Financial Reform (AFR) 

representatives focused on the Payment Agreement Waterfall. Shared a final draft of the Waterfall for comment prior 

to finalizing payment determinations. 

• Also gathering AFR input on: Reporting on Loss Mitigation/ 

Foreclosure Prevention efforts, IC Findings, and Enforcement of servicing part of the original Consent Order. 

Working With Consumer and Counseling Groups on Outreach 

• In December 2011, the OCC, FRB, servicers and FSR (on behalf of the servicer consortium) participated in two sessions of 

the annual NeighborWorks training conference, attended by 

community group representatives from around the country, to 

provide information and answer questions about the foreclosure review. 

• The OCC met with representatives of the Loan Modification 

Scam Prevention Network and coordinated introductions to the 

servicer consortium, resulting in added borrower alerts for 
71 

fraud or scam activity related to the advertisements, second 

mailings, and Web site materials. 

• Regulators produced five nationwide Webinars to familiarize 

counselors and consumer groups with the IFR and later the 

IFR Payment Agreement in order to help the groups assist 

their constituents. The Webinars are posted on the agencies’ 

Web sites along with transcripts in English and Spanish. 

IFR 

• February 2012—IFR: Helping Homeowners Request a Review 

• March 2012—IFR: Helping Homeowners Request a Review 

• September 2012—IFR: What You Need to Know 

IFR Payment Agreement 

• March 2013—IFR: Important Changes 

• May 2013—IFR: Important Changes 

• The independent consultants separately held a teleconference 

and several in-person meetings with consumer group representatives to share foreclosure review information. For example, in May 2012, community group representatives visited the 

Promontory/Bank of America site to review how reviews are 

being conducted. 

• As part of the Phase I of marketing of the IFR, the OCC 

worked with servicers to identify ways to provide resources 

and additional support to advocates to expand their capabilities for promoting participation in the IFR. 

• During that phase, Several servicers adopted the regulators’ 

suggestion to provide financial support to advocacy groups to 

enhance borrowers’ familiarity with the IFR initiative. To date, 

three servicers have supported approximately 15 intermediary 

organizations with well over 100 member organizations servicing communities across the country. By design, the support 

permits maximum flexibility to tailor outreach activities best 

suited for the diverse clienteles the organizations serve. 

Groups have issued direct mailings, emails, and mass flyers, 

held conferences and workshops, conducted outreach at street 

fairs, offered individual and group counseling sessions, collaborated with other community organizations, and leveraged 

faith-based partnerships to expand IFR awareness. 

• Groups also supplied two toll-free phone lines (one specifically 

for Spanish speakers) and at least 13 informational Web sites 

on the IFR. They also released two videos and issued several 

press releases. Other assisted borrowers in requesting and 

completing the form and assembling supplementing information and documents. Groups have also prepared advertising in 

several Asian languages and developed IFR information materials in languages such as Hmong, Vietnamese, Korean, Russian, Tagalog, and Mandarin Chinese. 

• Consumer and counseling groups were central to developing 

and implementing the Phase II marketing plan for the IFR. In 

August 2012, regulators brought together consumer and counseling groups in August such as—HomeFree USA, 
72 

Neighborworks America, National Fair Housing Alliance, National Council of LaRaza, to help develop the plan. 

• Building on group participation during Phase I, the second 

phase dedicated $5 million to fund 16 groups, covering 70 markets. Groups used an online toolkit with creative materials to: 

conduct mailings and outbound calling to their client data 

bases, assist borrower in retrieving documents and completing 

the IFR forms, conduct grass roots outreach activities—events, 

speaking engagements, and panels, engage community partners to disseminate information, and engage church community through pastoral messaging, church newsletters, flyer distributions and post-service gatherings/ministries. 
73 
74 
75 
76 
77 

, 

• • 
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79 

, 

, 

, 
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81 

, 

, 

• 
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88 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN 

FROM RICHARD M. ASHTON 

Q.1. In response to a question regarding current standards for determining the independence of consultants hired by financial institutions, Mr. Stipano of the OCC stated that the OCC had not 

‘‘reached the point of putting pen to paper’’ to outline its policies 

for a consultant’s independence. 

Has the Federal Reserve also considered developing written policies for independence of consultants retained in compliance with 

enforcement actions? 

If so, have you considered the procedure to develop those requirements, including the factors to be considered, the parties to be consulted, and the timeline for rules, and will this policy be available 

for review by financial firms, consulting firms, Members of Congress, and the public? If not, why not? 

A.1. As the Board’s recent testimony before the Senate Banking 

Committee’s Subcommittee on Financial Institutions and Consumer 

Protection stated, our consistent practice has been to oversee the 

selection and performance of consultants that are required to be retained by a Federal Reserve-regulated institution to carry out specific functions on behalf of the institution under an enforcement action. This oversight includes approving the selection of a particular 

consultant, which requires a review of the consultant’s prior work 

for the institution to assess potential conflicts of interest, and a determination that the consultant will have appropriate qualifications 

and separation from the institution’s management. We also monitor the consultant’s performance during the course of the engagement through ongoing communications and meetings as appropriate. Throughout the course of our oversight, we apply the same 

supervisory expectations as if the institution were performing the 

work directly. As stated in the Board’s testimony, these standards 

for overseeing consultants’ conduct of a specific engagement are applied on a case-by-case basis, so that a consultant’s performance 

can be measured in light of the specific kind of function that the 

consultant must carry out. 

Financial institutions supervised by the Federal Reserve are only 

infrequently required in an enforcement action to retain consultants to carry out specific functions on behalf of the institution. In 

the vast majority of cases, the financial institution itself, using its 

own personnel and resources, takes the necessary corrective and 

remedial measures under the enforcement action. The Federal Reserve is evaluating the use of consultants in enforcement matters 

and is considering the appropriate role for consultants and whether 

the current oversight standards should be incorporated into written 

public guidelines. 

Q.2. In your testimony you provided a list of supervisory actions 

that can be taken by the Federal Reserve to monitor independent 

consultants. In light of the issues found during what the OCC 

termed the ‘‘expanded oversight’’ of consultants’ work during the 

Independent Foreclosure Review and reports of consultants’ poor 

performance during reviews resulting from poor Bank Secrecy Act 

anti-money laundering compliance, does the Federal Reserve see 
89 

any need for changes or increased consistency in its oversight of 

the work of independent consultants? 

A.2. In those enforcement actions that require retention of a consultant, the Federal Reserve applies the same standards as if the 

regulated institution was performing the function directly and has 

the authority to require the regulated institution to replace the 

consultant and can take appropriate formal enforcement action 

against the consultant and the regulated institution as appropriate. 

The role of the consultants in the Independent Foreclosure Review (IFR) of individual borrower files required under the recent 

enforcement actions against the major residential mortgage 

servicers was significantly different than in the typical enforcement 

action undertaken by the Federal Reserve. We are now implementing all of the recommendations of a recent report of by the 

Government Accountability Office (GAO) on the oversight of consultants during the IFR in our continuing oversight of the remaining institutions that are still conducting a foreclosure review. We 

will also consider the GAO recommendations in overseeing future 

enforcement actions. 

Q.3. While the OCC and the Federal Reserve sought to increase 

transparency in the use of independent consultants in the case of 

the Independent Foreclosure Review by publishing engagement letters between servicers and their consultants, in many cases 

redactions removed information that could shed light on the consultants’ independence and the quality of reviews. For instance, in 

Bank of America’s engagement letter with Promontory Financial 

Group, Promontory’s more than two and a half page conflicts of interest policy (Attachment C) is fully redacted. Why was this policy 

fully removed when it was put in place to ensure transparency and 

quality reviews, and how would the effect of disclosing such a policy negatively impact the supervisory and enforcement process? 

A.3. Information regarding conflicts of interest policies was not redacted from engagement letters between the servicers we regulate 

and the consultants retained by those servicers to conduct the IFR 

when these letters were publicly disclosed by the Federal Reserve 

on its Web site at www.federalreserve.gov/consumerinfo/independent-foreclosurereview.htm. The published letters describe the 

methodology the consultants had to follow in reviewing borrower 

files to identify financial injury, the protocols the consultant had to 

follow to maintain sufficient independence from the servicer in carrying out the IFR, and other details concerning the IFR. Small portions of each letter were redacted in the published version only 

when necessary to protect, for example, proprietary financial information of the parties, such as the identity of proprietary data management systems or specific fee schedules charged by the consultants, and information that could compromise personal privacy, 

such as the names of the specific individuals who were involved in 

the foreclosure review at the servicer and at the consultant. Because mortgage servicing activities by the Bank of America Corporation are conducted by its national bank subsidiary, the engagement letter related to the IFR at the Bank of America was approved and disclosed by the Office of the Comptroller of the Currency, not the Federal Reserve. 
90 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 

FROM RICHARD M. ASHTON 

Q.1. Please provide copies of all contracts, in unredacted form, that 

were executed between the banks subject to the consent orders and 

the consultants they hired, which were reviewed and approved by 

the Board of Governors of the Federal Reserve (Federal Reserve) in 

connection with the Independent Foreclosure Review (IFR) process. 

A.1. The Federal Reserve published the engagement letters between the servicers we regulate and the consultants retained by 

those servicers to conduct the Independent Foreclosure Review 

(IFR) on its Web site at www.federalreserve.gov/consumerinfo/ 

independentforeclosure-review.htm. The published letters describe 

the methodology the consultants had to follow in reviewing borrower files to identify financial injury, the protocols the consultant 

had to follow to maintain sufficient independence from the servicer 

in carrying out the IFR, and other details concerning the IFR. 

Small portions of each letter were redacted in the published version 

only when necessary to protect, for example, proprietary financial 

information of the parties, such as the identity of proprietary data 

management systems or specific fee schedules charged by the consultants, and information that could compromise personal privacy, 

such as the names of the specific individuals who were involved in 

the foreclosure review at the servicer and at the consultant. 

Q.2. Please explain in detail why the Federal Reserve decided not 

to engage consultants directly to conduct the foreclosure review 

process. Please identify by name the offices, departments, and employees that participated in this decision. If there are statutes in 

place which prevent direct engagement; please provide the relevant 

citations. In addition, please provide legislative suggestions that 

will give the Federal Reserve more flexibility to directly engage in 

the future. 

A.2. As explained in the Board’s recent testimony before the Senate 

Banking Committee’s Subcommittee on Financial Institutions and 

Consumer Protection, in the vast majority of Federal Reserve enforcement actions, the organization itself, using its own personnel 

and resources, is directed to take the necessary corrective and remedial action. In appropriate circumstances, the Federal Reserve 

has found that it can be an effective enforcement tool to require 

regulated organizations to retain a consultant to perform specific 

tasks on behalf of that organization that the organization should 

perform itself, but has shown it cannot do. Where consultants are 

used, they work on behalf of the regulated organization. Consequently, their expenses are appropriately borne by the regulated 

organization, and not by the taxpayers. 

The decision to require the banking organizations to retain a consultant to conduct the IFR was based our prior experience in formal enforcement actions. In a small percentage of these actions, a 

consultant retained by the institution involved was directed to 

make discrete factual determinations on behalf of the institution, 

such as deciding whether a Bank Secrecy Act filing was made with 

respect to a particular transaction. This technique had proven to be 

effective, and we believed at the time of the execution of the mortgage servicing orders that the same approach would be workable 
91 

with regard to the examination of individual borrower files under 

the IFR. The consent orders requiring the retention of consultants 

to conduct the IFR were approved by senior staff in the legal and 

bank supervisions areas under regulations delegating such approval authority to the staff. Prior to exercising this authority, 

Board staff consulted members of the Board. 

The Federal Reserve has authority to retain its own independent 

contractors such as consultants, and has no suggestions for legislative initiatives in this area at this time. 

Q.3. Please provide copies of all opinions or memoranda (legal or 

otherwise) that were considered by the Federal Reserve that examined alternatives to the foreclosure review process eventually 

adopted, including alternatives that considered the agency engaging consultants directly to perform the foreclosure review. 

A.3. Please see answer to Question #2. 

Q.4. In testimony provided at the Subcommittee on Financial Institutions and Consumer Protection on Thursday, April 11, 2013, Deputy Chief Counsel Daniel Stipano, acknowledged that the OCC had 

sought and received advice on the advisability of the OCC directly 

hiring consultants to engage in the foreclosure review process. Did 

the Federal Reserve also seek and receive such advice? If so, please 

explain whether the advice obtained considered applicable Federal 

procurement statutes, regulations, and guidance. In addition, 

please explain in detail the analysis and reasoning behind this advice and what form it took. To the extent such advice was in writing, please provide these documents. 

A.4. The Federal Reserve decided not to directly retain consultants 

for the reasons discussed in the answer to Question #2 above. 

Q.5. Please provide a list of all competitive procurement contracts 

entered into during calendar year 2012 involving the Federal Reserve. 

A.5. I have been advised that the Board entered into about 500 

contracts during 2012 using competitive acquisition methods. Information on whether any particular contract was awarded competitively can be provided on request. 

Q.6. The GAO report published this March on the IFR process recommended a series of best practices at the remaining three financial institutions who haven’t yet settled. Have you instituted all of 

these guidelines (improved sampling, improved communication 

with homeowners, more transparency, etc.) with OneWest, 

Everbank, and Allied? Why or why not? 

A.6. The Government Accountability Office’s (GAO) April 13, 2013 

report, ‘‘Foreclosure Review: Lessons Learned Could Enhance Continuing Reviews and Activities under Amended Consent Orders’’ 

(13–550T), recommends three actions for the Federal Reserve and 

the Office of the Comptroller of the Currency (OCC) to take as a 

result of the GAO’s review of the IFR. The Federal Reserve has 

taken significant steps to implement each of the recommended actions. 

The GAO’s first recommendation is for the agencies to improve 

oversight of sampling methodologies and mechanisms to centrally 

monitor consistency, such as assessment of the implications of in-
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consistencies on remediation results for borrowers in the remaining 

foreclosure reviews. On July 26, 2013, the Federal Reserve amended its consent order against the one firm supervised by the Federal 

Reserve that was continuing to conduct an IFR, GMAC Mortgage, 

to incorporate an agreement to provide payments to borrowers in 

lieu of the IFR. This amendment is similar to those announced in 

early 2012 with respect to the other servicers that are participating 

in the payment agreement. Thus, concerns relating to consistency 

in the further conduct of the IFR are no longer an issue with respect to Federal Reserve-regulated servicers. 

The GAO’s second recommendation is that the agencies identify 

and apply lessons learned from the foreclosure review process, such 

as enhancing planning and monitoring activities to achieve goals, 

in particular as the agencies develop and implement the activities 

under the amendments to the consent orders. The amended consent 

orders substituted an agreement to make payments to all in-scope 

borrowers and terminated the IFR at those institutions that accepted the amendments. The Federal Reserve, in coordination with the 

OCC, significantly expanded its planning and monitoring efforts 

during the course of the IFR and continues to devote resources to 

planning and monitoring the implementation of the remaining requirements of the amendments to the consent orders. Similarly, the 

Federal Reserve has devoted resources to advanced planning with 

respect to public reporting on the IFR, and on implementation of 

the remaining amendments to the consent orders. 

The GAO’s third recommendation is focused on the development 

of a communication strategy to regularly inform borrowers and the 

public about the processes, status, and results of the activities 

under the amendments to the consent orders and continuing foreclosure reviews. The Federal Reserve and the OCC are implementing a communications strategy to ensure that borrowers are 

aware of the amendments to the consent orders. These actions include sending an initial notification to the approximately 4.2 million borrowers covered by the amended consent orders that payments were going to be sent; a Webinar directed at community 

groups and other interested members of the public to explain the 

process for distributing checks; and a letter to borrowers to accompany the payments that explains relevant facts about the payments. In addition, the OCC and the Federal Reserve sent a letter 

to borrowers who submitted a request for review form and whose 

servicers at that time were completing the IFR advising them that 

their servicer is not a party to the amendments to the consent orders and that the review the borrower requested continues and remains in process. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ 

FROM RICHARD M. ASHTON 

Q.1. I led the efforts in the Senate to request that the Government 

Accountability Office assess the independence, transparency, accountability, and consistency of the independent foreclosure review 

process. One of the concerns I’ve had since the beginning of the 

IFR process is whether the Federal Reserve and OCC were sufficiently contacting those in our underserved communities. I know 
93 

there were several marketing efforts made throughout the process 

to improve outreach, but from my understanding, there were certainly deficiencies in these efforts. With the payouts announced 

this week, it appears that in some cases many of the borrowers 

who requested a review will receive almost twice the payout as 

those who did not request a review. 

With the issues surrounding the IFR’s outreach efforts, does this 

mean those in our underserved communities, who were not contacted or made aware of the independent review, get will get less 

money? Why are we giving more to those who were contacted and 

less to those who were not contacted, when we know there were 

major hurdles to finding affected borrowers? 

A.1. The Office of the Comptroller of the Currency (OCC) and the 

Federal Reserve took extensive steps to help ensure that all borrowers covered by the Independent Foreclosure Review (IFR) were 

contacted as part of that process and provided an opportunity to request a review of their foreclosure. To address concerns expressed 

by Members of Congress and recommendations made by the Government Accountability Office (GAO), the agencies developed a variety of outreach tools to broaden the reach of efforts to contact borrowers to advise them of the process for seeking a foreclosure review. These tools included targeted television and radio and print 

media advertising, using trusted representatives to assist in reaching borrowers who were likely to have been missed by other outreach efforts, use of agency public service announcements, Webinar 

with consumer groups, and additional direct mail solicitations in 

multiple languages. 

The agreement with most of the servicers conducting the IFR 

that required payments to all borrowers covered by the IFR in lieu 

of continuing the review of individual borrower files did not condition payments on whether or not a borrower was contacted as part 

of the IFR process. The amounts paid to individual borrowers 

under this payment agreement were determined by the OCC and 

Federal Reserve after consultation with various consumer advocacy 

groups. Under the approved schedule of payments, in most cases, 

borrowers who requested a review of their foreclosure by an independent consultant under the IFR received a somewhat larger 

amount than borrowers in the same category who did not submit 

a request for review. The regulators believed that those individuals 

who affirmatively claimed that they were injured by servicer errors 

should receive some preference in allocation of the payment agreement funds. 

Our review of data comparing the locations where mailings to inscope borrowers were sent, the locations from which requests for 

review have been received, and 2010 Census Data indicates that 

the percentage of borrowers in low- and moderate-income zip codes 

and in zip codes where racial minorities comprised the majority of 

the population who submitted requests for review was generally 

not lower than the percentage of in-scope borrowers submitting review requests in all locations nationwide. 

Q.2. The agreement reached by the OCC and Federal Reserve with 

the 13 mortgage servicers provides roughly $5.7 billion in foreclosure prevention assistance (or soft money) and $3.6 billion in 
94 

cash payments, which will certainly help the millions of borrowers. 

Because of the deficiencies and issues that we read about in the 

GAO study, I’d like to get a better understanding of how these dollar amounts (both soft dollars and cash payout) were determined, 

because it seems as though we still do not have a solid understanding of the level of harm to borrowers. In fact, the new agreement that replaced the foreclosure review with a compensation 

framework does not rely on determinations of whether borrowers 

suffered financial harm. So can you explicitly explain how these 

amounts were determined? 

A.2. With the OCC taking the lead, the regulators accepted the 

payment agreement with the 13 mortgage servicers because that 

approach would provide payments to more borrowers in a shorter 

time than would have occurred if the IFR had continued at those 

servicers, where most injured borrowers likely would not see compensation for some time to come. As you note, the amounts paid 

to individual borrowers under the payment agreement are not 

based on a finding of financial harm to any specific borrower. Instead, all borrowers covered by the IFR were categorized according 

to the stage of their foreclosure process and the type of possible 

servicer error. Regulators then determined amounts for each category using the financial remediation matrix published by the OCC 

and Federal Reserve in June 2012 as a guide, incorporating input 

from various consumer groups. Regulators have published the payment amounts and number of borrowers in each category on their 

Web sites at www.occ.gov/independentforeclosurereview and 

www.federalreserve.gov/consumerinfo/independent-foreclosure-review-paymentagreement.htm. 

The payment amounts for several of the categories, including the 

category for borrowers eligible for protection under the 

Servicemember Civil Relief Act (SCRA), were derived from the 

amounts paid to borrowers under recently negotiated settlements 

involving similar kinds of claims. In deciding to accept the payment 

agreement, we looked to see whether the total amount available to 

fund cash payments would be large enough to provide borrowers in 

the highest payment categories, such as SCRA borrowers, with significant payouts while allowing those borrowers in the lower categories to receive payments in amounts commensurate with those 

specified in the financial remediation matrix. We were also aware 

that the National Mortgage Settlement (NMS), which recently had 

been entered into between the five largest servicers and the Department of Justice (DOJ) and the State attorneys general, required $25 billion in cash payments and other relief to borrowers 

that would be in addition to the over $9 billion in payments and 

assistance that would be provided by the servicers that participated in the payment agreement. Importantly, the Federal Reserve 

and the OCC ensured that each borrower receiving a payment or 

other assistance under the payment agreement retained the right 

to pursue full remediation through other means. This ensured that 

borrowers who could demonstrate greater harm than addressed by 

the regulators’ remediation efforts could obtain a court review of 

those claims and full remediation to address unique facts and injuries. 
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Q.3. The agreement reached by the OCC and Federal Reserve with 

the 13 mortgage servicers provides $5.7 billion in foreclosure prevention assistance (or soft dollars), which will certainly help the 

millions of affected borrowers. However, my understanding is that 

if one of these servicers does a loan modification or principle reduction for $10,000, and the home is worth $250,000, the servicer will 

be credited $250,000 in foreclosure prevention assistance or consumer relief under the settlement, instead of just $10,000 for the 

loan modification or principle reduction. Are we giving the mortgage servicers credit for financial assistance that they didn’t necessarily provide? Do you plan to continue this practice moving forward? Can you explain the policy behind crediting these servicer 

dollar-for-dollar for consumer relief? 

A.3. In addition to direct cash payments totaling $3.6 billion to inscope borrowers, the payment agreement with the 13 mortgage 

servicers included a commitment by the servicers to provide a total 

of $5.7 billion of foreclosure prevention relief within the next two 

years. This portion of the agreement was modeled on the NMS with 

the DOJ and the State attorneys general. A servicer can receive 

credit toward meeting this commitment by, among other things, 

providing the kinds of foreclosure prevention measures that are eligible to receive credit under similar commitments made by the 

servicers that entered into the NMS. These measures include first 

and second lien loan modifications and short sales/deeds in lieu of 

foreclosure. There are a variety of ways in which the economic 

value of these kinds of foreclosure prevention assistance to a particular borrower can be estimated, and the payment agreement provides crediting for these types of activities based on the unpaid 

principal balance of the affected loan. For example, where a 

servicer provides a borrower with a sustainable loan modification 

that makes the full remaining loan balance affordable for the borrower and thus more likely to be repaid, so that the borrower is 

able to remain in the residence indefinitely, the remaining loan 

balance can be viewed as a quantification of the value of that modification to the borrower. Servicers may also receive credit toward 

their foreclosure assistance commitment by providing other types of 

loss mitigation or other foreclosure prevention actions, subject to 

regulatory non-objection, such as interest rate modifications, deficiency waivers, and provision of cash payments or other resources 

to borrower counseling or education. 

Q.4. Many of the borrowers who were part of the IFR still live in 

their homes, but I’m concerned about their ability to stay in their 

homes as part of the IFR Payout and consumer relief. For example, 

I believe actions such as principal reductions and loan modifications will help keep these people in their homes, but short sales 

would remove these borrowers from their homes. What steps have 

you taken, and will you take, to ensure that the soft dollars are 

used to keep people in their homes? What procedures and/or mechanisms are in place to discourage the servicers from providing relief through short sales? 

A.4. The amended consent orders that implement the payment 

agreement with regard to the servicers participating in the agreement set forth several guiding principles the servicers are to follow 
96 

in conducting their foreclosure prevention activities obligations 

under the payment agreement. Specifically, servicers’ foreclosure 

prevention actions should give preference to activities designed to 

keep the borrower in the home; should emphasize affordable, sustainable, and meaningful home preservation actions; should otherwise provide significant and meaningful relief or assistance to 

qualified borrowers; and should not disfavor particular geographies 

or low- and moderate-income borrowers, or discriminate against 

any protected class. Federal Reserve examiners will monitor the 

foreclosure mitigation activities of those participating servicers we 

regulate in light of these principles and we will strongly encourage 

the servicers to focus on the kinds ofassistance that facilitate borrowers retaining their homes. 

Loan modifications are an important tool for keeping borrowers 

in their homes, but are not the best solution for all troubled borrowers. Some borrowers are so behind on their payments relative 

to their ability to repay the loan that exiting the mortgage altogether is their best option. Other borrowers may want to sell their 

homes in order to move to another city where job prospects are better. For these borrowers, a short sale is a better way to exit the 

mortgage than a foreclosure. Short sales can be advantageous to 

borrowers because the lender typically forgives the difference between the mortgage balance and the short sale proceeds. Short 

sales also impose fewer costs on communities than foreclosures. 

Q.5. The GAO reports on the IFR cite little stakeholder consultation within the IFR process. While some access to Treasury HAMP 

officials was cited as being helpful in providing information on loss 

mitigation and loan modification, why wasn’t there a greater focus 

on using housing counseling agencies that have much more experience working through the difficult and time consuming process of 

foreclosure modifications than most big consulting firms? 

A.5. The Federal Reserve, working with the OCC, has made extensive efforts to obtain input on many occasions from national consumer and housing counseling groups on a number of important 

issues relating to the IFR and the payment agreement, especially 

after the issuance of the GAO report on the IFR in June of last 

year. Particularly, in expanding our outreach efforts to alert inscope borrowers of the opportunity to request a review of their foreclosure by independent consultants pursuant to the IFR, we held 

several meetings with consumer groups. We then incorporated 

their feedback on the accessibility of outreach materials into advertisements and subsequent mailings to borrowers to improve the accessibility and readability of the materials. The Federal Reserve 

and the OCC also conducted outreach sessions targeted at housing 

counseling agencies, including two Webinars and other outreach 

events with local groups at the regional Federal Reserve Banks. 

These sessions provided them with information on the IFR process 

and trained them in assisting borrowers in completing the request 

for review form. In connection with entering into with the payment 

agreement with the servicers in lieu of conducting the IFR, we 

sought input from consumer representatives before accepting the 

agreement. We also met with community groups to solicit the 

groups’ views on how best to communicate information about the 
97 

agreement and the payments to eligible borrowers they serve. 

Moreover, the amounts paid to individual borrowers under this 

payment agreement were determined by the OCC and Federal Reserve after consultation with various consumer advocacy groups. 

Q.6. One of the main purposes of the IFR process was to have data 

to enable the OCC and Federal Reserve Board to tell whether a 

bank had a particular kind of file or type of mistake that it was 

repeating, so the consultants could dig deeper into their other files. 

Since the OCC and Federal Reserve abandoned the review, to what 

extent will they be able to further examine whether certain banks 

committed systematic errors in their foreclosures based on either 

preliminary results or based on information that they gathered 

through regular bank examinations or other sources? 

A.6. A primary focus of the enforcement actions issued by the Federal Reserve and the OCC in April 2011 always was and continues 

to be a requirement that the servicers, in addition to conducting 

the file reviews as part of the IFR, correct the deficiencies in their 

servicing and foreclosure processes that had been found during a 

joint onsite review of federally regulated mortgage servicers by the 

banking regulatory agencies in 2010. The action plans submitted 

by Federal Reserve-regulated servicers to correct these deficiencies 

have been approved and are being implemented by the servicers. 

As part of the ongoing oversight of the servicers we regulate, Federal Reserve examiners will review the corrective measures those 

servicers take to ensure the deficiencies do not recur. Thus, the 

change from the IFR process to the current payment agreement is 

not expected to affect the identification and correction of deficient 

foreclosure practices at these servicers. 

Q.7. The Foreclosure Review Payment Agreement provides 

$125,000 to those most harmed by these foreclosure abuses, and at 

least $300 to those who may not have been harmed at all. Can you 

specifically explain how these payments will be administered and 

what steps will be taken by the OCC and FRB to ensure that borrowers receive the relief they need? Specifically, how are we administering these thousands, sometimes over a hundred thousand dollars, to these borrowers? What types of mechanisms are in place 

to ensure transparency and accountability? 

A.7. The Federal Reserve, in coordination with the OCC, significantly expanded its planning and monitoring efforts during the 

course of the IFR and continues to devote resources to planning 

and monitoring the implementation of the remaining requirements 

of the payment agreement. The agencies have taken several steps 

to enhance their planning and monitoring with respect to the cash 

payments to borrowers and to ensure that borrowers are aware of 

the payment agreement. For example, the agencies have: 

• Met with and sought feedback from community groups, housing counseling organizations, and other interested stakeholders, and incorporated that feedback into communications 

to borrowers about the payment agreement. Among the communication steps recommended by the groups and adopted by 

the agencies was a requirement that the paying agent, Rust 

Consulting, mail a postcard to the approximately 4.2 million 
98 

borrowers whose servicers are parties to the payment agreement, to alert borrowers that they would be receiving a payment. The agencies received valuable input that helped improve readability of the mailings to borrowers; 

• Developed a letter to borrowers whose servicers are parties to 

the payment agreement to accompany their payment. This letter contains an explanation about why the borrower is receiving a payment, along with instructions for cashing the check, 

a statement that the borrower is not required to execute a 

waiver of any legal claims they may have against their servicer 

as a condition for receiving payment, and other important disclosures; 

• Presented Webinars on March 13, and April 20, 2013, for community groups, housing counselors, and other interested members of the public to explain the provisions of the payment 

agreement orders; and 

• Issued several press releases related to the payment agreement and made publicly available on our Web sites information 

about how cash payment amounts were determined, the numbers of borrowers falling into the various payment categories, 

and the schedule for mailing checks to borrowers whose 

servicers participated in the payment agreement. 

The first wave of payments was issued to borrowers on April 12, 

2013—and additional mailings have been sent on a regular schedule since that time. As of July 19, 2013, approximately 4.2 million 

checks have been sent to borrowers, worth over $3.5 billion. As of 

August 1, 2013, approximately 2.9 million of those checks, worth 

approximately $2.6 billion, have been cashed or deposited. The payment agreement is achieving our primary objective, which is to get 

money into the hands of more borrowers more quickly than would 

have occurred had the IFR continued. 

In addition, the Federal Reserve has updated its Web site with 

the number and dollar value of checks to borrowers under the payment agreement that have been deposited or cashed. The Federal 

Reserve and the OCC have also committed to providing public reports that detail the implementation of the amendments to the consent orders. We anticipate the reports will include available details 

about the direct relief and other assistance provided to homeowners, as well as information about the number of requests for review, costs associated with the reviews, and the status of the other 

corrective activities directed by the enforcement actions. We are in 

the process of analyzing this information at this time and, as explained above, are taking steps to determine how this information 

may be best presented to the public. 

Q.8. The National Mortgage Settlement and Independent Foreclosure Review addressed foreclosure abuses by many large mortgage servicers from 2009–2010. Now that we have two distinct avenues of relief for these borrowers, what mechanisms are in place 

to ensure there is no overlap in assisting these borrowers? Or of 

more concern to me, what steps are in place to ensure that no borrowers are left behind? 
99 

A.8. The IFR and the NMS are separate actions and provide different forms of remedies and relief. The IFR and the payment 

agreement that replaced it at 13 servicers were required by the 

Federal banking regulatory agencies under enforcement actions 

against the largest mortgage servicers and cover borrowers who 

were in foreclosure at some time during 2009 and 2010 at those 

servicers. The NMS, announced and filed in Federal district court 

in early 2012, requires five large mortgage servicers, all of which 

are subject to the banking agency enforcement actions, to address 

mortgage loan servicing and foreclosure abuses alleged by multiple 

Federal and State government agencies, by, among other things, 

making payments to borrowers and also providing specific types of 

foreclosure prevention and mitigation actions. Borrowers are not 

disqualified from the IFR or from receiving a payment or assistance under the payment agreement between the servicers and the 

Federal Reserve and OCC if they also receive payments or other relief as a result of the NMS, and payments under the IFR or the 

payment agreement will not be offset by payments the borrower 

has received under the Borrower Payment Fund of the NMS. Moreover, for servicers not currently part of the NMS, the foreclosure 

prevention actions required by the Federal Reserve and OCC are 

in addition to any consumer relief obligations required of those 

servicers under any settlement similar to the NMS that may be entered into by these servicers with the DOJ or Department of Housing and Urban Development. 

The agencies’ enforcement actions and NMS together cover borrowers who were in foreclosure during an extremely active period 

of the home mortgage crisis. While borrowers are continuing to face 

foreclosure after that period, corrective action to servicing and foreclosure procedures taken by major mortgage servicers under the 

regulators’ enforcement actions and the national servicing standards implemented under the NMS should help to prevent injuries 

in the future caused by servicer errors to borrowers who subsequently enter the foreclosure process. Borrowers who are not covered by these formal government agreements, like those who are 

covered, are able to file complaints about the handling of their foreclosure under the consumer assistance procedures of the Federal 

Reserve and OCC and the customer complaint procedures of the 

servicer involved. 

Q.9. In their April 2013 report, the Government Accountability Office states that the uniqueness of each servicer’s population and 

their processes for keeping borrowers’ information posed challenges. In fact, the OCC and Federal Reserve Board said it was not 

feasible to design one file review process that would apply to all 

servicers in the IFR, and the consultants would be required to tailor their review processes. How do you believe the leeway given the 

consultants to tailor their own reviews, without proper guidance, 

led to the abandonment of the IFR? 

A.9. Ensuring that all borrowers covered by the IFR who suffered 

similar kinds of injury received the same treatment was a major 

objective of the Federal Reserve and OCC in overseeing the file review process. The Federal Reserve and OCC undertook numerous 

actions aimed at achieving this goal. Not only were the enforce-
100 

ment action provisions that addressed the IFR requirement substantially identical for all covered servicers, but the Federal Reserve and OCC also issued extensive common guidance, including 

a joint framework for remediation of specific borrower injuries designed to promote consistent treatment of borrowers. In addition, 

Federal Reserve staff engaged in continuous offsite monitoring of 

the consultants, consisting of weekly calls and periodic in-person 

meetings. Federal Reserve examiners also engaged in regular onsite testing to review the consultants’ work and each of the examiner teams engaged in regular calls, quarterly in person meetings, 

and other ad hoc communications as needed to ensure a consistent 

approach. 

Ultimately, the very large number of borrowers involved and the 

time-consuming, expensive, and difficult nature of the review substantially delayed payments to borrowers. Therefore, as explained 

in the answer to question #2 above, the regulators accepted the 

payment agreement with the 13 mortgage servicers to provide payments to more borrowers in a shorter time than would have occurred if the IFR had continued at those servicers. 

Q.10. From May 2011 to October 2012, the OCC and FRB issued 

29 joint pieces of guidance to the consultants, and regulators had 

regular weekly meetings with the consultants to clarify guidance. 

When you continually clarified guidance to the consultants, what 

impact did that have on the loan files that had already been reviewed, prior to the new guidance? When changes were made to 

how files should be reviewed, is it logical to assume that those 

changes must be retroactively applied to the already reviewed files? 

Were these previously reviewed files reviewed again? 

A.10. Given the unique and unprecedented nature of the IFR, it 

was not possible to contemplate, develop, and implement all of the 

guidance needed to conduct the IFR at the outset of the IFR, and 

many issues requiring guidance from the regulators surfaced only 

through the actual conduct of the reviews by the consultants. The 

Federal Reserve and OCC coordinated closely to ensure that the 

guidance we provided was consistent, including in how borrowers 

were treated across servicers. 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN 

FROM KONRAD ALT 

Q.1. In your testimony you said that ‘‘in performing an independent review, we are working for the regulator.’’ Yet, in his testimony, Richard Ashton stated that ‘‘consultants retained under Federal Reserve enforcement actions work for the organization that retained them.’’ In light of these potentially conflicting statements, 

can you explain your relationship with financial institutions and 

regulators in average engagements beyond the Independent Foreclosure Review more fully? 

A.1. Did not respond by publication deadline. 

Q.2. While the OCC and the Federal Reserve sought to increase 

transparency in the use of independent consultants in the case of 

the Independent Foreclosure Review by publishing engagement letters between servicers and their consultants, in many cases 
101 

redactions removed information that could shed light on the consultants’ independence and the quality of reviews. For instance, in 

your engagement letter with Bank of America, your more than two 

and a half page conflicts of interest policy (Attachment C) is fully 

redacted, and the policy does not appear to be readily available on 

your Web site. Do you feel that your conflicts of interest policy 

should be removed, or would you support its disclosure in public 

enforcement actions? 

A.2. Did not respond by publication deadline. 

Q.3. In your testimony you stated that you were ‘‘working for the 

regulator.’’ Do you think that it would add additional transparency 

and simplify your working relationships if you were to enter into 

contracts directly with regulators, rather than with financial institutions? 

A.3. Did not respond by publication deadline. 

Q.4. Please explain your use of subcontractors and your service as 

a subcontractor for others. In what cases did you use subcontractors, and in what cases did you serve as a subcontractor for others? 

At the time of your engagement you testified that you had qualified people who could do this work, how many people did you have 

on staff that had specific skills in understanding how to conduct an 

internal foreclosure project? 

Can you confirm reports that work was offshored to employees 

in foreign countries, such as the Philippines? If so, which countries? 

A.4. Did not respond by publication deadline. 

Q.5. Given the results of the Magner/Jones decision, were you 

aware of the implications of the Magner/Jones decision, how did 

you account for the systemic errors at Wells Fargo, in your IFR review of Wells? Did you check for systemic errors at your other engagements BofA & PNC? 

A.5. Did not respond by publication deadline. 

Q.6. You frequently claimed that borrower harm calculations could 

be determined by evaluating 25 documents associated with a case 

file, experts propose that to accurately determine harm borrowers 

harm, 150–180 documents associated with a case file must be reviewed, please demonstrate your process compared to the following 

templates. 

A.6. Did not respond by publication deadline. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 

FROM KONRAD ALT 

Q.1. For the purposes of our oversight role, please tell us what you 

believe to be the biggest design error(s) made by the OCC and Federal Reserve with respect to the IFR? What should be the lesson(s) 

learned? 

A.1. Did not respond by publication deadline. 

Q.2. As we contemplate a reauthorization of the Bank Secrecy Act 

and anti-money laundering laws, what changes do you believe need 
102 

to be made in the law that will help make these laws less subject 

to violation? 

A.2. Did not respond by publication deadline. 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN 

FROM JAMES F. FLANAGAN 

Q.1.1. In your testimony you noted that you ‘‘worked closely with 

the OCC and the Fed throughout the IFR engagements’’ and that 

you ‘‘provided the regulators with weekly written and oral status 

updates.’’ 

Was the level of interaction between regulators and consultants 

typical for an engagement of this nature? 

A.1.1. As I discussed in my testimony before the Subcommittee, the 

role of an independent consultant in an engagement pursuant to a 

consent order is highly dependent on the individual agency order. 

In our experience, we have not seen a one-size-fits all consent order 

or a typical independent consultant role. The scope and scale of the 

IFR engagements were unprecedented; in that context, it was important to communicate regularly with the regulators throughout 

the process and concerning all aspects of our work. 

Q.1.2. What types of daily interactions do PricewaterhouseCoopers 

employees have with regulators and the financial institutions 

under examination? How do these interactions influence your independence as a consultant? 

A.1.2. PwC worked closely with the regulators in a number of different ways during the IFR engagements. PwC engagement teams 

interacted most often with the Examiners-in-Charge (‘‘EICs’’) for 

each of the engagements, including through weekly updates to the 

EICs about the status of the engagements and emerging developments. The EICs, in turn, provided updated guidance, conducted 

onsite visits, and assessed and provided comments on the review 

process. PwC also provided weekly written and oral status updates 

to the OCC and the Fed and met with more senior representatives 

of both agencies to discuss broader issues concerning the IFR process. 

The servicers were responsible for building the files that were to 

be reviewed by the Independent Consultants during the IFR engagements. Accordingly, PwC regularly communicated with the 

servicers regarding the state of the loan files and made requests of 

the servicers for additional documents that were missing from files. 

In addition, PwC also communicated routinely with the servicers 

regarding the status and progress of the engagements. At no time, 

however, were there communications in which the servicers attempted to influence the way in which PwC performed its procedures or the observations made by PwC as a result of those procedures. 

Neither our interactions with the regulators nor our communications with the servicers affected PwC’s independence or objectivity. 

During the IFR engagements, we were asked to act—and in fact 

acted—as impartial and objective consultants. Applying rules and 

guidance provided by the regulators and the Independent Legal 

Counsel, we provided observations regarding whether servicer files 
103 

complied with applicable State and Federal laws. Neither the regulators nor the servicers sought to bias our review or to influence 

our observations. The regulators provided the framework with 

which we worked, and, as described above, we periodically discussed with the servicers the state of the loan file documentation 

and the status of our work. We see no way that either type of conversation could have impaired our objectivity in performing the IFR 

work. 

Moreover, as I emphasized during my testimony before the Subcommittee, we view our objectivity and impartiality as the foundation of our brand and the premise that underlies all of our professional services. Our firm maintains extensive procedures, policies, 

processes, and controls in an effort to govern which engagements 

we can pursue and accept and to maintain our objectivity and impartiality during the course of engagements. We also adopted a 

number of specific procedures to maintain our objectivity and impartiality in the IFR engagements, which I outlined in my testimony. 

Q.2. Do you think contracting directly with the regulatory agencies, 

instead of with the financial institutions, would enable you to perform the task at hand and avoid the potential for conflict of interests? 

A.2. Regardless of whether we are engaged directly by the regulatory agency or by the financial institution, we believe that we can 

perform the services objectively, free of conflicts of interest, and 

consistent with professional standards. For example, as discussed 

above, we believe we performed the IFR engagements impartially 

and objectively and without any conflicts of interest. We maintain 

procedures, processes, policies, and controls that govern which engagements we can accept, and when we feel that we cannot meet 

the necessary standards of objectivity and impartiality, we decline 

the engagement. With regard to the IFR engagements specifically, 

the regulators’ review and approval of the engagement letters 

should obviate any concern that the terms of engagement would 

have been any different had the engagement been by the regulators, instead of by the servicers. We believed at the outset and 

continue to believe today that we were able to and in fact did perform the IFR engagements without any bias and free of any inappropriate influence. 

Q.3. Was your organization able to learn any valuable information 

about the mortgage servicing business as a result of your work on 

the IFR? Can you offer any observations about the flaws or shortcomings in the current mortgage servicing model, or recommendations for improvements? 

A.3. As reflected in our engagement letters and the guidance provided by the regulators, the scope of PwC’s IFR services was narrow: we were to apply procedures designed to identify servicer errors and which of those errors caused financial harm to a borrower. 

We were not engaged to, and did not endeavor to, assess broader 

questions concerning the mortgage servicing business. The regulators, who received not only our reports but those of the other 

Independent Consultants, are better suited to address the state of 

the mortgage servicing business and any need for change. 
104 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM 

JAMES F. FLANAGAN 

Q.1. For the purposes of our oversight role, please tell us what you 

believe to be the biggest design error(s) made by the OCC and Federal Reserve with respect to the IFR? What should be the lesson(s) 

learned? 

A.1. The IFR process served two purposes—to provide the regulators with sufficient data to make policy judgments about reforms 

to the servicing business and to compensate borrowers for injuries 

arising from servicer error. While those two missions, which are 

embedded in the January 2011 settlements between the regulators 

and the servicers, are complementary, the effort to identify all 

servicer errors, irrespective of whether they could have or did cause 

financial injury, delayed our efforts to provide observations regarding financially harmed borrowers. It is not apparent that the twin 

missions of the IFR process represent a design flaw, but they were 

the source of much of the public disappointment in the time it took 

to conduct the reviews. It appears with the benefit of hindsight 

that there was perhaps too little consideration given when the IFR 

process was conceived to the tension between the effort’s competing 

goals. 

Q.2. As we contemplate a reauthorization of the Bank Secrecy Act 

and anti-money laundering laws, what changes do you believe need 

to be made in the law that will help make these laws less subject 

to violation? 

A.2. Issues involving the Bank Secrecy Act and anti-money laundering laws were not within the scope of the IFR engagements, and 

I am therefore not in a position to address this question. 

RESPONSE TO WRITTEN QUESTIONS OF CHAIRMAN BROWN 

FROM OWEN RYAN 

Q.1.1. In your testimony you noted the importance of ‘‘open communication and an appropriate working relationship among the 

independent consultants, the regulators and the institutions being 

monitored.’’ 

Was the level of interaction between regulators and consultants 

typical for an engagement of this nature? 

A.1.1. There was frequent, open, and continuous communication 

between Deloitte & Touche LLP (‘‘Deloitte’’) and the regulators 

throughout the Independent Foreclosure Review (‘‘IFR’’) engagement. There were weekly scheduled meetings and timely reporting 

to the regulators which served as an important mechanism for communicating our approach and progress. Since the IFR engagement 

was unique in our experience, it is difficult to assess whether this 

level of interaction was ‘‘typical’’ for an engagement of this nature. 

Q.1.2. What types of interactions do Deloitte employees have with 

regulators and the employees of the institutions they are examining? 

A.1.2. The types of interactions that Deloitte personnel have with 

regulators on independent consulting engagements generally include meetings, written communications and reporting on a timely 
105 

basis. When we are engaged in the capacity of an independent consultant, Deloitte personnel are typically working subject to the 

monitoring, oversight, and direction of the regulators. With respect 

to employees of the institution we are reviewing, Deloitte personnel 

meet with employees of the financial institution for various purposes such as gathering information, status updates, or to discuss 

the ramifications of particular regulator requests. 

Q.1.3. How do these interactions influence your independence as a 

consultant? 

A.1.3. Our independence as a consultant was not influenced in any 

way by the financial institution. In the IFR engagement, and as required in our engagement letter, Deloitte was subject to the monitoring, oversight, and direction of the regulators, and we were required to be objective at all times. Deloitte was expressly not subject to the direction, control, supervision, oversight, or influence by 

the financial institution. In addition, we have policies and procedures that are designed to ensure that each engagement is approached with due professional care, objectivity, and integrity, consistent with the American Institute of Certified Public Accountants 

consulting standards. 

Q.2. In your testimony you stated that engagements require ‘‘regulatory approval of the independent consultant and the scope and 

methodology to be used.’’ How would contracting directly with regulators, rather than with financial institutions, change the nature of 

the engagement? 

A.2. Direct contracts between the independent consultants and the 

regulators may have an impact on the procedure for the selection 

and retention of independent consultants, in that the selection and 

retention may be subject to Federal procurement rules and requirements, including, for example, competitive bidding. Such a process 

may lengthen the time to retain an independent consultant and 

may complicate how the independent consultant is compensated. 

Such direct contracts might enhance the appearance of objectivity, 

although we strongly believe that we are able to and do discharge 

our responsibilities with appropriate objectivity regardless of the 

contractual arrangement. Direct contracts between independent 

consultants and the regulators would not necessarily be expected 

to affect the level and quality of the already robust communications 

between the consultants and the regulators, or the actual scope of 

the independent consultant’s services. 

RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED 

FROM OWEN RYAN 

Q.1. For the purposes of our oversight role, please tell us what you 

believe to be the biggest design error(s) made by the OCC and Federal Reserve with respect to the IFR? What should be the lesson(s) 

learned? 

A.1. In response to this question, we refer to the GAO’s March 

2013 Report (the ‘‘Report’’) that made detailed findings and conclusions and stated that it revealed ‘‘three key lessons’’ that could help 

inform regulators’ implementation of the amended consent orders: 

(1) designing project features during the initial stages of the proc-
106 

ess to influence the efficiency of file reviews, (2) monitoring 

progress to better ensure the goal of achieving intended results, 

and (3) promoting transparency to enhance public confidence. We 

agree with these lessons and the recommendations of the Report. 

Q.2. As we contemplate a reauthorization of the Bank Secrecy Act 

and anti-money laundering laws, what changes do you believe need 

to be made in the law that will help make these laws less subject 

to violation? 

A.2. We have not formed a view as to what, if any, changes may 

need to be made to these laws. We are, however, open to consideration of any such changes to the law and welcome the opportunity 

to engage in dialogue with legislators and regulators in connection 

with any proposed legislation, and would be happy to provide any 

assistance that was needed as part of this process.