Foreclosure Review: Opportunities Exist to Further Enhance Borrower Outreach Efforts
Published: 2012-06-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In April 2011 consent orders, the Office of the Comptroller of the Currency (OCC), Federal Reserve, and the Office of Thrift Supervision directed 14 mortgage servicers to engage third-party consultants to review 2009 and 2010 foreclosure actions for cases of financial injury and provide borrowers remediation. To complement these reviews, the regulators also required servicers to establish an outreach process for borrowers to request a review of their case. This report examines (1) the extent to which the development of the outreach approach and content of the communications materials and website reflected best practices, and (2) the extent to which the planning and evaluation of the outreach and advertising approach considered the characteristics of the target audience. To conduct this work, GAO reviewed the design and implementation of borrower outreach activities and materials against best practices and federal guidelines and interviewed representatives of servicers, consultants, community groups, and regulators.
section_title: What GAO Found
paragraphs: Regulators and servicers have gradually increased their efforts to reach eligible borrowers and have taken steps to improve communication materials. Conducting readability tests or using focus groups are generally considered best practices for consumer outreach, but regulators and servicers did not undertake these activities. Staff at the Board of Governors of the Federal Reserve System (Federal Reserve) said that this was, in part, a trade off to expedite the remediation process. Regulators also did not solicit input from consumer groups when reviewing the initial communication materials. Readability tests found the initial outreach letter, request-for-review form, and website to be written above the average reading level of the U.S. population, indicating that they may be too complex to be widely understood. Regulatory staff noted limitations to such readability tests and told us they discussed using plain language, but that the use of some complex mortgage and legal terms was necessary for accuracy and precision. Clear language on the independent foreclosure review website is particularly important as current outreach encourages borrowers to submit requests for review online. Communication materials developed by mortgage servicers with input from regulators and consultants included information about the purpose, scope, and process for the foreclosure review and noted that borrowers may be eligible for compensation. However, the materials do not provide specific information about remediationan important feature to encourage responses as suggested by best practices and reflected in notification examples GAO reviewed. Without informing borrowers what type of remediation they may receive, borrowers may not be motivated to participate.
The outreach planning and evaluation targeted all eligible borrowers with some analysis conducted to tailor the outreach to specific subgroups within the population. In approving the outreach plan, regulators considered the extent to which the plan promoted national awareness and was appropriate to reach the demographics of the target audience. The outreach process was largely uniform with some targeted outreach to Spanish-speaking and African-American borrowers. GAO has previously found that effective outreach requires analysis of the audience by shared characteristics, but regulators did not call for servicers to analyze eligible borrowers by characteristics, such as limited English proficiency, that may have affected their response. While regulators have identified community groups as effective messengers and encouraged servicers to reach out to them, servicers have leveraged these groups to varying degrees. According to consumer groups, borrowers may have ignored communication materials because they did not understand who provided the information and believed the materials were fraudulent. Regulators regularly monitored the status of the outreach activities and analyzed the effect of advertising on response rates. GAO has previously found that analyzing past performance when expanding activities is important. Regulators did not analyze characteristics of respondents and nonrespondents in introducing a second wave of outreach activities. Without this analysis, regulators may not know if certain groups of borrowers are underrepresented in the review. As a result, whether additional outreach to target these groups or changes to the file review process are need.
section_title: What GAO Recommends
paragraphs: OCC and the Federal Reserve should enhance the language on the foreclosure review website, include specific remediation information in outreach, and require servicers to analyze trends in borrowers who have not responded and, if warranted, take additional steps to reach underrepresented groups. In their comment letters, the regulators agreed to take actions to implement the recommendations, while the Federal Reserve took issue with GAOs criteria. OCC also took issue with GAOs criteria in its technical comments.

section_title: Letter
paragraphs: In April 2011, the Office of the Comptroller of the Currency (OCC), the  Board of Governors of the Federal Reserve System (Federal Reserve),  and the Office of Thrift Supervision (OTS) announced consent orders  against 14 residential mortgage servicers for unsafe and unsound  practices in residential mortgage servicing and foreclosure processing.  Among other things, these consent orders directed the servicers to  engage third-party consultants to conduct a file review of the servicers’  2009 and 2010 foreclosure actions to evaluate whether borrowers  suffered financial injury through errors, misrepresentations, or other  deficiencies in servicers’ foreclosure practices. Where a borrower  suffered financial injury as a result of such practices, the regulators’  orders require the servicers to provide borrowers with remediation. As an  unprecedented step not found in prior enforcement actions, these consent  orders also require servicers to establish a process to obtain and process  consumer complaints. The regulators required servicers to establish such  a process to complement the file review and enable eligible borrowers to  request a review of their files if they believe they suffered financial injury  as a result of the types of deficiencies in mortgage servicing and  foreclosure processing identified in the regulators’ consent orders. Taken  together, these steps comprise the Independent Foreclosure Review  (foreclosure review). The servicers developed a coordinated outreach  plan to inform eligible borrowers of their opportunity to request a review of  their foreclosure cases. OCC and the Federal Reserve have reported that  approximately 95 percent of the 4.3 million outreach letters sent to eligible  borrowers were successfully delivered, and the response rate was  approximately 5.3 percent, as of June 2012. However, consumer groups  and others have raised concerns about the outreach efforts.
In response to your request, we reviewed the design and implementation  of the borrower outreach process to determine how well information about  the foreclosure review is being communicated to eligible borrowers with  different characteristics. Specifically, this report addresses (1) the extent  to which the development of the approach and content of the  communication materials and website reflected best practices and (2) the  extent to which the planning and evaluation of the outreach and  advertising approach considered the characteristics of the target  audience. This work represents the first phase of our review of the  foreclosure review process. In a subsequent report, we will examine other  elements of the foreclosure review process, such as the regulators’  oversight of the file review process, that you requested.
To address these objectives, we reviewed communication materials the  regulators approved against best practices on the content of outreach  notices, federal guidelines on plain language use, and criteria established  in our previous reports related to planning outreach campaigns and  testing communication materials. We also updated previous work on the  geographic concentrations of the population with limited English  proficiency and leveraged work we have done on characteristics of  individuals associated with low financial literacy. We reviewed regulators’  guidance to the servicers on setting up the outreach process and  evaluated that guidance against criteria in a previous report on planning  outreach campaigns. We compared the regulators’ outreach campaign  evaluation processes against criteria established in previous reports  related to monitoring and evaluating communication materials and  advertising activities. We conducted interviews with staff at OCC and the  Federal Reserve and representatives of consumer and community  groups. We also interviewed representatives of five mortgage servicers— including large and small servicers and at least one supervised by each  regulator—and the third-party consultants these servicers have hired for  the foreclosure review process.
We conducted this performance audit from February 2012 through June  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: Mortgage servicers are the entities that manage payment collections and  other activities associated with loans. Servicing duties can involve  sending borrowers monthly account statements, answering customer- service inquiries, collecting monthly mortgage payments, and maintaining  escrow accounts for property taxes and insurance. In the event that a  borrower becomes delinquent on loan payments, servicers also initiate  and conduct foreclosures. Several federal regulators share responsibility  for regulating the banking industry in relation to the origination and  servicing of mortgage loans. OCC has authority to oversee nationally  chartered banks and federal savings associations. The Federal Reserve  oversees insured state-chartered banks that are members of the Federal  Reserve System, bank holding companies, and entities that may be  owned by federally regulated depository institution holding companies but  are not federally insured depository institutions. The Federal Deposit  Insurance Corporation (FDIC) oversees insured state-chartered banks  that are not members of the Federal Reserve System and state-chartered  savings associations. The Bureau of Consumer Financial Protection  oversees many of these institutions, as well as all mortgage originators  and servicers that are not affiliated with banking organizations, with  respect to federal consumer financial law.
subsections: section_title: Regulators Issued Consent Orders to Mortgage Servicers
paragraphs: Beginning in September 2010, several servicers announced that they  were halting or reviewing their foreclosure proceedings throughout the  country after allegations that the documents accompanying judicial  foreclosures may have been inappropriately signed or notarized and after  completion of self-assessments of their foreclosure processes that federal  banking regulators directed them to conduct. In response, the banking  regulators—OCC, the Federal Reserve, OTS, and FDIC—conducted a  coordinated on-site review of 14 mortgage servicers to evaluate the  adequacy of controls over servicers’ foreclosure processes and to assess  servicers’ policies and procedures for compliance with applicable federal  and state laws. Regulatory staff told us that as part of these reviews, their  examiners evaluated internal controls and procedures for processing  foreclosures and reviewed samples of individual loan files to better  ensure the integrity of the document preparation process and to confirm  that files contained appropriate documentation. Examiners reviewed more  than 2,800 loan files comprising approximately 200 foreclosure loan files  with a variety of characteristics from each servicer to test the institutions’  controls and governance processes with respect to foreclosures.  Generally, the examinations revealed severe deficiencies in three primary  areas: shortcomings in the preparation of foreclosure documentation;  inadequate policies, staffing, or oversight of foreclosure processes; and  insufficient oversight of third-party service providers, particularly  foreclosure attorneys.
On the basis of their findings from the coordinated review, OCC, the  Federal Reserve, and OTS issued formal consent orders against each of  the 14 servicers under their supervision in April 2011 (see fig. 1).  According to bank regulatory staff and these consent orders, each of the  14 servicers is required to enhance its compliance, vendor management,  and training programs and processes. In addition, because examiners  reviewed a relatively small number of foreclosure files, the consent orders  require each servicer to retain an independent firm to conduct a review of  foreclosure actions on primary residences from January 1, 2009, to  December 31, 2010, to identify borrowers who suffered financial injury as  a result of errors, misrepresentations, or other deficiencies in foreclosure  actions, and to recommend remediation for borrowers, as appropriate.  Servicers proposed third-party consultants to conduct the foreclosure  review and submitted engagement letters outlining their foreclosure  review processes to the regulators by July 2011 as required by the  orders. OCC reviewed and approved the engagement letters for banks  under its supervision in late September 2011 and released the  engagement letters in November 2011 on the OCC website. With the  exception of one institution, the Federal Reserve approved the  engagement letters for servicers under its jurisdiction by February 2012.
As required in the consent orders, the foreclosure review process has two  components, a file review (look-back review) and a process for eligible  borrowers to request a review of their particular circumstances (borrower  outreach process). For the look-back review, the consent orders require  the third-party consultant to submit an engagement letter outlining their  plan for review subject to the regulators’ approval. Consultants are  required to review various categories of loans, pursuant to regulators’  guidance and approval. These categories may vary by servicer but  include, for example, files in every state where the institution conducted  foreclosures, foreclosures where the borrower had a loan modification in  place, or files that were handled by certain law firms where  documentation errors have previously been found. The consent orders  allow third-party consultants to use statistical techniques to select  samples of files from some categories of loans for review. As required in  the consent orders, the engagement letters describe procedures  consultants will use to increase the size of samples depending on the  results of the initial reviews. Consultants are not allowed to use sampling,  but instead must review 100 percent of files in some high-risk categories,  including certain bankruptcy cases and files involving borrowers protected  by the Servicemembers Civil Relief Act (SCRA). The Federal Reserve is  also requiring 100 percent review of files in several additional high-risk  categories, including foreclosure-related complaints filed before the  borrower outreach process was launched, foreclosure actions where a  complete request for a loan modification was pending at the time of the  foreclosure, and foreclosure actions that occurred when the borrower was  not in default.
The second component of the foreclosure review, the borrower outreach  process, is intended to complement the look-back review and help identify  borrowers who may have suffered financial injury. According to regulatory  documents and staff, the purpose of the outreach is to provide a robust  process so that eligible borrowers who believe they suffered financial  injury within the scope of the consent orders have a fair opportunity to  request an independent review of their circumstances and, potentially, to  obtain remediation. Regulatory staff noted that requiring institutions to  hire a consultant to review files to identify the harmed pool of consumers  as part of an enforcement action is typical. They said that including an  outreach component in addition to a file review is unique and  unprecedented in their experience. They also emphasized that the two  components are intended to work together to provide a full and fair  opportunity to identify as many financially injured borrowers as possible  and the final results could not be fully evaluated until both the look-back  file review and request-for-review process are completed. A Federal  Reserve official testified that the borrower outreach process was critical to  helping ensure that borrowers who suffered financial injury are identified  and appropriately compensated. Acting Comptroller Walsh stated in a speech that the two processes combined are intended to maximize  identification of and remediation for borrowers who have suffered financial  injury as a result of the deficiencies identified in the orders. Consultants  are required to review all eligible requests for review submitted through  the borrower outreach process.
To make eligible borrowers aware of the opportunity to request a  foreclosure review, regulators required servicers to develop an outreach  process. The servicers’ borrower outreach plan includes multiple  methods, including direct mail, print advertising, a toll-free phone number,  a website, online marketing, and engaging a third party for community  outreach. Since the servicers had contact information for all of the eligible  borrowers, direct mail was the primary outreach method chosen. On  behalf of the participating servicers, a third-party administrator began  mailing uniform outreach letters on November 1, 2011, to 4.3 million   These outreach letters describe the request-for-review  borrowers. process and include a request-for-review form for borrowers to complete  and submit if they believe they suffered financial injury as described in the  outreach letter (see fig. 2). The third-party administrator took steps to  update addresses of the eligible borrowers who may have lost their  homes to foreclosure. A single, coordinated website, toll-free phone  number, and national advertising campaign were launched in January  and February 2012, to provide information about the request-for-review  process. The regulators directed the servicers to develop their outreach  plan in consultation with the third-party consultants and approved the  plan. As of March 2012, borrowers may also submit requests for review   The original deadline  via the independent foreclosure review website.for submitting requests for review was April 30, 2012, but regulators  decided in February to extend the deadline to July 31, 2012. On June 21,  2012, regulators extended the deadline again to September 30, 2012. A  second round of national advertising occurred in April and May 2012, and  a third round is planned before the deadline. Additionally, a second  mailing to eligible borrowers who have not responded is scheduled for  June 2012. The mailing directs borrowers to call the toll-free phone  number or access the independent foreclosure review website for  information or to submit a request-for-review form. In addition to the  servicers’ coordinated efforts, regulators also have posted information  about the foreclosure review on their agencies’ websites and issued press  releases. Further, OCC has distributed public service announcements to  small publications and radio stations, and the Federal Reserve developed  a video to inform borrowers about the review process.
section_title: While the Outreach Efforts Have Improved over Time, Opportunities Exist to Enhance Readability and Content of the Communication Materials
paragraphs: As part of the outreach approach, the servicers formed a consortium to  develop the initial outreach letter and request-for-review form with input  from third-party consultants and approval from the regulators. The  servicers and regulators did not test these communication materials with  the borrowers or their community group advisers. Regulators consulted  with and incorporated feedback from consumer groups on subsequent  advertising and mailings to improve the format and clarity of current  materials. However, according to representatives of these groups and our  readability tests, the initial materials and the independent foreclosure  website may be difficult for some borrowers to understand. In addition,  the materials did not include specific information about the type of  potential remediation borrowers could receive, which could affect  borrowers’ motivation to respond and submit a request for review.
subsections: section_title: Communication Materials Could Impede Some Borrowers’ Ability to Respond
paragraphs: Servicers formed a consortium to develop the initial communication  materials, including the outreach letter and request-for-review form mailed  to eligible borrowers. Because the consent orders did not outline the  specifics of a borrower outreach process, regulators provided servicers  and consultants guidance in July 2011 outlining their expectations for  mailing notifications to eligible borrowers and national advertising, among  other requirements. Representatives of servicers with whom we spoke  told us that after receiving this guidance the servicers decided to form a  consortium to develop a coordinated outreach process and uniform  communication materials. A representative of one servicer and regulatory  staff said that this approach would reduce potential confusion among  borrowers that could result if each servicer had developed separate  advertisements, websites, and outreach letters. Therefore, the servicers  worked together to develop initial drafts of the communication materials,  relying primarily on the expertise of their internal marketing departments  and class action lawsuit notices as a model for notifying borrowers of the  request-for-review process. The third-party consultants reviewed the  communication materials and provided their input. After the consultants’  review, the regulators also provided comments on the outreach plan and  content of the communication materials and ultimately gave their final  approval.
Although servicers developed the initial communication materials with  input from third-party consultants and regulators, the servicers and  regulators did not test the materials with the target audience. Our  previous reports and federal guidelines about using plain language in  public documents have emphasized the importance of testing  communication materials, such as conducting focus groups or assessing  their readability, before implementing them. For example, in a previous  report we have stated that consumer testing can validate the  effectiveness of messages and information or measure readers’ ability to  comprehend them. We also have found that in order to develop clear  and consistent audience messages, testing and refining language are  important. The Plain Writing Act of 2010 states that starting October 13,  2011, agencies must use plain writing when issuing new or substantially  revised documents, including documents that explain to the public how to  comply with a requirement that the federal government administers or  enforces. The act defines “plain writing” as “writing that is clear, concise,  well-organized, and follows other best practices appropriate to the subject  or field and intended audience.” In addition, federal guidelines developed  to help executive agencies implement the Plain Writing Act of 2010 state  that testing documents, including applications and websites, should be an  integral part of the plain-language planning and writing process,  especially when writing to millions of people. Finally, the Securities and  Exchange Commission’s handbook for companies preparing required  disclosure documents to investors in easy-to-understand language states  that testing documents with a focus group can provide helpful feedback  on how well the document communicates information and identify any  confusing language.
Representatives of one servicer and a consultant we interviewed said the  consortium considered testing the communication materials with  borrowers or conducting focus groups, but that the time frames were too  short to take these steps and incorporate any changes by the November  2011 deadline by which regulators expected the outreach campaign to be  launched. The servicer representative noted that because regulators  provided guidance in July 2011 and initially expected an August 2011  launch, the servicers had only 60 days to develop the coordinated  communication materials. tests with focus groups could take 6 to 8 weeks. Federal Reserve staff  said they wanted to get the outreach process started quickly so that  financially injured borrowers could receive remediation as soon as  possible. According to these staff, no formal readability tests or focus  groups with the target audience were conducted, partly due to their  interest in expediting the remediation process. However, they consulted  with staff in the agency’s Division of Consumer and Community Affairs for  feedback on improving the communication materials to help ensure  consumers could understand them. OCC staff also confirmed that no  formal testing of the communication materials was conducted, but OCC  also provided the materials to its Public Affairs and Community Affairs  groups, which reviewed the materials for readability, and incorporated  changes.
According to this representative, conducting  Readability tests of the outreach letter and request-for-review form mailed  to eligible borrowers and the website language indicate that these  materials were written at a level above the reading proficiency of many  borrowers. Federal plain language guidelines note that technical terms  may be necessary, but that agencies should define them and avoid legal  and technical jargon, where possible. At the same time, the guidelines  state that agencies should take into account their audience’s current level  of knowledge when preparing documents and that the documents should  be easy to understand. An assessment of the reading level of the U.S.
According to regulatory staff, the August 2011 deadline was extended when it became  apparent that the coordinated approach would require additional time. population indicated that nearly half of the adult population is estimated to  read at or below the eighth-grade level. We have previously reported  that to help ensure that the complex information public companies are  required to disclose is written in plain language and is understandable,  the Securities and Exchange Commission recommends that materials be  written at a sixth- to eighth-grade level. However, one consumer group  conducted a readability test of the language in the communication  materials mailed to eligible borrowers and found that they were written at  a second-year college reading level. Because the scheduled second  wave of mailings and advertising direct borrowers to the independent  foreclosure review website to obtain more information about the review  and submit a request-for-review form, we conducted readability tests of  the language used in the online request-for-review form. We used three  tests that score how hard a piece of writing is to read based on  quantitative measures, such as average number of syllables in words or  numbers of words in sentences. One of these tests used the same  method the consumer group used to evaluate the outreach letter and  request-for-review form. These tests indicate that the website is written at  an average of an eleventh-grade reading level, which is lower than the  test results of the outreach letter and paper request-for-review form, but  still above the average reading level of the U.S. population. Certain  sections of the website required higher or lower reading levels to be  understandable. For example, the legal section of the online submission  form where borrowers acknowledge that they are requesting a review of  their foreclosure and certify that the information is truthful were written at  a fifteenth-grade level, the equivalent of 3 years of college education.  However, one test indicated that the language used on the part of the  form where borrowers input their contact information required only an  eighth-grade reading level. As a whole, these tests are one indicator that  portions of the foreclosure review communication materials may be too  complex to ensure effective communication of all the relevant information.
The readability tests have some limitations and regulatory staff told us  that they considered plain language guidelines when evaluating the  materials. We note that the readability ratings only reflect the length of  sentences and the length in syllables of individual words in the sentences  and do not reflect the complexity of ideas in a document or how clearly  the information has been conveyed. As the content in these materials  refer to mortgages, some complex terms and phrases, such as  foreclosure and loan modification, may be unavoidable. Regulatory staff  told us that they were aware of the plain language guidelines and  discussed using plain language so that the materials were likely to be  understood. For example, they noted that they did not include  unnecessary legal and technical language, but said it was difficult to  convey complex mortgage and legal terms in simple language that would  still clearly and precisely present the intended message. Federal Reserve  and OCC staff noted that to the extent the Plain Writing Act applies to the  servicers’ borrower outreach communication materials, they believed they  had met the act’s requirements.
In addition to stating that agencies should take the audience’s current  level of knowledge into account, federal guidelines on using plain  language also state that agencies should use language the audience  knows and feels comfortable with when creating documents, including  websites. Representatives of consumer groups we interviewed expressed  concern about the initial lack of materials available in languages other  than English. According to 2008-2010 Census Bureau American  Community Survey data, about 12.7 million adults in the United States— 5.5 percent of the total U.S. adult population—reported speaking English  not well or not at all. In addition, as shown in figure 3, populations with  limited English proficiency tend to be more concentrated in certain parts  of the country. To the extent that these concentrations are also in areas  with high numbers of foreclosures that servicers did not target with  Spanish-language advertising, limited English proficiency could affect  borrowers’ ability to complete their request-for-review form. We have  previously reported that a lack of proficiency in English can affect financial  literacy—the ability to make informed judgments and take effective  actions on the current and future use and management of money. This  report also stated that limited English proficiency can be a significant  barrier to completing applications (such as the request-for-review form),  asking questions about additional fees on credit card statements or  correcting erroneous billing statements, and accessing educational  materials such as print advertising or websites that are not available in  languages other than English. Further, this report noted that having  limited proficiency in English exacerbates the challenges of  understanding complex information in financial documents. This report  also acknowledged that factors other than language often serve as  barriers to financial literacy for people with limited English proficiency,  including a lack of familiarity with the U.S. financial system, cultural  differences, mistrust of financial institutions, and income and education  levels. Federal Reserve staff said that they required the servicers to  handle the borrower outreach communication with non-English speaking  borrowers in accordance with the servicers’ existing policies and  procedures pertaining to such borrowers, which must comply with existing  laws and regulations. However, because the initial communication  materials were not available in languages other than English, borrowers  with limited English proficiency may not have had the same opportunity  as proficient English speakers to request a foreclosure review.
Regulators did not initially solicit input from consumer and community  groups when evaluating the language used in the communication  materials but have since taken steps to address these groups’ concerns.  Representatives of several consumer and community groups we  interviewed said that they have direct experience working with distressed  borrowers or in developing national outreach campaigns. Regulators  acknowledged that they initially did not obtain input from these groups  when evaluating the early communication materials, but they have since  held several meetings with selected groups to obtain their feedback on  the outreach process and requested feedback from them on the current  advertisements and mailings, as well as certain prior communications.  For example, Federal Reserve and OCC staff noted that both regulators  incorporated feedback from these groups to enhance readability, include  more Spanish translations, and improve how borrowers might respond to  second print advertisement and the content and the exterior of the second  mailing. Regulators also made changes to increase accessibility for non- English speaking borrowers that are consistent with the feedback from  consumer groups, such as requiring servicers to add frequently asked  questions and a guide to filling out the request-for-review form in Spanish  to the independent foreclosure review website. In addition, regulatory staff  said they required servicers to include references to available assistance  in other languages at the call center on the independent foreclosure  review website and in communication materials.
The regulators also have taken their own initiative to enhance the  communication materials. For example, they have posted on their  agencies’ websites an archived version of the two webinars they hosted  to educate community groups that assist borrowers with housing issues  about the foreclosure review process as well as English and Spanish  transcripts of the webinar. The agencies also consulted with the U.S.  Department of Justice in December 2011 on the measures taken by the  agencies to ensure that the independent foreclosure review is accessible  to non-English speakers. In addition, the Federal Reserve released a YouTube video that provides information about the foreclosure review in  Spanish and English. Further, OCC produced public service  announcements and distributed them to more than 700 Spanish-language  newspapers and 500 Spanish-language radio stations. Consumer group  representatives involved in discussions about outreach with the regulators  told us the recent improvements were positive, but said that they would  like to see documents and information on the website offered in additional  languages, language further simplified, and legal terms explained. For  example, the webinar materials provide tips on how to answer request- for-review form questions that define terms, clarify questions, and indicate  what additional documentation to reference; however, this information is  not available on the independent foreclosure review website where  borrowers are encouraged to submit their request-for-review forms.
Although regulators have ensured that some Spanish language materials  are available, these materials may still be difficult for Spanish-speaking  borrowers to understand. We have previously reported that in some  cases even translations of materials may not be fully comprehensible if  they are not written using colloquial or culturally appropriate language.  In addition, a 2004 report by the National Council of La Raza noted that  literal translations of financial education materials from English to Spanish  are often difficult for the reader to understand. Federal Reserve staff  acknowledged that some terms do not translate well, and said they  consulted with two consumer groups with Spanish translation capability  as well as native Spanish speaking staff in the Division of Consumer and  Community Affairs for advice on terms to use. Our analysis of the  Spanish guide to the request-for-review form available on the  independent foreclosure review website indicated that the Spanish  translation in the guide uses language similar in complexity to that of the  English form, which we found requires a reading level higher than the  national average. In addition, the English outreach letter is not translated,  and some of the key information, such as the purpose of the review or the  deadline for submitting the form, is not included in the cover of the  Spanish guide, although regulatory staff noted that the deadline is  included in bold text on the second page of the guide. Further, some of  the terms and phrases that have been translated literally may be difficult  to understand. For example, the term eligible is used in the English and  Spanish documents, but this term has a different meaning in each  language. In Spanish, “eligible” means “available” (that is, an option one  is allowed to choose), rather than “qualified to participate or be chosen”  as it indicates in English. Further, the Spanish word “administrador” is  used to refer to both the mortgage servicer and the third-party  administrator collecting request-for-review forms on the servicers’ behalf,  which could be confusing given the different roles of these two entities  and that the review process is intended to be independent of the servicer.  Regulatory staff said that to distinguish between the two functions, the  term is capitalized when referring to the third-party administrator. Further,  because Spanish readers must refer to the guide and the English form  simultaneously, they could make mistakes in recording information on the  English form. According to regulator guidance to consultants, if borrowers  do not select any specific areas of financial injury but sign the request-for- review form and provide current contact information, consultants will  review the case for all types of financial injury. However, if borrowers  select areas of financial injury on their request-for-review forms,  consultants will review those areas specifically, so mistakes in filling out  the form could affect which aspects of borrowers’ foreclosure cases the  consultants review.
section_title: Limited Remediation Information May Affect the Response Rate
paragraphs: The content of the foreclosure review communication materials includes  general information about the nature and terms of the request-for-review  process. The communication materials follow regulators’ guidance on the  content of the materials issued to borrowers, which includes why the  borrower is being contacted, how eligibility will be determined, how  borrower information needed will be collected to conduct the foreclosure  review, how borrowers may contact their servicer, and when to expect a  response. For example, to describe the nature of the foreclosure review  process, the letter states that the purpose is to identify customers who  may have been financially injured due to errors, misrepresentations, or  other deficiencies during the foreclosure process. To identify the  borrowers affected, the outreach letter states the eligible population of  customers is borrowers whose primary residence was in foreclosure  between January 1, 2009, and December 31, 2010. Additionally, the  outreach letter outlines the steps of the review process and states that  borrowers will receive a letter with the findings of the review. The  information in the outreach letter is similar to what is typically included in  a class action lawsuit notification. Regulatory staff and servicers informed  us that they generally modeled the communication materials on class  action lawsuit notifications. For example, sample communication  materials for class action lawsuits designed by the Federal Judicial  Center (FJC) include specific information about the nature and terms of a  class action, including what the lawsuit is about, who is eligible, and  participants’ legal rights and options.
In addition to information about the nature and terms of the review, best  practices and consumer groups also suggest including specific  information about remediation in communication materials to help  motivate eligible participants to respond. For example, outreach models  for class action lawsuits and industry examples include specific  information about the amount or type of remediation participants can  expect to receive. While these models contain features that may not be  applicable to each aspect of the foreclosure review, they do provide  insights into the types of information that might incentivize individuals to  participate and therefore improve response rates.
Federal Judicial Center—Sample class action communication  materials, including notices and flyers, provide specific financial  remediation information, such as stating a minimum, maximum, and  average amount of compensation, by category of participant, that a  class member may receive from a settlement (fig. 4). Another  example provides the amount of compensation a class member may  receive depending on the number of claim forms received. To develop  these models, the FJC conducted “plain language” testing with  nonlawyers, focus groups of ordinary citizens from diverse  backgrounds, and survey testing for reading comprehension.  According to these tests, participants’ motivation to read and  comprehend class action notices can significantly improve as a result  of changing the language, organizational structure, format, and  presentation of the notice.
National Association of Consumer Advocates—Foreclosure class  action guidelines this group developed recommend, among other  things, that participants should be informed of the total amount of  relief to be granted, stated in dollars, and the nature and form of the   These guidelines  individual relief each class member could obtain.also note that participants should be informed of the full range of  recoveries that they could obtain, either at trial or through the  settlement.
National Mortgage Settlement—A settlement between 49 state  attorneys general, the federal government, and the five leading  mortgage servicers for improper foreclosure practices will result in  approximately $25 billion in monetary sanctions and relief. Summary  documentation provided on the National Mortgage Settlement website  specifically states the total amount of the settlement and the  approximate amount eligible borrowers can expect to receive. For  example, of the approximately $25 billion total, this documentation  states that about $1.5 billion of the settlement funds will be allocated  to compensation for borrowers who were not properly offered loss  mitigation or who were otherwise improperly foreclosed on. It also  provides the specific amount that those borrowers will be eligible to  receive—a uniform payment of approximately $2,000 per borrower,  depending on the level of response. In addition, the summary  documentation states that servicers are required to provide specific  amounts of assistance to servicemembers whose foreclosure violated  SCRA.
Groups Experienced with Counseling, Representing, or Educating  Distressed Borrowers—Consumer and community groups, including  housing counselors, have advocated for including specific information  about remediation that can help motivate participants to respond.  Representatives of consumer groups we interviewed said that  providing this information to borrowers and their advocates would  allow them to make informed choices about submitting a request for  review. They noted that even identifying the types of remediation  available by category, such as moving expenses or costs due to  delay, could be helpful. Consumer groups also informed us that such  motivation is important because borrowers may be reluctant to submit  their request-for-review form due to mistrust in government and the  fatigue of repeated attempts to resolve a mortgage-related issue with  a servicer. They said that borrowers who already have been through a  taxing loan modification process and have little confidence in the  system may be reluctant to go through this process again without a  clear outcome. In a previous report, we discuss borrowers’ frustration,  as reported by housing counselors, with delays in loss mitigation  processes and borrower fatigue as a result of lost documentation,  long trial modification periods, wrongful denials, difficulty contacting  their servicer, and questions about the loan modification program or  application.
Regulatory staff noted that settlements in class action lawsuits are  different from the foreclosure review, and therefore may not be a fair  comparison. For example, they noted that settlements typically involve a  predetermined total amount of remediation that is to be divided up, often  proportionally, and then paid to the participating class members, all of  whom are assumed to have suffered the injury common to the class. On  the contrary, as part of the foreclosure review, servicers are not required  to provide a predetermined total amount of remediation to financially  injured borrowers identified in the foreclosure review. Rather, Federal  Reserve officials clarified that the servicers are required to pay whatever  total amount is appropriate to remediate the financial injury. In addition,  OCC staff noted that, unlike a class action lawsuit settlement where the  class of injured borrowers is identified and the range of remediation is  known at the outset, the 4.3 million borrowers includes borrowers who  may or may not have suffered financial injury within the scope of the  regulators’ consent orders. Further, regulatory staff noted that the  National Mortgage Settlement, much like the class action settlements  referenced above, involves a predetermined total amount of monetary  sanctions and consumer relief, unlike the remediation that servicers must  provide financially injured borrowers identified during the foreclosure  review. Federal Reserve officials stated that although the regulators  have not yet made detailed information about the amounts and types of  remediation that may be provided to financially injured borrowers publicly  available, the August 29, 2011, guidance from the regulators to the third- party consultants identifying types of injuries that may warrant  remediation have been made publicly available, including in the testimony  of an OCC official. Further, OCC staff noted that the request-for-review  form, independent foreclosure review website, and agency websites  include information that describes the types of financial injury that would  be covered. At the time of our review, the regulators had not yet  announced guidance regarding the amount of financial remediation that  would be provided. However, OCC and Federal Reserve officials told us  that public release of a financial remediation framework that contains  detailed information regarding dollar amounts that may be associated with  particular injury types was forthcoming.
Testimony by Suzanne G. Killian, Federal Reserve Board, Committee on Oversight and  Government Reform, U.S. House of Representatives, on March 19, 2012. also mentions, as discussed earlier, that financial remediation guidance is  being considered that will clarify expectations as to the amount and type  of compensation recommended for certain categories of injury to help  ensure consistent recommendations across the servicers for borrowers  who suffered similar types of injury. Regulator-sponsored webinars for  community groups stated similarly that the financial remediation  framework will address borrowers’ questions about the kinds and  amounts of remediation that will be offered for different types of injuries.
Specific information about potential remediation could be difficult to  present in a simple manner given the 22 potential types of injury agencies  identified and various unique borrower circumstances that could affect the  type and amount of remediation borrowers will receive. Federal Reserve  staff explained that providing borrowers specific information about  remediation also is difficult because, as noted earlier, regulators have not  set a predetermined total amount of remediation, and the foreclosure  review is not yet complete so consultants have not yet identified all  financially injured borrowers. Regulators are developing financial  remediation guidance that is intended to serve as a baseline standard yet  provide flexibility to the consultants to address the borrower’s direct  financial injury. As of May 2012, regulatory staff said that they were still in  the process of preparing such guidance, which the regulators intend to  publish when it is finalized. As a result, representatives of some  servicers we interviewed told us they could not include remediation  information in the communication materials. Federal Reserve staff and  one servicer also expressed concern that providing this information might  confuse borrowers or raise false expectations for what compensation they  might receive. However, a recent OCC speech provides some specific  information about the potential range of remediation categories, which  consumer groups said could help increase borrowers’ motivation to  submit a request for review. For example, the remarks state that  remediation for financial injuries may include, but is not limited to, lump- sum payments, rescinded foreclosures, reimbursements of lost equity,  repayment of out-of-pocket expenses resulting from the error plus  interest, correction of erroneous amounts owed in applicable records, and  correcting credit reports. Similar information on a potential range of  remediation categories is not discussed in any of the regulators’ other  communication materials that we reviewed. Given the potential difficulties  on reaching and motivating this population, without financial remediation  information available, borrowers might not be motivated to respond.
section_title: Outreach Was Based on Limited Analysis of Eligible Borrower Subgroups
paragraphs: The initial coordinated servicer outreach plan approved by regulators  provided for a uniform outreach process with additional targeted outreach  to African-American and Spanish-speaking borrowers. In developing the  outreach activities, servicers did not analyze the target audience for  characteristics—such as those associated with low financial literacy—that  may have limited some borrowers’ ability to respond to outreach activities.  To address concerns that borrowers may not respond to outreach from  servicers, a third-party entity serves as the contact point for borrower  mailing and questions. While OCC and the Federal Reserve have  acknowledged community groups as effective messengers to reach the  target audience and have encouraged servicers to coordinate with these  groups, servicers have leveraged outreach through community groups to  varying degrees. Regulators regularly monitored the status of the  outreach activities, but did not compare respondents to nonrespondents  to determine whether certain groups of borrowers were underrepresented  in the response to the initial outreach activities. Without this analysis, the  extent to which the outreach process has effectively complemented the  file-review process to identify borrowers who may have suffered financial  injury is unclear.
subsections: section_title: Initial Outreach Was Largely Uniform with Limited Targeted Outreach
paragraphs: Regulators approved a uniform process to reach eligible borrowers, with  additional targeted outreach limited to African-American and Spanish- speaking borrowers. According to Federal Reserve staff, the 14 servicers  covered by the consent order service more than two-thirds of U.S.  mortgages. According to the outreach plan developed by servicers and  approved by OCC and the Federal Reserve, the target audience of 4.3  million eligible borrowers—that is, borrowers whose loans on their primary  residences had been in some stage of foreclosure in 2009 or 2010—is  concentrated in those states that experienced higher foreclosure rates,  but broadly represents the U.S. population as a whole covering all ages  and income levels. Therefore, servicers determined that the best way to  reach their target audience of all eligible borrowers was to use direct  mail—the same outreach letter and request-for-review form were mailed  to all eligible borrowers—and to place advertisements in four national  publications.analysis, the servicers selected these publications for their large  circulation both nationally and in states with heavy foreclosure volume, as  well as for their broad appeal among both men and women and across  different ages and income levels. In addition to print advertisements,  servicers provided online paid search advertising to assist borrowers  using the Internet to find the independent foreclosure review website and  OCC ran English-language public-service radio and newspaper  advertisements in small radio stations and newspapers in 38 states.  According to regulator guidance on the outreach process, the process  was intended to be robust and to ensure that all borrowers had a fair  opportunity to file a request-for-review form.
According to Federal Reserve staff, the regulator had already planned to conduct some  outreach in Spanish prior to meeting with community groups. one additional national print publication that primarily targets the African- American community.
Our prior work has found that effectively reaching targeted audiences  through outreach activities requires analysis of the target audience,  including dividing the audience into smaller groups of people who have  relevant needs, preferences, and characteristics.  For example, one way  to divide the foreclosure review target audience into smaller groups would  be to analyze the geographic location of the target audience by  Metropolitan Statistical Area (MSA) or zip code, rather than by state.  These divisions could enable more refined outreach—such as  concentrated advertising in local publications and on local radio stations,  or holding community outreach events in addition to direct mail and  national advertising—in those areas with high concentrations of the target  audience. As illustrated in figure 5, our prior work analyzing foreclosure  trends among nonprime loans found that as of June 2009—near the  beginning of the review period—concentrations of loans in the foreclosure  process varied by congressional district, even in those states with high  default and foreclosure rates such as California and Florida, indicating  that targeted outreach in these areas could be more likely to reach  eligible borrowers. Other outreach campaigns have used this type of  analysis to target their outreach activities, including a congressionally  appropriated national loan modification scam alert campaign conducted  by NeighborWorks America, a government-chartered, nonprofit  corporation.minority homeowners and mortgage performance to identify areas within  hardest hit states for targeted outreach—for example, areas of California  south of San Francisco.
section_title: Conclusions
paragraphs: While the regulators have taken a number of steps to improve the  servicers’ outreach associated with the independent foreclosure review  over time by improving the format of communication materials,  incorporating feedback from consumer and community groups, and  increasing outreach to particular populations, among other things,  opportunities for further improvement remain. An effective outreach  process is designed to reach all segments of its audience, regardless of  such factors as reading level and language spoken, among others.  Neither the servicers nor the regulators conducted readability testing or  focus groups with the target audience of eligible borrowers, and  regulators initially did not solicit input from consumer or community  groups familiar with these borrowers. Readability tests of the outreach  letter, request-for-review form, and website indicate that a high school or  even a college reading level may be required to understand them;  however, the use of some complex terms may be unavoidable. In  addition, although some information is now available on the website in  Spanish, the initial communication materials were not available in  languages other than English. Our previous reports and federal plain  language guidelines indicate that whether agencies are preparing  documents or requiring private sector companies to prepare them, testing  communication materials is a sound practice to help ensure that the  audience can understand them and use them to take action. Moreover,  complexity in the communication materials may prevent people from  becoming sufficiently aware of the foreclosure review, and the prospect of  confusing or complex forms may discourage people from participating. In  addition, borrowers with low financial literacy, including those with limited  English proficiency, may have difficulty accessing and understanding the  materials, potentially affecting the likelihood of them requesting a review.  Because communication materials were not tested and were written at a  high reading level, some eligible borrowers might have had difficulty  understanding them. To the extent the accessibility of the communication  materials affects certain groups’ likelihood of responding, they may not  have had a fair opportunity to request a foreclosure review as the  regulators intended the outreach process to provide. With the second  wave of advertising and the additional mailing directing eligible borrowers  to the independent foreclosure review website, ensuring that the online  request-for-review form is understandable is especially important.
In addition, although the communication materials provide information  about the purpose, scope, and process for the foreclosure review, and  types of financial injuries covered, as well as disclosing that borrowers  could be eligible for compensation, they do not include specific  information about the potential types or amounts of remediation  borrowers may receive. Specifically identifying that the types of  remediation may consist of such items as lump-sum payments, rescinding  foreclosures, repayment of out-of-pocket expenses, or correcting credit  reports could help motivate borrowers to respond. Industry best practices  and examples for notifying borrowers about class action lawsuits, which  regulatory staff and servicer representatives used as a model in  developing the materials, include specific information about the types and  amounts of remediation for which participants could be eligible. Without  specific information about remediation in communication materials, some  borrowers may not be motivated to submit a request-for-review form.
Finally, the planning, and in particular, evaluation of the borrower  outreach process were based on limited analysis of eligible borrowers.  Although servicers conducted some targeted outreach to African- American and Spanish-speaking borrower, in part due to feedback from  consumer groups, the outreach process was largely uniform. Our prior  work has found that analyzing the target audience by various  characteristics and identifying messengers the audience will consider  credible helps ensure that the outreach is effective. However, in  approving the outreach plan regulators did not require servicers to  conduct such analysis and although the regulators have encouraged  servicers to work with community groups that have experience as trusted  advisers to distressed borrowers, servicers have done so to varying  degrees. We have also found that evaluating the effectiveness of past  activities is important before expanding them, such as by conducting  additional advertising or mailings to eligible borrowers. Regulators have  monitored the status of outreach activities, but have not analyzed the  differences in characteristics between respondents and nonrespondents  in planning the additional outreach efforts. This analysis could help  identify whether any groups of borrowers, particularly those borrowers  with characteristics that could make them less likely to respond to the  request for review, are underrepresented. The results of such analysis  also could provide regulators, third-party consultants, and servicers with  the information to target additional outreach to any underrepresented  groups or to make changes to the file-review sampling process to ensure  that all borrowers are fairly represented. We acknowledge that because  the borrower outreach and look-back review are complementary, the  outcomes of the foreclosure review cannot fully be evaluated until the  look-back review is completed. However, until analysis of the  characteristics of respondents compared to nonrespondents is  conducted, the potential that certain subgroups of eligible borrowers do  not have a fair opportunity to request a foreclosure review remains.
section_title: Recommendations for Executive Action
paragraphs: OCC and the Federal Reserve have taken steps to improve the outreach  from the initial roll-out. To further increase the possibility that all  borrowers have a fair opportunity to request a foreclosure review, the  Comptroller of the Currency and the Chairman of the Board of Governors  of the Federal Reserve System should take the following actions:
Enhance the readability of the request-for-review form on the  independent foreclosure review website so that it is more  understandable for borrowers, such as by including a plain language  guide to the questions.
Require that servicers include a range of potential remediation  amounts or categories in communication materials and other  outreach, such as direct mailings to borrowers, public service  announcements, the independent foreclosure review website,  regulators’ websites, and officials’ testimonies and speeches.
Require servicers to identify trends in borrowers who have and have  not responded by factors such as MSA, zip code, servicer, and  borrower characteristics and report to the regulators on weaknesses  found. If warranted, regulators should require that servicers, in  consultation with their third-party consultants, conduct more targeted  outreach to better reach underrepresented groups, such as  considering more credible messengers to reach these groups. If such  action cannot be taken prior to the deadline for requests for review,  regulators should consider expanding the look-back review to better  ensure coverage for underrepresented groups.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from OCC and the  Federal Reserve. We received written comments from OCC and the  Federal Reserve that are presented in appendixes II and III, respectively.  Both agencies emphasized that the outreach process that we focused on  in this report is one part of a larger effort to identify financially harmed  borrowers for remediation. The Comptroller of the Currency noted in his  written comments that OCC shares the goals reflected in the report and is  in the process of addressing each of the recommendations. The  Comptroller’s letter also provides a more detailed list of initiatives OCC  has undertaken related to the borrower outreach process, which is  consistent with the actions we summarized in the draft report. The  Director of the Division of Consumer and Community Affairs of the Board  of Governors of the Federal Reserve System also noted that the Federal  Reserve has begun implementing each of the recommendations. First,  the letter states that the agencies plan to post a plain language guide to  completing the request-for-review form to the agencies’ and independent  foreclosure review websites. Second, the letter states that once a  framework describing the range of potential remediation is finalized the  regulators will issue press releases, post the framework on the regulators’  and independent foreclosure review websites and in frequently asked  questions, and hold briefings with consumer and community groups.  Third, the letter states that the Federal Reserve is conducting analysis to  identify any gaps in respondents by geography and certain borrower  characteristics, which will be publicly released to promote targeted  outreach.
The Director’s letter noted the limitations of readability formulas in  assessing how well the foreclosure review communication materials could  be understood. We had also acknowledged these limitations in the draft  report and noted that they are just one indicator of the readability of the  materials. However, the results of these formulas when combined with  other evidence, such as feedback from consumer and community groups  who have had direct interaction with distressed borrowers, suggested that  more could be done to clarify the communication materials. The plain  language guide for borrowers completing the request-for-review form that  the Federal Reserve is in the process of completing is an important step  in addressing readability.
The Director’s letter also stated that the comparison between the  foreclosure review communication materials and class action lawsuit  settlement materials was “imprecise and not appropriate.” In the draft  report, we acknowledged the differences between these two activities and  the difficulty in providing specific information on remediation in the case of  the foreclosure review. Because the borrower outreach process and  materials were generally modeled after class action lawsuit activities, we  considered it applicable criteria and presented the comparison as an  illustrative example of the type of information that has been found to be  helpful in motivating participation. The steps the regulators are taking to  publicly release information on the types and amounts of remediation that  financially harmed borrowers might receive as a result of the foreclosure  review is another important step toward promoting participation.
We received technical comments from each regulator, which we  incorporated where appropriate. In OCC’s letter, the Comptroller of the  Currency stated that the agency provided us with specific report line edits  that reflected both substantive comments as well as technical or editorial  suggestions. The substantive comments emphasized that the outreach  component of the foreclosure review was an additional step not typically  taken in enforcement actions and provided more information on the  actions the agencies and servicers took to reach out to potentially harmed  borrowers. In addition, OCC staff raised concerns about the context for  our criteria on plain language in the technical comments. The draft report  acknowledged the unprecedented nature of the review, and we made  changes to the draft report to reflect the other comments, as appropriate.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to interested congressional  committees, the Board of Governors of the Federal Reserve System,  Office of the Comptroller of the Currency, and other interested parties. In  addition, the report will be available at no charge on the GAO Web site at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices  of Congressional Relations and Public Affairs may be found on the last  page of this report. Key contributors to this report are listed in appendix  IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report focuses on the design and implementation of the borrower  outreach process to determine how well information about the foreclosure  review is communicated to eligible borrowers with different  characteristics. Specifically, this report addresses (1) the extent to which  the development of the approach and content of the communication  materials and website reflected best practices; and (2) the extent to which  the planning and evaluation of the outreach and advertising approach  considered the characteristics of the target audience.
subsections: section_title: Development and Content of Communication Materials
paragraphs: To determine the extent to which the development of the approach and  content of the communication materials and foreclosure review website  reflected best practices, we (1) reviewed regulator documents,  engagement letters, and outreach materials; (2) conducted readability  testing of the online outreach letter and request-for-review form; (3)  analyzed data on the extent of limited English proficiency in the United  States and the effects of limited English proficiency on financial literacy;  and (4) assessed the extent to which the remediation content in the  communication materials reflects best practices. To do this, we reviewed  key documents, including regulator guidance on outreach activities, the  outreach plan, engagement letters between servicers and third-party  consultants, and outreach materials, such as the outreach letter, request- for-review form, foreclosure review website, online request-for-review  form, frequently asked question guide accompanying the foreclosure  review website, print advertising materials, the reminder postcard, and  community group webinar materials. We compared these documents with  best practices we had previously established and guidelines established  by federal agencies related to testing materials with the target audience  prior to use and ensuring that materials are clearly written and take into  account the audiences’ current level of knowledge. We considered these  outreach practices applicable to the outreach campaign for the  foreclosure review as they were developed to elicit a one-time action— similar to filing a request-for-review form—from the target audience. In  our prior work analyzing the planning, implementation, and evaluation of  outreach campaigns, we developed standards by conducting an expert  panel of 14 senior management-level experts in strategic communications  who identified key planning, implementation, and measurement  components for consumer education and outreach. The experts were  selected for their experience overseeing a strategic communications or  social marketing campaign or other relevant experience and represented  private, public, and academic institutions. In addition, we considered our  prior work analyzing suggested improvements to the content and format  of communication materials. Specifically, for our prior work on credit card  disclosures, we conducted interviews, reviewed documents, and analyzed  more than 280 comment letters requested by the Federal Reserve in  2005 from issuers, consumer groups, and others as part of the Federal  Reserve’s preparation to implement new credit card disclosure  requirements. Further, we considered the Office of Management and  Budget’s Final Guidance on Implementing the Plain Writing Act of 2010  and accompanying Federal Plain Language Guidelines. We also  considered the Securities and Exchange Commission’s A Plain English  Handbook: How to Create Clear SEC Disclosure Documents. Finally, to  describe the reading level of the U.S. population, we reviewed findings  from the 1992 National Adult Literacy Survey on adult reading  comprehension levels and the subsequent 2003 National Assessment of  Adult Literacy (renamed from 1992). No further assessments have been  conducted since 2003.
To evaluate the readability of the English language materials on the  website, particularly the outreach letter and request-for-review form, we  used computer-facilitated formulas to predict the grade level required to  understand the materials. Readability formulas measure the elements of  writing that can be subjected to mathematical calculation, such as the  average number of syllables in words or number of words in sentences in  the text, but do not reflect the complexity of ideas in a document or how  clearly the information has been conveyed. We edited the text to help  ensure that the tests returned accurate results and applied the following  industry-standard formulas to the documents: Flesch-Kincaid Formula,  Gunning Frequency of Gobbledygook Readability Test (FOG), and  McLaughlin Simplified Measure of Gobbledygook Formula (SMOG).Using these formulas, we measured the grade levels at which the website  was written, both for each page of the website separately and for the  website as a whole (see table 1). We did not verify the accuracy of the  formulas implemented by these tests, but we used multiple tests to  collaborate the results. Despite limitations, we determined that these tests  were sufficiently reliable for our purposes. To analyze the quality of the  translation and the readability of the Spanish-language outreach materials  on the independent foreclosure review website—specifically, the Spanish- language guide for the request-for-review form—a trained translator (1)  compared the translation of the Spanish- and English-language materials  to assess the extent to which they provided the same information, (2)  analyzed the Spanish-language materials for readability, and (3) reviewed  the placement and content of the in-language Spanish statements in the  English-language materials. The translator’s conclusions were then  reviewed by a native Spanish speaker with professional experience  translating and writing official documents. We determined that this review  was sufficiently reliable for our purposes.
To describe the potential pool of eligible borrowers with limited English  proficiency, we analyzed data on the extent of limited English proficiency  and considered the effects of limited English proficiency on financial  literacy. To describe the U.S. population of individuals with limited English  proficiency, we updated analysis we conducted for a prior report on  financial literacy.Census Bureau’s 2008-2010 American Community Survey. As noted in  our prior report, the Census Bureau does not define the term limited  English proficiency. As such, we replicated the measures of the limited  English proficient population we used in our prior report based on  questions in the American Community Survey that asked “Does this   We obtained and analyzed data from the United States  person speak a language other than English at home?” “What is the  language?” “How well does this person speak English?” For our  purposes, we included in the limited English proficiency estimate  individuals over the age of 18 who self-reported that they speak English  “not well” or “not at all.” Because the American Community Survey data  are a probability sample based on random selections, this sample is only  one of a large number of samples that might have been selected. Since  each sample could have provided different estimates, we express our  confidence in the precision of our particular sample’s results as a 95  percent confidence interval. This is the interval that would contain the  actual population value for 95 percent of the samples that could have  been drawn. In this report, All Public User Microdata Area-level  percentage estimates derived from the 2008-2010 American Community  Survey have 95 percent confidence levels of plus or minus 4.5  percentage points or less, unless otherwise noted. We determined that  these data were sufficiently reliable for our purposes. To describe the  potential effects on financial literacy from limited English proficiency, we  reviewed our prior work and relied on those findings. The work conducted  for the prior report included (1) reviewing relevant literature related to  financial literacy among immigrants and people with limited English  proficiency; (2) conducting interviews with and gathering relevant studies  and educational materials from federal agencies, organizations that  provided financial literacy and education, and organizations that serve or  advocate for populations with limited English proficiency; and (3)  conducting a series of 10 focus groups to discuss the barriers that  individuals with limited English proficiency may face in improving financial  literacy and conducting their financial affairs.
We  against class action communication materials for homeowners,  construction workers, and product liability suits developed by the FJC.  The FJC developed illustrative notices of proposed class action  certification and settlement by studying empirical research and  commentary on the plain language drafting of legal documents, testing  notices with nonlawyers for comprehension, evaluating them for  readability, testing their effectiveness before focus groups composed of  ordinary citizens from diverse backgrounds, and conducting a survey. We  also reviewed guidelines available from the National Association of  Consumer Advocates (NACA) on the form and content of notices for class  action settlements. These guidelines address issues such as the scope of  class member releases, attorneys’ fees, and notice of settlement. NACA  maintains the comprehensive Standards and Guidelines for Litigating and  Settling Consumer Class Actions 176 F.R.D. 375, first published in 1998,  and fully updated in 2006, to help ensure that class actions do not lead to  restrictions on challenging abusive business practices. The guidelines  were intended to be used by consumer class action attorneys as a  standard for how to properly proceed, manage, and settle a class action  case. They were also intended to be used by courts as a guidepost to  judge the merits of cases before them. The standards and revised  standards were drafted by a committee of consumer attorneys. After initial  drafts were completed, the draft guidelines were submitted for comment  to all sectors of the legal community, including professors, think tanks,  and the defense bar. After these comments were received and  considered, a final draft was published. Further, we reviewed summary  documentation from the National Mortgage Settlement between the state  attorneys general, and the Departments of Justice, the Treasury, and  HUD against the five largest mortgage servicers for errors in foreclosure  practices to provide the context of a current example of a large-scale  settlement involving similar stakeholders and issues similar to those of  the foreclosure review.
section_title: Planning and Evaluation of the Outreach and Advertising Approach
paragraphs: To determine the extent to which the planning and evaluation of the  outreach and advertising approach considered the characteristics of the  target audience, we analyzed key documents discussed above as well as  the indicators and analysis prepared by the third-party administrator to  monitor implementation of outreach activities and meeting agendas  between regulators and servicers. We compared these documents to best  practices for outreach campaigns on analyzing the target audience,  identifying credible messengers, and evaluating outreach activities  identified in our prior work. As discussed earlier, we considered these  practices applicable to the outreach campaign for the foreclosure review  because they are specific to campaigns designed to elicit a one-time  action. In addition, we considered practices we identified in our previous  work on evaluation strategies for information dissemination activities.  These strategies were developed based on analysis of case studies of  how five federal agencies evaluated their media campaigns or  instructional programs. Finally, we considered our internal control  standards on managing risk and other control activities.
To identify additional characteristics to consider in an analysis of the  target audience of eligible borrowers, we reviewed our prior work on  foreclosure trends by congressional district as well as work on financial  literacy. For our analysis of foreclosure trends, we analyzed data from  LoanPerformance’s Asset-backed Securities database for nonprime loans  originated from 2000 through 2007. The database contains loan-level  data on the majority of nonagency securitized mortgages in subprime and  Alt-A pools. For example, for the period 2001 through July 2007, the  LoanPerformance database contains information covering, in dollar  terms, an estimated 87 percent of securitized subprime loans and 98  percent of securitized Alt-A loans. For the purposes of the analysis  conducted for our prior report, we defined a subprime loan as a loan in a  subprime pool and an Alt-A loan as a loan in an Alt-A pool. We focused  our analysis for that report on first-lien purchase and refinance mortgages  for one-to-four-family residential units. In preparing our previous report we  tested the reliability of these data by reviewing documentation on the  process the data providers use to collect and ensure the reliability and  integrity of their data, and by conducting reasonableness checks on data  elements to identify any missing, erroneous, or outlying data. We also  interviewed LoanPerformance representatives to discuss the  interpretation of various data fields. We concluded that the data were  sufficiently reliable for our purposes. Nonprime loans do not represent the  entire universe of loans—for example, they do not include prime loans.  However, we determined that these data were applicable as an illustrative  example of how analysis conducted below the state level could reveal  significant concentrations of certain groups.
For our analysis of characteristics associated with low financial literacy,  we considered our prior work on financial literacy and trends among  certain demographics with lower financial literacy. This work included a  survey, conducted by a private research firm under contract to GAO, from  late July to early October 2004, to determine the extent of consumers’  knowledge of credit reporting issues. The telephone survey was  conducted with 1,578 randomly sampled noninstitutionalized U.S. adults  aged 18 and over and the results of this survey generally have confidence  intervals of plus or minus 6 percentage points. We noted in our previous  report that the practical difficulties of conducting a sample survey may  introduce errors into estimates made from them. These errors include  sampling, coverage, measurement, nonresponse, and processing errors.  We made efforts in our prior work to minimize each of these. In addition,  we generated an average or mean score for the survey as a whole. We  then analyzed responses for all the survey questions and scores based  on groups of questions for the national sample and cross-tabulated them  across different demographic groups and across consumers with different  credit-related experiences. Differences across demographic groups and  across consumers with different credit-related experiences were tested  for statistical significance at the 95-percent confidence level. In addition to  cross-tabulations, we used a regression analysis of demographics and  other factors that we thought would be associated with consumers’  knowledge of credit reporting issues. We concluded that these data were  sufficiently reliable for our purposes. We confirmed these results during  an October 2011 forum convened by GAO on key issues related to  financial literacy, including identification of special populations that need  sustained financial literacy efforts. Forum participants included  representatives from federal, state, and local government agencies;  academic experts; nonprofit practitioners; and representatives from the  private sector. We also reviewed our prior work on the financial literacy  challenges faced by speakers of limited English (discussed earlier).addition, we reviewed a government-chartered, nonprofit corporation’s  methodology to identify and reach out to their target audience for an  outreach campaign targeted to similar borrowers in foreclosure or at risk  of foreclosure. Finally, four of the eight consumer groups whom we had  previously interviewed for this work responded to our request to identify  characteristics they considered important to understanding the target  audience of eligible borrowers.
section_title: Interviews with Regulatory Staff and Stakeholders
paragraphs: To determine how well the development of the approach and content of  the communication materials and website reflected best practices and the  extent to which the planning and evaluation of the outreach and  advertising approach considered the characteristics of the target  audience, we conducted interviews with the following regulator staff and  key stakeholders:
Staff from OCC and the Federal Reserve.
Representatives of five mortgage servicers and three third-party  consultants responsible for providing third-party reviews of these  servicers’ foreclosure activities. To identify a representative mix of  servicers and third-party consultants to interview, we considered  servicers overseen by both regulators and those that are considered  some of the larger servicers.
Representatives from the third-party administrator hired by servicers  to administer the outreach process, including sending out mailings,  receiving borrowers’ request-for-review forms, and operating the toll- free customer assistance phone number and website.
Representatives of 11 consumer groups, community groups, and a  mortgage servicing industry association. To identify these groups, we  considered organizations identified by OCC and the Federal Reserve  as stakeholders, groups receiving funding from servicers to conduct  community outreach, organizations that provided testimony on the  foreclosure review process, and organizations we had identified  during the course of other work on foreclosures, including the  Department of the Treasury’s Home Affordable Modification  Program.
In addition, we reviewed speeches, testimony, and responses to official  Questions for the Record on the outreach process provided by OCC and  Federal Reserve officials, representatives of third-party consultants, and a  representative from a consumer group and a mortgage servicing industry  association.
We conducted this performance audit from February 2012 through June  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Office of the Comptroller of the Currency
section_title: Appendix III: Comments from the Board of Governors of the Federal Reserve System
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Karen Tremba (Assistant  Director), Jonathan Kucskar, Grant Mallie, Patricia MacWilliams, Marc  Molino, Jill Naamane, Carl Ramirez, Robert Rieke, Jennifer Schwartz,  Andrew Stavisky, and James Vitarello made key contributions to this  report.