Foreclosure Review: Regulators Could Strengthen Oversight and Improve Transparency of the Process
Published: 2014-04-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2011 and 2012, OCC and the Federal Reserve signed consent orders with 16 mortgage servicers that required the servicers to hire consultants to review foreclosure files for errors and remediate harm to borrowers. In 2013, regulators amended the consent orders for all but one servicer, ending the file reviews and requiring servicers to provide $3.9 billion in cash payments to about 4.4 million borrowers and $6 billion in foreclosure prevention actions, such as loan modifications. One servicer continued file review activities. GAO was asked to examine the amended consent order process. This report addresses (1) factors considered during cash payment negotiations between regulators and servicers and regulators' goals for the payments, (2) the objectives of foreclosure prevention actions and how well regulators designed and are overseeing those actions to achieve objectives, and (3) regulators' actions to share information from the file review and amended consent order processes and transparency of the processes. GAO analyzed regulators' negotiation documents, oversight memorandums, and information provided to borrowers and the public about the file review and amended consent orders. GAO also interviewed representatives of regulators, servicers, and consultants.
section_title: What GAO Found
paragraphs: To negotiate the $3.9 billion cash payment amount in servicers' amended consent orders, the Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (Federal Reserve) considered information from the incomplete foreclosure review, including factors such as projected costs for completing the file reviews and remediation amounts that would have been paid to borrowers. To evaluate the final cash payment amount, GAO tested regulators' major assumptions and found that the final negotiated amount generally fell within a reasonable range. Regulators generally met their goals for timeliness and amount of the cash payments. By December 2013, cash payments of between $300 and $125,000 had been distributed to most eligible borrowers.
Rather than defining specific objectives for the $6 billion in foreclosure prevention actions regulators negotiated with servicers, regulators identified broad principles, including that actions be meaningful and that borrowers be kept in their homes. To inform the design of the actions, regulators did not analyze available data, such as servicers' recent volume of foreclosure prevention actions, and did not analyze various approaches by which servicers' actions could be credited toward the total of $6 billion. Most servicers GAO spoke with said they anticipated they would be able to meet their obligation using their existing level of foreclosure prevention activity. In their oversight of the principles, OCC and the Federal Reserve are verifying servicers' foreclosure prevention policies, but are not testing policy implementation. Most Federal Reserve examination teams have not begun their verification activities and the extent to which these activities will incorporate additional evaluation or testing of servicers' implementation of the principles is unclear. Regulators' manuals and federal internal control standards note that policy verification includes targeted testing. Without specific procedures, regulators cannot assess implementation of the principles and may miss opportunities to protect borrowers.
Regulators are sharing findings from the file reviews and amended consent order activities among supervisory staff and plan to issue public reports on results, but they have not determined the content of those reports. The file reviews generally confirmed servicing weaknesses identified by regulators in 2010. Regulators are sharing information among examination teams that oversee servicers, and some regulator staff GAO spoke with are taking steps to address weaknesses identified. Regulators also have promoted transparency by releasing publicly information on the status of cash payments. However, these efforts provided limited information on the processes used, such as how decisions about borrower payments were made. Federal internal control standards and GAO's prior work ( GAO-03-102 and GAO-03-669 ) highlight the importance of providing relevant information on the processes used to obtain results. According to regulators, borrowers could obtain information from other sources, such as the payment administrator, but information on how decisions were made is not available from these sources. In the absence of information on the processes, regulators face risks to public confidence in the mortgage market, the restoration of which was one of the goals of the file review process.
section_title: What GAO Recommends
paragraphs: OCC and the Federal Reserve should define testing activities to oversee foreclosure prevention principles and include information on processes in public documents. In their comment letters, the regulators agreed to consider the recommendations.

section_title: Letter
paragraphs: In 2011 and 2012, the Office of the Comptroller of the Currency (OCC)  and the Board of Governors of the Federal Reserve System (Federal  Reserve) required 16 mortgage servicers to undertake the Independent  Foreclosure Review (foreclosure review).servicers were to engage consultants to review servicers’ loan files to  identify borrowers who had suffered financial harm due to errors,  misrepresentations, or other deficiencies in foreclosure processing in  2009 and 2010 and recommend remediation for the harms these  borrowers suffered. In 2013, with these reviews still in progress,  regulators announced amendments to existing consent orders with 15  mortgage servicers requiring these servicers to discontinue reviews of  files for errors and instead provide cash payments to borrowers eligible  for the foreclosure review and to take foreclosure prevention actions,   Under the foreclosure review,  including loan modifications. In total, the amended consent orders  required the 15 servicers to provide $3.9 billion in cash payments to  roughly 4.4 million borrowers and provide $6 billion in foreclosure  prevention actions. One servicer elected to continue the file review  process for a portion of the 192,000 borrowers in the eligible population,  and OCC anticipates the servicer will provide remediation payments to  harmed borrowers in 2014.
This report represents the third and final phase of our reviews of the  foreclosure review process that you requested. In earlier reports, we  examined lessons learned from the file review process that could be  applied to oversight and transparency of the amended consent orders  and continuing reviews, as well as servicers’ outreach efforts to inform  borrowers about the file review process.information on these prior reports. This report addresses   See appendix II for more  1.  the factors regulators considered in negotiating the servicer cash  payment obligations under the amended consent orders and the  extent to which regulators achieved their stated goals for the cash  payments;  2.  the objectives of the foreclosure prevention actions in the amended  consent orders and how well regulators designed and oversaw the  actions to achieve those objectives;  3.  the extent to which regulators are sharing information from the file  review and amended consent order processes; and  4.  the extent to which regulators have promoted transparency of the  amended consent orders and remaining review.
To address these objectives, we reviewed documents, conducted  analyses, and held interviews with relevant stakeholders. Specifically, we  reviewed the analyses regulators’ used to inform the negotiations and the  data consultants provided to regulators on incurred and remaining costs,  progress of reviews, and error findings. We also reviewed the amended  consent orders, conclusion and decision memorandums, press releases,  and relevant public statements made by regulatory officials. We also  analyzed the reasonableness of the final negotiated cash payment  amount. In addition, we reviewed regulators’ instructions to servicers for  providing cash payments to borrowers, the results of this process, and  information on check distribution. We also reviewed regulators’ reporting  requirements and instructions provided to examination teams for  monitoring and oversight of the foreclosure prevention activities, including  the principles. We compared these instructions to the types of information  regulators generally provide in their supervisory manuals and the  processes used for verification and validation of data outlined in the  federal internal control standards.
In addition, we analyzed consultants’ preliminary file review results and  OCC’s examination teams’ conclusion memorandums from their oversight  of the file reviews. We also reviewed information regulators  communicated to the public and eligible borrowers. We compared  regulators’ activities to existing criteria, including their supervisory policies  and procedures, federal internal control standards, Office of Management  and Budget guidelines, and our prior work related to oversight activities  and communicating results.observations of our analysis of the documents with staff with selected  examination teams, servicers, and consultants. We selected the  examination teams and servicers based on the size of the servicers’  population of eligible borrowers for the foreclosure review and the identity  of the servicers’ regulators to ensure a range of perspectives. We also  identified consultants to interview to supplement information gathered  from consultants in our prior work. Finally, we conducted interviews with  staff from OCC headquarters; the Federal Reserve Board; and the  Bureau of Consumer Financial Protection (commonly known as the  Consumer Financial Protection Bureau or CFPB); three experts in  settlements (including staff from the National Mortgage Settlement); and  consumer groups. We discuss our scope and methodology in greater  detail in appendix I.
This methodology included confirming key  We conducted this performance audit from May 2013 to April 2014 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 home loans. Mortgage servicers can be  large mortgage finance companies, commercial banks, or nondepository  institutions. 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. Errors, misrepresentations, and deficiencies in foreclosure  processing can result in a number of harms to borrowers ranging from  inappropriate fees to untimely or wrongful foreclosure.
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 (including mortgage banking activities). The  Federal Reserve oversees insured state-chartered banks that are  members of the Federal Reserve System, bank and thrift 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.
Finally, CFPB has the authority to regulate mortgage servicers with  respect to federal consumer financial law.into a memorandum of understanding with prudential regulators— specifically the Federal Reserve, FDIC, OCC, and the National Credit  Union Administration—that governs their responsibilities to share  information and coordinate supervisory activities so as to effectively and  efficiently carry out their responsibilities, decrease the risk of conflicting  supervisory directives, and increase the potential for alignment of related  supervisory activities.
OCC designates each national bank as a large, mid-size, or community bank. The  designation is based on the institution’s asset size and whether other special factors affect  its risk profile, such as the extent of asset management operations, international activities,  or high-risk products and services. Large banks are the largest and most complex national  banks and are designated by the Senior Deputy Comptroller for Large Bank Supervision.  Mid-size banks may be designated as large banks at the discretion of the Deputy  Comptroller for Midsize and Credit Card Banks. responsible Federal Reserve Bank, which in turn assigns a central point  of contact to each servicer. The contact leads an examination team with  responsibility for continually monitoring activities, conducting discovery  examinations designed to improve understanding of a particular business  activity or control process, and testing whether a control process is  appropriately designed and achieving its objectives.
subsections: section_title: Original Consent Orders Required a Foreclosure Review
paragraphs: In September 2010, allegations surfaced that several servicers’  documents in support of judicial foreclosure may have been  inappropriately signed or notarized. In response to this and other  servicing issues, federal banking regulators—OCC, the Federal Reserve,  the Office of Thrift Supervision, and FDIC—conducted a coordinated on- site review of 14 mortgage servicers to evaluate the adequacy of  servicers’ controls over foreclosure processes and to assess servicers’  policies and procedures for compliance with applicable federal and state  laws. Through this coordinated review, regulators found critical  weaknesses in servicers’ foreclosure governance processes; foreclosure  documentation preparation processes; and oversight and monitoring of  third-party vendors, including foreclosure attorneys. On the basis of their  findings from the coordinated review, OCC, the Office of Thrift  Supervision, and the Federal Reserve issued in April 2011 formal consent  orders against 14 servicers under their supervision (see fig. 1).
Subsequently, the Federal Reserve issued similar consent orders against  two additional servicers. These consent orders were intended to ensure  safe and sound mortgage-servicing and foreclosure-processing activities  and help address weaknesses with mortgage servicing identified during  the reviews. To comply with the consent orders, each of the 16 servicers  is required to, among other things, enhance its vendor management,  training programs and processes, and compliance with all applicable  federal and state laws, rules, regulations, court orders, and servicing  guidelines. In addition, as a result of the consent orders, the Federal  Reserve issued civil money penalties against some of the servicers and  provided that the penalty amounts could be remitted by federal payments  made and borrower assistance provided under the National Mortgage  Settlement or by providing funding to housing counseling organizations.OCC also considered civil money penalties against the servicers it  regulates, and for four servicers that were also party to the National  Mortgage Settlement, OCC reached an agreement that civil money  penalties would be assessed if the servicer did not satisfy the  requirements of the formal consent orders or their respective obligations  under the National Mortgage Settlement.
The consent orders also required each servicer to retain an independent  consultant to review certain 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. In general, the consent orders identified seven  areas for consultants to review:  1.  whether the servicer had proper documentation of ownership of the  2.  whether the foreclosure was in accordance with applicable state and  3.  whether a foreclosure sale occurred while a loan modification was  4.  whether nonjudicial foreclosures followed the terms of the loan and  state law requirements;5.  whether fees charged to the borrower were permissible, reasonable,  6.  whether loss-mitigation activities were handled in accordance with  program requirements and policies; and  7.  whether any errors, misrepresentations, or other deficiencies resulted  in financial injury to the borrower.
To review these areas, consultants generally segmented their file review  activities to test for each area of potential error separately. As a result, a  borrower’s loan file might have undergone multiple reviews for different  potential errors before the results of each of the review segments were  compiled and the file review was considered complete.
Loans were identified for review through a process by which eligible  borrowers could request a review of their particular circumstances  (referred to as the request-for-review process) and through a review of  categories of files considered at high risk for errors (referred to as the  look-back review). Regulators required servicers to establish an outreach  process for eligible borrowers who believed they might have been harmed  due to errors in the foreclosure process to request a review of their  particular circumstances. Consultants were expected to review all of the  loans received through the request-for-review process. For the look-back  review, regulators required consultants to review 100 percent of all files in  three categories—borrowers in bankruptcy in which a completed  foreclosure took place, loans potentially subject to the protections  provided by the Servicemembers Civil Relief Act (SCRA), and agency- referred foreclosure cases—that were identified as at high risk for  servicing or foreclosure-related errors during the regulators’ 2010  coordinated reviews. Consultants for Federal Reserve-regulated  servicers were also required to review 100 percent of files in two other  categories determined to be high risk—borrowers with pending  modification requests and borrowers current on a trial or permanent  modification. In addition, as each servicer had a unique borrower  population and servicing systems, consultants, with examination teams’  input, were expected to identify various high-risk loan categories  appropriate to their servicer—such as loans in certain states or loans  associated with certain foreclosure law firms—that could be associated  with a higher likelihood of servicing or foreclosure-related errors and  review a sample of those loans.
section_title: In 2013, the Foreclosure Review Was Replaced for Most Servicers with Cash Payments and Foreclosure Prevention Actions
paragraphs: Beginning in January 2013, OCC and the Federal Reserve announced  that they had reached agreements with 15 of the 16 servicing companies  to terminate the foreclosure reviews and replace the reviews with a  payment agreement (as previously shown in fig. 1). Under these  agreements, servicers agreed to provide compensation totaling  approximately $10 billion, including $4 billion in cash payments to eligible  borrowers and $6 billion in foreclosure prevention actions. These  amounts were generally divided among the 15 participating servicers  according to the number of borrowers who were eligible for the  foreclosure review at the time the amended orders were negotiated such  that the total per-servicer amount ranged from $16 million to $2.9 billion  (see table 1). For the majority of servicers, the amended consent orders  ended an approximately 20-month file review process. Although  consultants were at various stages of completing the reviews when the  work was discontinued, the amended consent orders underlined that  regulators retained the right to obtain and access all material, records, or  information generated by the servicer or the consultant in connection with  the file review process. The amended consent orders did not affect the  other aspects of the original consent orders—such as required  improvements to borrower communication, operation of management  information systems, and management of third-party vendors for  foreclosure-related functions—and work to oversee servicer compliance  with these other aspects continues.
According to regulatory staff and documents, the estimated time it would  take for borrowers to receive remediation and mounting costs of  completing the file reviews motivated the decision to amend the consent  orders. As of December 2012, OCC staff estimated that remediation  payments to borrowers would not start for many months and that  completing the file review process could take, at a minimum, an additional  1 to 2 years, based on the number of files still to be reviewed and the  extent of the work to be completed. The mounting costs of the file reviews  also motivated the decision to terminate the file reviews for most  servicers. As of August 2012, the collective costs for the consultants had  reached $1.7 billion, according to OCC’s decision memorandum. Based  on the results of the reviews conducted by consultants through December  2012, regulators estimated that borrower remediation amounts would  likely be small while the consultant costs to complete the reviews would  be significant. As a result, OCC and Federal Reserve staff determined  that completing the reviews to determine precisely which borrowers had  compensable errors due to harm would have resulted in long delays in  providing remediation payments to harmed borrowers.
With the adoption of the amended consent orders, regulators and  servicers moved away from identifying the types and extent of harm an  individual borrower may have experienced and focused instead on  issuing payments to all eligible borrowers based on identifiable  characteristics. To determine the cash payment amount to be provided to  each borrower, the majority of participating servicers categorized  borrowers according to specific criteria. Fourteen of the servicers that  participated in the amended consent order process, covering  approximately 95 percent of the population of 4.4 million borrowers that  were eligible for the foreclosure review process under the original consent  orders, adopted this approach (see table 2). To categorize borrowers,  regulators provided each servicer with a cash payment framework that  included 11 categories of potential harms—including violation of SCRA  protections and foreclosure on borrowers in bankruptcy—and generally  ordered the categories by severity of potential harm. For each of the 11  categories in the cash payment framework, regulators identified specific  borrower and loan characteristics that servicers then used to place all  eligible borrowers into categories such that a borrower would be placed in  the highest category for which he or she had the required characteristics.  Regulators used the results of this categorization process as the basis for  determining the payment amounts for each category. The payment  amounts for all eligible borrowers for those 14 servicers ranged from  several hundred dollars for a servicer that did not engage the borrower in  a loan modification to $125,000, plus equity and interest, for a servicer  that foreclosed on a borrower who was eligible for SCRA protection. One  other servicer signed an amended consent order to terminate the file  review process and provide cash payments to borrowers. In contrast to  the other servicers that signed amended consent orders, this servicer had  completed its initial file review activities and OCC used the preliminary file  review results as the basis for determining payments to all eligible  borrowers.
The amended consent orders also required all 15 servicers to undertake  a specified dollar amount of foreclosure prevention actions and submit  those actions for credit based on criteria established by regulators. For 13  of the servicers, these actions are to occur between January 2013 and  January 2015. The amended orders provided two methods for servicers  to receive credit for foreclosure prevention actions. First, servicers could  conduct loss-mitigation activities for individual borrowers, by providing  loan modifications or short sales, among other actions. Regulators also  specified that the actions taken under this method could not be used to  satisfy other similar requirements, such as the foreclosure prevention  requirement of the National Mortgage Settlement (discussed later).  Second, servicers could satisfy their obligation by making cash payments  to approved housing counseling agencies, among other actions.
One servicer, OneWest Bank, did not elect to amend its consent order  and terminate the file review process. The consultant for this servicer  continues file review activities for a portion of the eligible population of  192,000 borrowers, as planned. According to OCC, in 2014, the servicer will provide remediation to borrowers based on findings of actual harm.
section_title: Other Mortgage Servicing Actions
paragraphs: In addition to the consent orders issued by OCC, the Office of Thrift  Supervision, and the Federal Reserve, mortgage servicers have been  subject to other actions designed to improve the provision of mortgage  servicing by setting servicing standards. In February 2012, the  Departments of Justice, Treasury, and Housing and Urban Development,  along with 49 state Attorneys General, reached a settlement with the  country’s five largest mortgage servicers. Under the settlement, the  servicers will provide approximately $25 billion in relief to distressed  borrowers and the servicers agreed to a set of mortgage servicing  standards. This settlement, known as the National Mortgage Settlement,  established nationwide servicing reforms for the participating servicers,  including establishing a single point of contact for borrowers, standards  for communication with borrowers, and expectations for fee amounts and  the execution of foreclosure documentation. The settlement also  established an independent monitor to oversee the servicers’ execution of  the agreement, including their adherence to the mortgage servicing  standards. CFPB also established new mortgage servicing rules that took  effect in January 2014. Among other things, these rules established  requirements for servicers’ crediting of mortgage payments, resolution of  borrower complaints, and actions servicers are required to take when  borrowers are late in their mortgage payments.
In addition to the National Mortgage Settlement, other recent settlements  have required servicers to provide foreclosure relief to borrowers as a  component of the agreement. In November 2013, the Department of  Justice along with state Attorneys General for four states announced a  settlement with JPMorgan Chase to provide $4 billion in foreclosure relief,  among other actions, to remediate harms allegedly resulting from  unlawful conduct. The settlement identified specific actions for which  JPMorgan Chase would receive credit towards its obligation, including  certain types of loan modification actions, lending to low- to moderate-  income borrowers and borrowers in disaster areas, and activities to  support antiblight programs. Similarly, in December 2013, CFPB and 49  state Attorneys General and the District of Columbia announced a  settlement with Ocwen Financial Corporation to provide $2 billion in relief  to homeowners at risk of foreclosure by reducing the principal on their  loans. Both settlements also assign an independent monitor to oversee  the execution of the settlements, and the settlement with Ocwen requires  the servicer to comply with the standards for servicing loans established  in the National Mortgage Settlement.
section_title: Negotiations Were Largely Based on Projected Costs and Remediation Amounts and the Goals for the Cash Payments Were Generally Met
paragraphs: Regulators considered factors such as projected costs and potential  remediation amounts associated with the file reviews to negotiate the  $3.9 billion total cash payment under the amended consent orders.  However, because the reviews were incomplete, these data were limited.  According to Federal Reserve staff, OCC led the data analysis to inform  negotiations, and the Federal Reserve relied on aspects of this work.  Despite the uncertainty regarding the remaining costs and actual financial  harm experienced by borrowers, regulators did not test the major  assumptions used to inform negotiations. According to our prior work,  testing major assumptions provides decision makers a range of best- and  worst-case scenarios to consider and provides information to assess  whether an estimate is reasonable. We compared the final negotiated  cash payment amount to estimates we obtained by varying the key  assumptions used in regulators’ analysis. Our analysis found that the final  negotiated amount was generally within the range of different results  based on alternative assumptions. Regulators established goals related  to timeliness, the cash payment amounts, and the consistency of the  treatment of borrowers and the distribution of payments. Regulators met  their timeliness and amount goals and took steps to promote a consistent  process, including providing guidance to examination teams and  servicers.
subsections: section_title: Regulators Considered Projected Costs and Potential Remediation Amounts to Inform Negotiations
paragraphs: The cash payment agreement obligations under the amended consent  orders were achieved through negotiations between regulators and  participating servicers. According to OCC, staff engaged with six  servicers in November 2012 to discuss a cash payment agreement. As  previously discussed, the estimated time it would take for borrowers to  receive remediation and mounting costs of completing the reviews  motivated the cash payment agreement under the amended consent  orders. Following initial discussions with these six servicers, regulators  engaged in similar discussions with an additional eight servicers subject  to the foreclosure review requirement, according to regulatory staff. The  total negotiated cash payment amount for all 15 servicers that ultimately  participated in amended consent orders was approximately $3.9 billion.  Generally, each servicer’s share of the cash payment amount was  determined based on its proportional share of the 4.4 million borrowers  who were eligible for the foreclosure review.
Regulators considered factors such as projected costs to complete file  reviews and potential remediation amounts associated with the file  reviews to inform negotiations with servicers. According to Federal  Reserve staff, OCC led negotiations with servicers and the initial analysis  of estimates that informed these negotiations. According to Federal  Reserve staff, they participated in negotiations and relied on certain  elements of OCC’s analysis to inform the Federal Reserve’s decisions  regarding a payment agreement for the institutions they oversee. To  inform negotiations with servicers, OCC developed two estimates of  servicers’ costs: an estimate of the projected cost to complete the reviews  and an estimate for the potential remediation payout to borrowers.  Specifically, OCC staff said they used the cost estimate as a means of  estimating what servicers might be willing to pay and the potential  remediation payout as an early attempt to estimate potential harm and  understand how funds would be distributed among borrowers. The final  amount of $3.9 billion was negotiated between regulators and servicers  and was higher than the estimates regulators used to inform negotiations.
Projected cost to complete the reviews. According to regulatory staff  and documents, OCC and the Federal Reserve relied on cost  projections from consultants which estimated that the remaining  expected fees for consultants to complete the reviews would be at  least $2 billion. In November 2012, consultants reported cost  projections based on time frames ranging from as short as 4 months  for one servicer to as long as 13 months for other servicers—that is, 4  to 13 months beyond November 2012—to complete reviews.  Regulatory staff told us they also considered the amounts servicers  had reserved to pay for potential remediation. Specifically, OCC  included an estimate of the amount servicers had reserved to pay for  potential remediation ($859 million), bringing the total estimated cost  to complete the reviews had they not been terminated to  approximately $2.9 billion ($2 billion to complete the reviews plus the  $859 in remediation reserves). According to regulatory staff and  documents, the Federal Reserve relied on projected costs and   remediation reserves provided by OCC to inform their decisions  during negotiations.
Potential remediation payout to borrowers. Using the aggregate  financial harm error rate—that is, the financial harm error rate for all  completed files among all servicers—of 6.5 percent in December  2012, OCC estimated the potential remediation payout to borrowers  from the reviews would be $1.2 billion, according to OCC  documents.  In this analysis, regulators used amounts listed in the  foreclosure review remediation framework and added an additional  $1,000 per borrower for borrowers who submitted a request-for-review  and were in the process of foreclosure. For borrowers who submitted  a request-for-review and had a completed foreclosure, OCC added an  additional $2,000 per borrower.estimated the distribution of borrowers among the payment categories  by extrapolating the results of one servicer’s initial categorization to all  servicers. Specifically, they used one servicer’s preliminary  distribution of borrowers to estimate the proportion of borrowers in  each category. According to OCC staff and documents, they then  applied these proportions to the borrower populations for other  servicers and applied the 6.5 percent financial harm error rate to each  category. According to OCC staff, they used the distribution of one  servicer’s population because it provided retail servicing nationwide.  OCC staff stated that they analyzed the distribution of borrowers for  two additional servicers and reached similar results. Federal Reserve  staff told us they did not rely on OCC’s financial harm error rate  analysis to inform their decisions during negotiations; rather, as stated  previously, they relied on cost projections and remediation reserves to  inform their decisions during negotiations.
In addition, OCC staff told us they  The data that were available to regulators to inform negotiations for the  cash payment amount were limited. Because the reviews were  incomplete in November 2012 when negotiations began, data were  limited due to uncertainty about the (1) costs associated with completing  the reviews and (2) error rate for the entire population of 4.4 million  borrowers eligible for review. First, given the incomplete state of the  reviews in November 2012 when negotiations began, regulators had  limited information about costs associated with completing the reviews.  For example, cost projections available to regulators prior to the  negotiations did not account for additional requests-for-review submitted  in December 2012. The period for eligible borrowers to submit requests- for-review did not expire until December 31, 2012—after negotiations  between regulators and servicers began. Between November 29, 2012,  and December 27, 2012, the number of requests-for-review increased by  more than 135,000 requests (44 percent). In addition, for most  consultants, the cost projections did not account for the planned second  phase of reviews, known as deeper dives, in which consultants would  have conducted additional reviews based on errors identified in the first  phase of reviews. Among the servicers that participated in the payment  agreements, all consultants we spoke with anticipated that they would  conduct deeper dives. In its decision memorandum for the amended  consent orders, OCC estimated an additional 1 to 2 years to complete the  reviews. OCC staff stated based on the scope and complexity of the  remaining reviews, they believed the reviews would have taken longer  than consultants projected in November 2012.
Second, the incomplete nature of the reviews in December 2012 limited  the extent to which regulators could estimate the financial harm error rate  and potential remediation. The remediation reserves established by some  servicers were based on reviews that had been conducted by consultants  thus far. Similarly, the extent to which OCC could use the preliminary  error rate of 6.5 percent for the completed reviews to reliably estimate the  prevalence of harm in the population and potential remediation was  limited. According to data provided to regulators, third-party consultants of  servicers that had agreed to the payment agreement in January 2013 had  completed final reviews for approximately 14 percent of the files slated for  review, and none of the consultants had completed their sampled file  reviews, making it difficult for OCC to reliably estimate the prevalence of  harm or potential remediation payout for the entire 4.4 million borrowers  eligible for the reviews. In addition, reports provided to regulators by  consultants of the servicers who agreed to the payment agreement in  January 2013 showed variation in progress and financial harm error rates  across servicers (see table 3). For example, servicer “K” reported over  90 percent of the sampled file reviews complete for foreclosures in  progress and foreclosures complete, with error rates of about 26.7  percent and 15.6 percent, respectively. In contrast, servicer “A” reported it  had not completed any final reviews. Further, the segments and types of  reviews that were completed varied among consultants. For example, one  consultant told us they prioritized sampled files for review over requested  file reviews, while another consultant told us they focused on completing  requested reviews. Another consultant stated they prioritized requested  reviews and pending foreclosures.
section_title: Although Regulators Conducted Limited Analysis, the Final Cash Payment Amount Generally Fell within a Reasonable Range
paragraphs: The final negotiated cash payment amount of $3.9 billion exceeded the  two separate cost estimates of $2.9 billion and $1.2 billion that OCC  generated to inform negotiations. However, OCC performed only limited  analyses. For example, OCC did not vary key assumptions about costs  and error rates used in its estimates, which would have been appropriate  given the limitations of the available data. The Federal Reserve did not  conduct any additional analyses to inform negotiations, but relied, in part,  on data and analysis provided by OCC pertaining to projected costs and  remediation reserves to inform its decisions regarding the payment  agreement. As part of our review, we conducted a sensitivity analysis to  test changes to major assumptions associated with the data regulators  used to inform negotiations. Specifically, we tested assumptions related  to projected costs, error rate, and borrower categorization. Further, to  assess the reasonableness of the final negotiated amount, we used the  results of our sensitivity analysis to compare the final negotiated cash  payment amount to the amounts calculated when we varied key  assumptions. We found that the final negotiated amount of $3.9 billion  was generally more than amounts suggested under various scenarios we  analyzed. (See app. I for more detail on this analysis.)
Projected costs. In its analysis using consultants’ reported projected  costs, OCC estimated that the cost to complete the reviews would  have been $2.9 billion. However, as we noted earlier, cost projections  were limited and did not take into account the additional requests for  review submitted by borrowers in December 2012 or the time  associated with anticipated deeper dives. We calculated monthly  costs using consultants’ reports that were available from September  2012 through December 2012 and estimated the projected total cost  to complete reviews under several alternative scenarios. Our analysis showed that the total costs could have been either higher or  lower than the estimates OCC used in its analysis, depending on how  long the reviews would have taken if they had continued. For  example, we estimated that if the reviews had taken an additional 13  months to complete (the longest projected time reported by  consultants in November 2012), the cost would have been nearly $2.5  billion—about $460 million (23 percent), more than the regulators’  estimate of $2 billion. Conversely, if the reviews had taken less time to  complete than the consultants projected, regulators’ analyses may  have overestimated costs. We then added OCC’s remediation reserve  estimate of $859 million to our cost estimates. Including the  remediation reserves, our estimate for projected costs based on 13  additional months of review was $3.3 billion (see fig. 2). Both our  estimated amount at 13 months and OCC’s estimation of $2.9 billion  are less than the actual final negotiated amount of $3.9 billion.  Because OCC stated the reviews could take up to an additional 2  years, we included an additional 24 months in our analyses, which  resulted in an estimate of $4.6 billion. OCC staff stated that, based on  the experience of the servicer that continued with the reviews and had  a relatively small number of borrowers eligible for review, an  additional 2 years or more to complete the reviews was a likely  scenario for other servicers had they not participated in the amended  consent orders.
Financial harm error rate. As an alternative measure, OCC estimated  remediation payouts based on a preliminary financial harm error rate  of 6.5 percent for file reviews completed as of December 2012 across  all servicers. On the basis of that analysis, OCC estimated that  remediation payouts from the file reviews could be $1.2 billion.
However, as discussed above, the progress and findings of errors and  financial harm among servicers varied significantly. We analyzed the  projected remediation payments using the lowest, median, and  highest preliminary error rates for the 13 servicers that participated in  the payment agreement in January 2013. Our analysis generated a  range of estimated remediation payouts between 71 percent below  and almost 206 percent above the amount generated by OCC’s  analysis using the average error rate of 6.5 percent (see fig. 3).  However, the final, negotiated cash payment of $3.9 billion was higher  than the payment of $3.7 billion that we calculated at the highest  reported servicer error rate.
Borrower categorization. As stated previously, OCC estimated the  distribution of borrowers among the payment categories in its error  rate analysis by extrapolating the results of one servicer’s initial  borrower categorization to all servicers. OCC and the Federal  Reserve told us that each servicer’s borrower population was unique.  As such, different servicers could have different borrower distributions  among the payment categories. We analyzed the distribution of  borrowers for the other five servicers involved in initial amended  consent order negotiations based on preliminary data servicers  provided to regulators. Our analysis showed that the final, negotiated  cash payment of $3.9 billion was higher than the estimates that would  have resulted from using any of the other five servicers’ borrower  distributions (see fig. 4).
Prior to agreeing on a final cash payment amount, both the Federal  Reserve and OCC conducted additional analyses to corroborate that the  negotiated cash payment amount was acceptable. For example, the  Federal Reserve estimated payment amounts to borrowers by category  under the tentative agreement to confirm that the negotiated amount  would not result in trivial payments to borrowers. This analysis showed  that a $3.8 billion total cash payment would provide payments to  borrowers in each category ranging from several hundred dollars up to  $125,000. Therefore, after considering these cost estimates as well as  the timelines for project completion, the Federal Reserve determined that  the negotiated amount was acceptable because it exceeded the  combined expected fees and remediation reserve estimates of completing  the reviews and would allow for nontrivial payment amounts to borrowers  in each category. OCC staff stated they conducted similar, informal  analyses of the tentative settlement agreement. Specifically, OCC staff  stated they considered the error rate for proposed cash payment amounts  during negotiation. For example, staff estimated that the actual error rate  from completed reviews would have had to exceed nearly 26 percent  before remediation payments under the reviews would exceed the  negotiated cash payment amount. Therefore, according to this analysis,  OCC determined that the negotiated amount was acceptable. Staff also  stated they believed the negotiated amount would be more than sufficient  to cover the total amount servicers would have paid to harmed borrowers  under the foreclosure review.
Regulators stated that both the limited nature of the information available  during the negotiation and the process for determining the amounts paid  by servicers under the amended consent orders were not typical.  According to Federal Reserve staff, in a typical process, they would  conduct investigations to determine actual harm and perform analyses to  determine compensation amounts. For example, for a recent enforcement  order against a subprime mortgage lender, which involved a much  smaller population of potentially harmed borrowers than the foreclosure  review, the Federal Reserve required the servicer to analyze individual  files to determine the specific amount of harm. OCC staff stated that  because the negotiated payment agreement involved the discontinuation  of the reviews required by the original consent orders, they did not have  data that would otherwise typically have been available. Both OCC and  Federal Reserve staff told us there are no prior enforcement actions that  are comparable to the payment agreement under the amended consent  orders. OCC staff stated that the amended consent orders are atypical in  terms of the number of borrowers eligible for reviews (over 4 million), the  number of projected file reviews (over 739,000), and the extensive nature  of each review. In addition, regulators stated that, given the limited  progress of the file reviews, they did not believe extensive analysis was  possible. While regulators did have more analytical methods available to  them, we recognize that they had limited data available.
section_title: Regulators Generally Met Their Goals for the Cash Payments
paragraphs: Generally, regulators set three goals for the process of categorizing and  distributing cash payments to borrowers:  1.  provide compensation to a large number of borrowers before 2014,  2.  provide cash payments to borrowers of between several hundred  dollars and $125,000, and  3.  reduce the possibility of inconsistent treatment of borrowers among  servicers, when compared with the file review results.
Regulators took steps to meet their goal for the timeliness of distribution  of cash payments to a large number of borrowers. As of December 2013,  checks had been distributed to approximately 4 million borrowers covered  by the 13 servicers that were part of the January 2013 amended consent  order announcements. As shown in figure 5, California and Florida were  the states with the largest number of checks issued as well as the largest   Specifically, borrowers in California and  total amount paid to borrowers.Florida received about 32 percent of the total issued checks (1.3 million  checks collectively worth approximately $1.2 billion). In addition,  borrowers in seven states (Arizona, Georgia, Illinois, Michigan, Nevada,  Ohio, and Texas) received checks worth a total of between $100 million  and $200 million per state. Although the checks were sent to the mailing  address of the borrower rather than the property address of the affected  property, according to our analysis of Mortgage Bankers Association  data, these states correspond to some of the states with the highest  foreclosure inventories in 2009 and 2010. In comparison, borrowers in  five states and the District of Columbia received checks worth a total of  less than $5 million per state (Alaska, District of Columbia, North Dakota,  South Dakota, Vermont, and Wyoming).
To facilitate meeting the goal of a timely borrower categorization process,  regulators defined specific loan and borrower characteristics—such as  extent of delinquency, forbearance or repayment plan start date,  foreclosure sale date, or bankruptcy filing date—for each cash payment  category in advance. They expected servicers to use these  characteristics to categorize borrowers based on the data in servicers’  computer systems—review of files by hand to make a judgment about a  borrower’s category was generally not permitted.expected servicers to conduct an internal review of their categorization  results—for example, several servicers engaged their internal audit  department, which are separate from the servicers’ mortgage servicing  operations, to conduct a preliminary validation of the results to identify  problems or weaknesses with categorization activities. According to  several examination staff that we spoke with, they met regularly with the  staff responsible for internal reviews to discuss their approach and review  their results. This step contributed to a more timely verification process by  the examination teams as they were already familiar with the servicer’s  internal review procedures and results. Finally, regulators asked servicers  to select one third-party payment administrator to facilitate issuance of  checks. According to OCC staff, regulators worked closely with this  payment administrator concurrently with the categorization process to  define the work processes for check distribution to help facilitate a timely  distribution of checks to borrowers once the categorization process was  complete.
The cash payment categorization process was largely completed by April  2013 for the 13 servicers, and the payment administrator began issuing  checks to each of the approximately 4.2 million eligible borrowers  serviced by the 13 servicers that were part of the January 2013 amended  consent order announcements. As figure 6 shows, the payment  administrator issued approximately 89 percent of checks to borrowers in  April 2013 with the majority of the remaining checks issued by July 2013.  As of early January 2014, approximately 193 payments remained to be  issued. The payment administrator had not issued these checks because  of borrower-specific challenges, including problems with the borrower’s  taxpayer identification number or the need to issue multiple checks for the  same loan. The payment administrator issued approximately 96,000  checks for amounts that were less than the borrower should have  received. Supplementary checks worth about $45 million were issued to  the affected borrowers in May 2013. As of the beginning of January 2014,  approximately 81 percent of the issued checks had been cashed.  According to OCC staff, to help promote check cashing, regulators  instructed the payment administrator to conduct additional research on a  borrower’s address and re-issue checks to borrowers whose initial checks  had expired and had not been cashed to try and increase the check- cashing rate.
Under the cash payment process, borrowers generally received cash  payments of between $300 and $125,000, in line with regulators’ goal of  providing those amounts to borrowers. In general, the amounts paid to  borrowers in the same category varied depending on whether the  borrower had submitted a request-for-review—those borrowers received  a higher payment amount than other borrowers—and whether the  foreclosure was in process, had been rescinded, or was complete as of  December 31, 2011. In addition, those borrowers serviced by two  servicers that signed the original consent orders after April 2011 and  therefore had not participated in the request-for-review process were  generally paid at the same level or at a higher level—24 percent to 30  percent more—than a borrower who did not submit a request-for-review.  As seen in figure 7, the largest number of borrowers (1.2 million  borrowers, or 29 percent of the eligible population) were placed in the  category for approved modification requests, which provided payments of  between $300 and $500, depending on whether the borrower was  considered to have submitted a request-for-review. About 1,200  borrowers were paid at the maximum rate of $125,000, including  approximately 1,100 SCRA-eligible borrowers. Approximately 11  percent (439,000 borrowers) were paid an additional amount designated  for borrowers who had submitted requests-for-review.
Although regulators met their cash payment amount goal, they  recognized that some borrowers might have received more or less  through the foreclosure review process. According to regulators, as part  of their process to determine the cash payment amounts to be paid to  borrowers in each category, they considered the amount that borrowers  would have been paid for errors in that category under the file review  process, among other considerations. Under the cash payment  framework, borrowers in the highest paid categories—SCRA-eligible  borrowers and borrowers foreclosed upon who were not in default— received the same amounts as they would have under the file review  process. For the other categories, the final cash payment amounts were  generally less than the amounts that would have been paid for an error in  that category under the file review process for borrowers who did not  submit a request-for-review. According to regulators, they decided to  pay higher amounts to borrowers who submitted requests-for-review— generally double the amounts paid to borrowers who did not submit  requests-for-review—because they felt that those borrowers had an  expectation of receiving a file review and should be compensated for that  expectation. According to regulators, in adopting the cash payment  process, they recognized that some borrowers would fare better or worse  that they might have under the file review process. For example, some  borrowers who might not have received remediation under the file review  process, either because a file review did not identify harm or the file was  not reviewed, would receive a cash payment. However regulators said the  converse was also true, that is, borrowers who through the file review  could have been found to have been harmed and therefore eligible for  remediation could potentially receive a lower amount through the cash  payment process. OCC and Federal Reserve staff also stated that under  the amended consent orders, borrowers were not required to waive or  release any rights or claims against the servicer to receive a cash  payment.
According to regulators, in recognition of challenges in achieving  consistent results among servicers during the file review process, they  took steps to promote a consistent approach to the cash payment  categorization process—one of their goals—such that similarly situated  borrowers would have similar results. For example, regulators held weekly meetings with OCC and Federal Reserve examination team staff  as well as with servicers to discuss the categorization process. In  addition, they provided guidance to examination teams and servicers for  the categorization process, including examination teams’ oversight  activities. According to examination teams, the guidance provided was  timely, and given the limited time to complete the categorization process,  they generally worked closely with the servicer to ensure any resulting  changes were incorporated. OCC headquarters staff also conducted on- site visits to each servicer and examination team to review the  categorization process and activities. According to OCC staff, these on- site visits allowed for a comparison of servicers’ categorization processes  and the oversight processes used by the examination teams to help  ensure these activities were done according to the guidance and as a  result would be largely consistent. Similarly, the Federal Reserve  examination teams and Federal Reserve Board staff met in person to  discuss the categorization process and oversight activities as part of their  efforts to promote consistent results. Finally, according to a few servicers  we spoke with, to promote consistent results some servicers met early in  the process, with regulators’ input, to discuss the regulators’  categorization guidance and mentored other servicers as they conducted  their initial categorization activities to help ensure there was a shared  interpretation of the guidance among servicers.
However, there were some differences in the categorization results for  borrowers among servicers as a result of flexibilities in the categorization  process, as well as limitations with some servicers’ data systems. For  example, servicers were given the option of retaining the third-party  consultant hired to work on the foreclosure reviews to complete file  reviews for borrowers who were categorized into the first two  categories—SCRA-eligible borrowers and borrowers not in default at the  time of foreclosure—rather than relying on the loan and borrower  characteristics regulators’ specified for those categories. Based on the file  review results, servicers were required to provide remediation to  borrowers whom the file reviews determined had been harmed and re- categorize the remaining borrowers into the next highest payment  category for which they qualified according to other loan and borrower  characteristics. Based on our review of regulators’ documents, 12 of the  13 servicers used this option and directed consultants to complete file reviews for borrowers who were placed in some of these categories.
According to OCC staff and one servicer we spoke with, some  consultants had already completed or were near completion of the file  reviews for SCRA-eligible borrowers.
Similarly, missing or unreliable data in servicers’ systems resulted in  some servicers being unable to categorize borrowers according to the  cash payment framework criteria and instead placing borrowers in the  highest category for which they had data. According to our review of  examination teams’ conclusion memorandums and interviews with  examination teams, at least 5 of the 13 servicers were unable to place  some borrowers into the most appropriate category of the framework  because servicers’ systems did not have the data necessary to categorize  borrowers according to the loan and borrower characteristics provided by  regulators. For the majority of these servicers, the percentage of affected  borrowers was relatively small. For example, in one case data limitations  affected roughly 4 percent of borrowers at that servicer, whereas in  another case, they impacted approximately 8 percent of that servicer’s  borrowers. However, for one servicer, data limitations were extensive  enough that regulators required the servicer to stop the categorization  process for approximately 74 percent of eligible borrowers and categorize  those borrowers into higher categories than their characteristics might  have indicated if data had been available in the servicer’s system.  According to regulators, they mitigated the impact of these limitations on  individual borrowers by instructing servicers to place borrowers in the  highest possible category from which they could not be excluded due to  missing or unreliable data. Figure 8 illustrates an example of how the  same borrower might have had different results depending on the  servicer.
Placing borrowers in higher categories when data were unavailable  potentially had a distributional impact on other borrowers. Where there is  a set sum of money, as in this case, making changes by placing more  borrowers than anticipated in higher categories could result in either (1)  lower payment amounts per borrowers in those categories or (2) lower- than-anticipated amounts for borrowers in lower categories. According to  Federal Reserve staff the relatively small number of borrowers affected  by these changes meant that the distributional impact was minimal.
section_title: Regulators Did Not Establish Specific Objectives for Foreclosure Prevention Actions, and Oversight Is Limited
paragraphs: Regulators did not establish specific objectives for the $6 billion obligation  they negotiated with servicers to provide foreclosure prevention actions.  However, they communicated the expectation that the actions be  meaningful, and they set forth broad principles for servicers’ entire  portfolio of foreclosure prevention actions. To negotiate the amount and  determine the design of the foreclosure prevention component of the  amended orders, regulators did not follow their typical practices to inform  supervisory actions, which include analysis of information. For example,  analysis of the volume of servicers’ recent foreclosure prevention actions  might have helped regulators assess the sufficiency and feasibility of the  required obligation, among other things. According to most servicers we  spoke with, they would be able to meet the required volume of activities  using their existing foreclosure prevention activities. Regulators did collect  data to inform oversight of servicers’ financial obligations, and OCC and  the Federal Reserve are requiring examination teams to oversee  servicers’ policies and monitoring controls related to the principles.  However, according to Federal Reserve staff, most of the Federal  Reserve examination teams have not conducted their oversight activities  related to the foreclosure prevention principles and regulators’ guidance  for oversight of the principles does not identify actions examination teams  should take to evaluate or test implementation of these principles.  According to regulators’ supervisory guidance as well as federal internal  control standards, establishing specific monitoring activities, including  testing, is important to effective supervision. In the absence of such  monitoring activities, regulators may not know if a key element of the  amended consent orders is being realized.
subsections: section_title: Regulators Negotiated Foreclosure Prevention Obligations without the Benefit of Specific Objectives or Analysis
paragraphs: The $6 billion foreclosure prevention action obligation amount was  negotiated by regulators and servicers and was not framed by specific  objectives or informed by any data or analysis. According to OCC’s and  the Federal Reserve’s supervisory manuals, enforcement actions,  including consent orders, are used to address specific problems,  concerns, violations of laws or agreements, and unsafe or unsound  practices, among other things, that are identified through supervisory  examinations. Further, federal internal control standards highlight the  importance of establishing clear objectives for activities undertaken by  agencies as a means of ensuring that agency outcomes are achieved.
The foreclosure prevention component of the amended consent orders,  however, was not intended to address specific problems, violations, or  unsafe or unsound practices. According to the Federal Reserve, the $6  billion required foreclosure prevention actions represent additional  remediation, above and beyond the $3.9 billion cash payment required of  servicers in lieu of finishing the reviews. OCC staff stated that the  foreclosure prevention component of the amended consent orders  mirrored the requirement that servicers provide loss mitigation options to  harmed borrowers under the file review process. Although regulators  negotiated the foreclosure prevention action obligations in the  amendment that terminated the foreclosure review for most servicers, the  foreclosure prevention obligations were not related to preliminary findings  from the reviews. In addition, the actions were not specifically intended to  assist only borrowers who were eligible for the reviews; servicers can  count foreclosure prevention actions performed to assist any borrower in  their portfolio toward their obligation under the amended consent order  provided the action meets the criteria in the orders. The amended  consent orders, however, directed servicers to attempt to prioritize these  borrowers for assistance to the extent practicable. Regulators stated that  they included the foreclosure prevention component in the amended  consent orders because the National Mortgage Settlement had a similar  component.component in the amended consent orders was intended to convey to  servicers the importance of foreclosure prevention activities.
Thomas J. Curry, Comptroller of the Currency, remarks before Women in Housing and  Finance (Washington, D.C.: Feb. 13, 2013). keep borrowers in their homes and ensuring that foreclosure prevention  actions are nondiscriminatory such that actions to not disfavor a specific  geography, low- or middle-income borrowers, or a protected class.  According to regulators, these principles were to be applied to servicers’  broad portfolio of foreclosure prevention activities (not just those  undertaken as part of the $6 billion obligation under the amended consent  orders).
Although regulators stated they considered other similar settlements, they  did not collect or analyze relevant data to inform the amount or structure  of the foreclosure prevention component of the amended consent orders.  According to regulators’ supervisory manuals, regulators typically analyze  information to inform enforcement actions. Despite the absence of  identified problems and specific objectives to guide the analysis, a variety  of data were available to regulators that could potentially have informed  negotiations. In addition, while it is typical for regulators and their  supervised institutions to negotiate consent orders, regulators stated that  the negotiations for the amended consent orders did not follow the typical  enforcement action process. According to OCC staff, the decision to  significantly amend the consent orders by replacing the foreclosure  review with a cash payment agreement and a foreclosure prevention  component was unprecedented. We recognize the atypical nature of the  negotiations and regulators’ desire to distribute timely payments to  eligible borrowers. However, we believe some data collection and  analysis would have been feasible and useful to inform the amount and  structure of the foreclosure prevention component. Regulators, in  particular OCC, had access to loan-level data about some servicers’  foreclosure prevention actions through the data they collect from  servicers for the quarterly OCC Mortgage Metrics reports and that  servicers report to Treasury’s Making Home Affordable program, which  includes Treasury’s Home Affordable Modification Program (HAMP), that  they could have used to inform negotiations. Other useful data were  available from servicers. The following are examples of types of analyses  that could be useful to inform such negotiations.
Analysis of the value of various types of foreclosure actions  undertaken by servicers. Analysis of the value of various foreclosure  actions undertaken by servicers may have provided information for  regulators to consider in assessing the sufficiency of the negotiated  amount to provide meaningful relief to borrowers. For example, data  on servicers’ recent volume of foreclosure prevention actions,  measured by the unpaid principal balance of loans at the time these  actions were taken, as well as an average or range of unpaid principal  balances for various types of actions undertaken by servicers, may  have provided a basis for gauging the number of borrowers who might  be helped with various amounts of foreclosure prevention obligations  under the amended consent orders. Our analysis of HAMP data  shows that the average unpaid principal balance for loans that  received a modification through HAMP was approximately $235,000.  As such, in a hypothetical scenario in which a servicer was obligated  to provide $100 million in foreclosure prevention actions and reached  the obligation by providing only loan modifications, it could be  estimated that 425 borrowers would be assisted by the obligation as  measured by the unpaid principle balance of the loans.
Analysis of the volume of servicers’ typical foreclosure prevention  actions. Analysis of the volume of servicers’ typical foreclosure  prevention actions might have provided insight into the potential  impact, if any, of the foreclosure prevention actions and informed the  feasibility of the negotiated amounts—that is, the extent to which  servicers could reach the required amounts within the 2-year period  using their existing programs. Four of the seven servicers we  interviewed that participated in amended consent orders indicated that  they anticipated they would be able to meet the required volume of  activity using their existing foreclosure prevention activities. Of these  four servicers, two indicated they could achieve the required volume  of foreclosure prevention actions within the first year, and one servicer  indicated it would be easy to meet the requirement given that they  regularly provide much larger amounts of foreclosure prevention  assistance than their negotiated obligation. One servicer that we did  not interview reported large volumes of activities using their existing  programs and policies during the first 6 months of the eligible period.  Specifically, between January and June 2013, the servicer reported  short sale activities that were approximately 87 percent of the required  obligation. During this same period, the servicer reported it had also  undertaken loan modification activities that were valued at about 7  times more than their total required foreclosure prevention  obligation.stated they opted to make payments to housing counseling agencies  to fulfill the amended consent order requirement because they  determined they would not be able to meet the obligation with their  existing portfolio since the loans in the portfolio were not highly  delinquent.
In contrast, officials from one servicer we interviewed
Analysis of alternative crediting approaches. Analysis of the results of  alternative crediting approaches may have provided insight into the  sufficiency of the negotiated amount—that is, the extent to which the  required obligations would reach an appropriate number of borrowers  as determined by regulators. The amended consent orders provide  credit based on the unpaid principal balance of the loan. On the basis  of this methodology, a loan with an unpaid principal balance of  approximately $235,000, for example, would result in a credit of  approximately $235,000 toward the servicer’s obligation, regardless of  the action taken. However, alternative crediting structures exist. For  example, the National Mortgage Settlement, which includes a similar  foreclosure prevention component, uses an alternative approach that  generally provides credit based on the amount of the principal  forgiven or assistance provided. Using this methodology, for a loan  modification with the same unpaid principal balance of approximately  $235,000, where the principal forgiven was 29 percent of that balance  (the average amount of principal forgiveness for first-lien HAMP loan  modifications), a servicer would receive a credit towards their  obligation of $68,855. Thus, in a hypothetical scenario in which a servicer was required to provide $100 million in foreclosure prevention  actions and met the obligation by using only principle forgiveness, our  analysis estimated 425 borrowers would receive assistance under the  amended consent orders compared to about 1,452 borrowers under  the National Mortgage Settlement.
Further, analysis of the mix of servicers’ typical activities might have  provided baseline information for regulators to consider in assessing  whether creating incentives for certain actions by crediting them  differently might be warranted to help achieve the stated expectation  of keeping borrowers in their homes. consent orders, the methodology for determining credit for foreclosure  prevention actions is the same for all actions, regardless of the type of  action or characteristics of the loan. However, some actions are  designed to keep borrowers in their homes (loan modifications, for   Alternatively, some actions are designed to help avoid  example).
In contrast to the amended consent orders, the National Mortgage Settlement provides  varying amounts of credit depending on the type of action and certain loan characteristics.  Under the National Mortgage Settlement approach, a loan modification, for example,  would be credited at a higher ratio than a short sale. Regulators stated they considered  the National Mortgage Settlement structure in defining the types of creditable activities  under the amended consent orders and the methodology for determining how the  activities would be credited towards each servicer’s obligation. Foreclosure prevention  actions for which servicers can receive credit under the amended consent orders are  generally the same as the actions for which servicers can receive credit under the  National Mortgage Settlement. However, OCC staff said they adopted a different crediting  approach for the amended consent orders because it is more transparent than the  approach used for the National Mortgage Settlement. foreclosure but borrowers lose their homes (e.g., short sales or  deeds-in-lieu).
Analysis of eligible borrowers still in their homes and in need of  assistance. Analysis of the number of borrowers eligible for the  foreclosure review who were still in their homes and in need of  assistance might have informed the relevance of the method for  allocating of the negotiated amount. Regulators generally divided the  $6 billion obligation among servicers based on their share of the 4.4  million borrowers eligible for the foreclosure review, with servicers  responsible for amounts that ranged from about $10 million to $1.8  billion. In addition, in the amended consent orders, regulators directed  servicers to prioritize these borrowers, even though the foreclosure  prevention actions were not restricted to borrowers eligible for review.  However, the number of borrowers who were eligible for the  foreclosure review and might benefit from the foreclosure prevention  action obligations is potentially limited. Specifically, according to  information on regulators’ websites covering 13 of the 15 servicers  that participated in amended consent orders, 41 percent of the  borrowers who were eligible for the foreclosure review had completed  foreclosures as of December 31, 2011. Further, according to two  servicers we interviewed, the number of borrowers who were eligible  for the reviews and still able to receive foreclosure prevention actions  was relatively small. For example, one servicer noted that  approximately 50 percent of these borrowers were no longer being  serviced by them. They added that of the remaining population, about  50 percent had already received at least one foreclosure prevention  action. As such, many of the borrowers who were eligible for the foreclosure review because of a foreclosure action in 2009 and 2010  might not have been able to benefit from the foreclosure prevention  actions required under the amended consent orders.
section_title: Evaluation and Testing of Servicers’ Implementation of Foreclosure Prevention Principles Is Limited
paragraphs: To oversee the foreclosure prevention component of the amended  consent orders, regulators are considering both servicers’ actions to meet  the monetary obligations and the foreclosure prevention principles  included in the amended orders. Regulators collected data from servicers  and regulators provided guidance to examination teams to facilitate  oversight activities. OCC and the Federal Reserve established reporting  requirements to collect information from servicers on the foreclosure  prevention actions they were submitting for crediting to meet the  monetary obligations specified in the amended consent orders. To meet  those obligations, servicers could either provide foreclosure prevention  actions to borrowers or make cash payments to borrower counseling or  education or into the cash payment funds used to pay borrowers based  on categorization results. Eight of the servicers opted to meet their  obligation by providing foreclosure prevention actions, and the remaining  seven made cash payments.
To facilitate verification of servicers’ crediting requests for foreclosure  prevention actions, regulators required servicers to submit periodic  reports, which all of the servicers have done. Servicers were required to  submit loan-level information, such as the loan number, foreclosure  status, and unpaid principal balance before and after the action, on each  loan the servicers submit for crediting towards their obligation. In addition,  servicers were required to state if the borrower was part of the eligible  population for the foreclosure review—to respond to the expectation in  the amended consent orders that, to the extent practicable, servicers  prioritize eligible borrowers from the foreclosure review. According to  regulators, they are in the process of hiring a third-party to evaluate the  servicers’ reported data to validate that the reported actions meet the  requirements of the amended consent orders and facilitate regulators’  crediting approval decisions. Servicers have begun reporting on their  foreclosure prevention actions, and according to OCC staff, early  submissions from servicers meeting their obligation through provision of  foreclosure prevention actions to borrowers suggest they will meet their  foreclosure prevention requirements quickly. The actions submitted for  crediting varied, with some servicers primarily submitting short sale  activities for crediting and others reporting loans that received loan  modification actions.
The reporting requirements also include information related to the  principles established in the amended consent orders, although this  information is not representative of servicers’ complete portfolio of  foreclosure prevention actions. For example, servicers are required to  report information on the types of assistance provided, which provides  information on the extent to which the actions servicers are reporting for  crediting are helping borrowers keep their homes—such as by providing a  loan modification as compared to a short sale, in which a borrower would  still lose his or her home. According to servicers we spoke with, the  information they are reporting to regulators on their foreclosure prevention  activities for crediting is not representative of their full portfolio of  foreclosure prevention activities and would not provide information on  how well their overall program is meeting the principles established for  the assistance. For example, some servicers are submitting loans for  crediting review that focus primarily on certain segments of their servicing  population, such as only proprietary (in-house) loans. Another servicer  had submitted all of its loss mitigation activities that may qualify for  crediting according to the definitions in the amended consent orders, but  this still does not represent all of their activities. Overall, the reporting  requirements associated with the foreclosure prevention actions in the  amended consent orders provide information to assess crediting but not  to evaluate servicers’ application of the foreclosure prevention principles  to their broader portfolio of loans.
Regulators also issued guidance to examination teams for oversight of  the foreclosure prevention principles. The guidance identifies procedures  examination teams were expected to take to oversee a servicer’s  application of the foreclosure prevention principles to their broad portfolio  of foreclosure prevention actions. Those procedures included steps  related to each of the key elements in the principles. However, the  guidance does not identify actions examination teams should take to  evaluate or test servicers’ application or implementation of the steps.  For example, the guidance requires examination teams to describe the  policies and monitoring controls servicers have in place to help ensure  that their foreclosure prevention activities are nondiscriminatory, but does  not set an expectation that teams will evaluate how well servicers are  applying those policies and controls to their mortgage servicing practices.  Similarly, the guidance requires examination teams to identify the  performance measures servicers use to assess the principle related to  the sustainability of foreclosure prevention actions, but the guidance does  not require examination teams to evaluate how well a servicer’s programs  are providing sustainable actions.foreclosure prevention actions are meaningful—one of the principles— examination teams are to collect data on the servicers’ foreclosure  prevention actions, including the extent to which those actions resulted in  higher or lower monthly payments, but the guidance does not require   Finally, to assess whether servicers’  examination teams to evaluate the data to understand what it indicates  about servicers’ actions.
In contrast, other sections of the same guidance provided to examination  teams for oversight of the other articles of the consent orders specify  regulators’ expectations that examination teams will evaluate and test  certain policies, monitoring controls, and data. For example, OCC’s  guidance to oversee compliance—which is intended to assess whether  servicers’ mortgage practices comply with all applicable legal  requirements and supervisory guidance—identifies specific areas where  examination teams should test policies and controls as well as  performance measures. For instance, examination teams are expected to  evaluate the servicer’s performance measures to determine the servicer’s  ability to complete timely foreclosure processing, to identify and evaluate  controls for preventing improper charging of late fees, and to evaluate the  servicer’s staff model for certain criteria. Similarly, the Federal Reserve’s  guidance specifies testing procedures for most elements of the original  consent orders, such as third-party management, servicer’s compliance  program, and risk management. For instance, to ensure that documents  filed in foreclosure-related proceedings are appropriately executed and  notarized—one of the requirements in the original consent orders—the  guidance states that examination teams should review servicers’ policies,  procedures, and controls to ensure that the documents are handled  appropriately and then test a sample of documents to verify that  notarization occurred according to the applicable requirements.
According to regulators’ supervisory manuals, effective supervision  requires defining examination activities, including determining clear  objectives and describing the specific procedures to evaluate and test  that policies and procedures are implemented. In addition, federal  internal control standards require individuals responsible for reviewing  management controls—such as servicers’ policies and procedures for the  foreclosure prevention principles—to assess whether the appropriate  policies and procedures are in place, whether those policies and  procedures are sufficient to address the issue, and the extent to which the  policies and procedures are operating effectively.
Some examination teams are close to completing the oversight  procedures related to the foreclosure prevention principles, but others  have not begun, and the extent to which regulators plan to evaluate or  test information collected is unclear. According to OCC staff, examination  teams completed their initial oversight of these principles in December  2013, as part of their other consent order validation activities. OCC staff  told us they are reviewing the results of each of the examination teams’  procedures and may identify the need for additional activity. OCC staff  stated they also plan to conduct an additional review of each servicer’s  foreclosure prevention actions, which will include consideration of the  principles in the amended consent orders, but they do not have specific  procedures to evaluate or test servicers’ implementation of those  principles. According to Federal Reserve staff, most Federal Reserve  examination teams have not yet conducted their oversight activities  related to the foreclosure prevention principles. Federal Reserve staff told  us that examination teams generally are conducting these reviews during  the second quarter of 2014 and that the Federal Reserve would consider  conducting additional follow-up activities related to the principles.  According to federal internal control standards, management control  activities should provide reasonable assurance that actions are being  taken to meet requirements, such as the requirements related to the  foreclosure prevention principles. not yet completed their oversight activities for the foreclosure prevention  principles, the extent to which this oversight will incorporate additional  evaluation or testing of servicer’s implementation of the principles is  unclear.
See GAO/AIMD-00-21.3.1. procedures are effective—an assessment OCC examination teams are  required to make—or assessing how well the principles guide servicer  behavior. For example, although servicers may have policies that  explicitly forbid disfavoring low- or moderate-income borrowers during  foreclosure prevention actions, without reviewing data, such as a sample  of transactions from various programs, it is difficult to determine whether  the policy is functioning as intended. Without these procedures,  regulators may miss opportunities to determine how well servicers’  foreclosure prevention actions provide meaningful relief and help  borrowers retain their homes.
section_title: Regulators Are Sharing Findings of Servicing Weaknesses Confirmed through File Reviews and Cash Payment Process
paragraphs: According to regulators we spoke with, the initial review of borrowers’  2009 and 2010 foreclosure-related files and cash payment categorization  process confirmed past servicing weaknesses—such as documentation  weaknesses that led to errors in foreclosure processing—that they  suspected or discovered through the 2010 coordinated review that was  done in advance of the original consent orders. Regulators have taken  steps to share these findings across examination teams. Continued  supervision of servicers and information sharing about the experiences  and challenges encountered help ensure that these weaknesses are  being corrected. Recent changes to regulators’ requirements for  mortgage servicing also help to address some of the issues.
subsections: section_title: File Review and Cash Payment Activities Confirmed Previously Identified Servicing Weaknesses
paragraphs: Although consultants generally did not complete the review of 2009 and  2010 foreclosure-related files through the file review process, consultants,  servicers, and regulators were able to describe some of the servicing  weaknesses they identified based on the work that was completed.  According to OCC staff, these preliminary findings from consultants’  review of 2009 and 2010 foreclosure-related files were consistent with  issues discovered through the earlier coordinated review of foreclosure  policies and practices conducted by examination teams in 2010 that led to  the consent orders. As we noted previously, the file reviews were  retrospective assessments and were designed to identify and remediate  the harms suffered by borrowers due to 2009 and 2010 servicing  practices.practices from these file reviews, regulators asked consultants to  complete an exit questionnaire and held exit interviews with each  consultant to discuss the file review process and preliminary observations  and findings. In addition, while consultants did not prepare final reports  with their findings, regulators we spoke with said they had shared some  preliminary findings with examination teams through weekly updates as  the file reviews progressed. Examples of weaknesses identified during  the coordinated review and confirmed during the review of files from the  same period, included the following:   To collect information on what was learned about servicers’
Failure to halt foreclosures during bankruptcy. The report from the  regulators’ 2010 coordinated review noted that servicers’ quality  controls were not adequate to ensure that foreclosures were halted  during bankruptcy proceedings. These concerns were validated  during the subsequent review of 2009 and 2010 foreclosure files  during which consultants found some instances of foreclosures taking  place after borrowers had filed for bankruptcy.
Failure to halt foreclosures during loss mitigation procedures. The  report from the 2010 coordinated review also expressed concern that  servicers’ quality control processes did not ensure that foreclosures  were stopped during loss mitigation procedures, such as loan  modifications. During the subsequent file reviews, one consultant  found that in some cases, a servicer had foreclosed on borrowers who  were in the midst of applying for loan modifications. In addition, the file  reviews identified some borrowers who were wrongfully denied loan  modifications, did not receive loan modification decisions in a timely  manner, or were not solicited for HAMP modifications in accordance  with HAMP guidelines.
Failure to apply SCRA protections. The coordinated review report also  noted that a lack of proper controls could have affected servicers’  determinations of the applicability of SCRA protections. Some  consultants identified issues such as servicers failing to verify a  person’s military status prior to starting foreclosure proceedings and  failing to consistently perform data checks to determine military  status.
Failure to maintain sufficient documentation of ownership. Although  the 2010 coordinated reviews found that servicers generally had  sufficient documentation authority to foreclose, examiners noted  instances where documentation in the foreclosure file may not have  been sufficient to prove ownership of the mortgage note. Likewise,  during the subsequent consent order file reviews, some consultants  found cases of insufficient documentation to demonstrate ownership.
Weaknesses related to oversight of external vendors and  documentation of borrower fees. The coordinated file review report  noted weaknesses in servicers’ oversight of third-party vendors, and  OCC staff stated that the subsequent file review found errors related  to fees charged to borrowers, many of which occurred when servicers  relied on external parties. Staff explained that servicers often did not  have controls in place to ensure that services were performed as  billed and that the fees charged to customers were reasonable and  customary.
In addition, the process of categorizing borrowers for cash payments— which relied on servicers’ data about those borrowers from 2009 and  2010—found issues that were consistent with weaknesses identified  during the 2010 coordinated reviews, particularly in servicers’ data  systems. For example, one examination team noted that a servicer’s data  weaknesses related to servicemembers and others became more  apparent during the cash payment categorization process. In addition, as  noted earlier, at least 5 of the 13 servicers were unable to categorize  some borrowers according to the framework criteria because of system  limitations. Federal Reserve staff noted that problems with one servicer’s  data related to loan modifications led the servicer to place everyone in the  highest category possible rather than rely on the system. Further, another  examination team told us that while reviewing the categorization of  borrowers for cash payments, the servicer’s internal audit department  found a high rate of borrowers incorrectly categorized in the loan  modification categories due to weaknesses in the quality of the servicer’s  data. The examination team explained that after reviewing the servicer’s  initial categorization, regulators determined that the servicer did not have  sufficiently reliable system data to categorize borrowers in the lowest  categories, and therefore those borrowers were categorized in a higher  category.
section_title: OCC and the Federal Reserve Are Taking Steps to Leverage and Share Results to Inform Future Supervision
paragraphs: After terminating the reviews of 2009 and 2010 foreclosure-related files,  regulators instructed examination teams to identify deficiencies and  monitor servicers’ actions to correct them. For example, OCC required  examination teams to complete conclusion memorandums on deficiencies  consultants identified. The conclusion memorandums were to include  information on the deficiencies consultants identified in the servicer’s  policies, procedures, practices, data, systems, or reporting. The guidance  for the memorandums also asks examination teams to discuss steps  servicers took to correct these deficiencies. In one conclusion  memorandum, the examination team noted that the servicer was in the  process of addressing issues, such as technological impediments to  efficient and accurate servicing and the accurate identification of  borrowers eligible for SCRA protections and borrowers in bankruptcy, but  that not all issues had yet been addressed. According to Federal Reserve  staff, they are not planning to do a broad analysis of the results from the  file reviews, but they have asked the examination teams to consider  issues that emerged from them and whether additional corrective action is  needed. OCC and Federal Reserve staff also told us that examination  teams are continuing their oversight activities to determine whether  servicers are addressing all aspects of the consent order, which includes  the areas highlighted by the preliminary file reviews. OCC staff said that  the examination work is intended to determine what issues have been  addressed and what issues continue to exist.
Some examination teams told us that they are leveraging the results of  the reviews and the cash payment categorization process by following up  on some of the issues identified for the servicers they oversee in their  future oversight. For example, one team said that it was following up on  findings related to bankruptcy, fees, notices of loan modifications, and  income calculations associated with loan modification applications. In  particular, they noted that they have done subsequent testing related to  borrowers in bankruptcy and will continue to assess the servicer’s efforts  in this area. Another team stated that in light of challenges with an aspect  of the cash payment categorization process, they identified weaknesses  with the servicer’s staffing, project management, and problem resolution  processes. To try to prevent repetition of these mistakes, the examination  team required the servicer to identify and implement changes to their  mortgage servicing practices.
However, some examination teams said that little additional information  was learned from the file review or cash payment activities that they could  leverage in future oversight. For example, one examination team noted  that because few files had gone through complete reviews, they could not  determine how widespread the problems found were. They said that  because the file reviews were terminated before the reviews were  completed, they did not have sufficient information to interpret the initial  findings. Another examination team told us that no new information was  learned from the file reviews and all of the issues raised during them were  known issues. A third examination team told us that they would  incorporate some aspects of the consultant’s processes into their review  process, but the reviews were not far enough along to draw conclusions  about any additional substantive weaknesses with the servicer’s  practices. In addition, Federal Reserve staff noted that because the file  reviews were terminated before many data points were collected, what  could be learned from them is limited. Similarly, one examination team  noted that while weaknesses were identified with the servicer’s operations  during both the file review and cash payment processes, they were  specific to systems and activities from 2009 and 2010 that were no longer  in place or operational. Additionally, OCC staff explained that because the  files that were reviewed were from 2009 and 2010, the findings may no  longer be applicable, particularly given changes in servicing operations  since that time.
Because examination teams learned different information from their  oversight of the file review and cash payment processes, sharing each  others’ experiences could be instructive for ongoing oversight of  mortgage servicing. As we noted earlier, the completion rates for the file  review process varied from no files with a completed review to 57 percent  of the planned files reviewed. In addition, the areas that were reviewed  varied among servicers. For example, several of the consultants reported  completing at least initial reviews of the majority of files in the bankruptcy  category. Another consultant stated that the only category of review  completed was the SCRA category, and therefore, it only had findings  related to the retention of SCRA data. A third consultant had completed  its review of a majority of the initial files planned for review, and had found  several different types of errors, including errors with fees charged, loan  modification decisions, and documentation of ownership. Although, as  regulators have noted, each servicer has unique operations and data  systems, servicing standards and other requirements defined by  regulators are generally broadly applied and insight from one servicer’s  approach to meet these standards—or problems meeting these  standards—can be instructive for another examination team responsible  for overseeing these same standards.
According to our analysis of examination teams’ conclusion  memorandums, some servicers encountered similar challenges in the  cash payment process. In contrast to the file review process, the borrower  categorization process was completed for 14 of the servicers and  servicers had to place borrowers into the same categories. Several  examination teams and a servicer noted that merging data from multiple  servicing systems posed particular challenges for completing the  borrower categorization process. Other examination teams we spoke with  described challenges servicers encountered with their data systems to  record information on bankruptcy and other foreclosure-related actions.  Understanding what caused similar types of challenges and their  prevalence among servicers may help regulators identify future areas for  oversight activities.
According to regulators, they have taken steps to share information  among examination teams about issues encountered during the file  review and cash payment process and OCC planned to take additional  steps. For example, regulators told us that during the file review and cash  payment categorization process, OCC and Federal Reserve examination  teams held weekly phone meetings. According to several examination  teams we spoke with, during these meetings they would highlight  challenges they were encountering, such as issues related to missing  data in a servicer’s systems. In addition, Federal Reserve staff stated that  Federal Reserve examination teams met during the cash payment  categorization process to share information on their approach to the  activities and discuss approaches different teams were taking to address  challenges. To further facilitate information sharing among examination  teams, Federal Reserve staff told us that examination teams posted to a  shared website their conclusion memorandums for the cash payment  activities, which included information on the approach servicers used to  categorize borrowers. According to OCC staff, they are also writing a  consolidated conclusion memorandum that will summarize examination  teams’ findings from the foreclosure review process, including information  on specific challenges identified at individual institutions that may be  instructive for other examination teams.
According to regulators, examination teams also have offered to share  information with CFPB about issues encountered during the file review  process. Banking regulators and CFPB have entered into a Memorandum  of Understanding, which states that CFPB and the regulators will  endeavor to inform each other of issues that may impact the supervisory  interests of the other agencies. According to regulators we spoke with,  there has been limited sharing of findings from the foreclosure review  process with CFPB. According to OCC staff, in some cases, they have  shared information with CFPB about servicers’ compliance with the  original consent orders and, in other instances, they offered to provide  CFPB information on the file review process, but CFPB had not requested  follow-up information. Federal Reserve staff said two of its examination  teams have provided information to CFPB on the Federal Reserve’s  monitoring activities related to the original consent orders, including the  file reviews, and amended consent orders.
section_title: Recent Servicing Requirements May Address Identified Weaknesses
paragraphs: Recent servicing requirements, some of which apply to a broader group  of mortgage servicers than those included in the file review process, may  also address some of the weaknesses found during the 2010 coordinated  review and confirmed during the review of foreclosure-related files from  2009 and 2010 and the borrower categorization process. Since the 2009  and 2010 period of the file reviews, regulators have issued several  guidelines and standards related to mortgage servicing:
April 2011 Consent Orders. In addition to the requirement to conduct  file reviews of borrowers who were in foreclosure or had completed  foreclosure any time in 2009 or 2010, the original consent orders  issued by OCC and the Federal Reserve to 16 servicers also included  other requirements, such as submitting a plan for improving the  operation of servicers’ management information systems for  foreclosure and loss mitigation activities. Regulators’ examination  teams will continue to monitor these requirements and ensure that the  aspects of the consent orders that apply are met.
National Mortgage Settlement. Five servicers are covered by the  National Mortgage Settlement, which includes requirements such as  preforeclosure notices to borrowers, procedures to ensure the  accuracy of borrower accounts, and quarterly reviews of foreclosure  documents.
CFPB Mortgage Servicing Rules. These rules were issued in January  2013, became effective January 10, 2014, and apply to all servicers,   The rules cover several  with some exemptions for small servicers.major topics that address many aspects of mortgage servicing,  including specific requirements related to communication with  delinquent borrowers and loss mitigation procedures.
OCC and Federal Reserve Imminent Foreclosure Standards. In April  2013, OCC and the Federal Reserve issued checklists to the  servicers they supervise to establish minimum standards for handling  and prioritizing of borrower files that are subject to imminent  foreclosure sales. For example, both sets of standards require that once the date of foreclosure is established, the servicer must confirm  that the loan’s default status is accurate.
These requirements address issues identified during the file reviews and  cash payment process. For example, to address issues related to  borrowers being foreclosed upon while in the process of a loan  modification application, OCC and Federal Reserve’s Minimum Standards  for Prioritization and Handling of Borrower Files Subject to Imminent  Foreclosure Sales require servicers to take steps to verify a borrower’s  status once a foreclosure date has been established. Specifically,  servicers must promptly (1) determine whether the borrower has  requested consideration for, is being considered for, or is currently in an  active loss mitigation program; and (2) determine whether the foreclosure  activities should be postponed, suspended, or cancelled. As another  example, to address issues related to communicating loan modification  decisions to borrowers, CFPB’s rules state that servicers must provide  the borrower with a written decision, including an explanation of the  reasons for denying the loan modification, on an application submitted  within the required time frame.
The guidelines also address issues related to servicers’ data systems.  For example, CFPB’s rules require that servicers are able to compile a  complete servicing file in 5 days or less. CFPB officials noted that this  requirement was specifically included to address weaknesses in  servicers’ data systems that might still exist. In addition, as previously  noted, the OCC and Federal Reserve consent orders required servicers  to submit a plan for the operation of their management information  systems. The plan needed to include a description of any changes to  monitor compliance with legal requirements; ensure the accuracy of  documentation of ownership, fees, and outstanding balances; and ensure  that loss mitigation, foreclosure, and modification staff have sufficient and  timely access to information.
section_title: Regulators Communicated the Status of Activities, but Information on Processes Has Been Limited
paragraphs: Regulators took steps to promote transparency through efforts to keep  borrowers and the general public informed about the status and progress  of amended consent order and continuing review activities and through  posting information publicly on their websites. Regulators also plan to  issue public final reports on the cash payment process and foreclosure  prevention actions as well as the results of the one file review that  continued. These actions, however, have included limited information on  processes, such as specific information about the category in which  borrowers were placed or how those determinations were made.
subsections: section_title: Regulators Promoted Transparency about the Status and Results of Cash Payments and Plan to Issue Public Reports
paragraphs: In our March 2013 report, we found that transparency on how files were  reviewed under the foreclosure review was generally lacking and that  borrowers and the general public received limited information about the  progress of reviews.implement a communication strategy to regularly inform borrowers and   We recommended that regulators develop and  the public about the processes, status, and results of the activities under  the amended consent orders and continuing foreclosure reviews.
Since the announcement of the amended consent orders and our March  2013 report, regulators have taken steps to keep borrowers and the  general public informed about the status of activities under the amended  consent orders and continuing foreclosure reviews. For example,  regulators directed that the payment administrator for 14 of the 15  servicers subject to amended consent orders send postcards to  approximately 4.4 million borrowers informing them that they would  receive a cash payment from their servicer. In addition, regulators  directed the administrator to send communications to borrowers subject  to the continuing file review to inform them that their reviews were  ongoing. OCC staff noted that they anticipated requiring a final  communication to borrowers when the review is completed. Regulators  also kept the general public informed about the status of activities. For  example, regulators conducted two webinars to provide details on the  amended consent order activities and published answers to frequently  asked questions on their websites. Regulators also used mass media  such as press releases and public service announcements to  communicate the status of activities. In addition, regulators updated their  websites with information on the number and amount of checks issued  and cashed under the amended consent orders, and in May 2013,  regulators reported this information by state. Finally, regulators also made  the cash payment frameworks and borrower categorization results  publicly available on their websites. The frameworks list the payment  categories and amounts and also include the overall results of the cash  payment process by including the number of borrowers in each payment  category.
Regulators plan to issue publicly final reports on the direct payment  process and foreclosure prevention actions as well as information from  the reviews that were terminated and the results of the review that  continued. We noted the importance of public reporting to enhancing  transparency in our March 2013 report. At that time, regulators planned to  release reports on the foreclosure review and cash payment process, but  the content of the reports had not been determined. Since our report,  regulators have taken additional steps toward making reporting decisions.  However, they are still considering the content and timing of these  reports. Federal Reserve staff stated that they have worked with OCC to  reach out to community groups to get their input on the information to  include in public reports, and they are reviewing the types of information  on foreclosure prevention actions reported for the National Mortgage  Settlement and HAMP. Federal Reserve staff also stated that they  anticipate the final report would include information on the terminated  reviews. OCC staff said they are conducting examinations to assess the  extent to which servicers addressed all aspects of the consent orders,  including weaknesses highlighted by the preliminary file reviews, and they  anticipate reporting on conclusions of the foreclosure reviews, including  the reviews that were terminated. OCC staff stated they are waiting on  the results of the continuing review and reports on servicers’ foreclosure  prevention actions before making final reporting decisions.
section_title: Additional Information on Cash Payment Processes May Enhance Transparency
paragraphs: Although regulators have taken steps to promote transparency, these  actions included limited information on the data regulators considered in  negotiating the cash payment obligations and the processes for  determining cash payment amounts. Our March 2013 recommendation to  implement a communication strategy included not only keeping borrowers  informed about the status and results of amended consent order and  continuing review activities, but it also included keeping borrowers and  the public informed about processes to determine those results. In our  March 2013 report, we found that more publicly disclosed information  about processes could have increased transparency and thereby public  confidence in the reviews, given that one of the goals regulators  articulated for the foreclosure review was to restore public confidence in  the mortgage market. Federal internal control standards state the  importance of relevant, reliable, and timely communications within an  organization as well as with external stakeholders. In addition, our prior  work on organizational transformation suggests that policymakers and  stakeholders demand transparency in the public sector, where  stakeholders are concerned not only with what results are to be achieved,  but also with which processes are to be used to achieve those results.
Regulators released limited information on the process used to determine  cash payment amounts. Regulators’ joint press release announcing the  payment agreement stated that the amounts of borrowers’ payments  depended on the type of possible servicer error, and regulators’ websites  and webinars provided information on the roles of regulators, servicers,  and the payment administrator. However, regulators did not release  publicly information on the criteria for borrower placement in each  category, such as the specific loan and borrower characteristics  associated with each category. In addition, information about the process  for determining cash payment amounts for each category was not  communicated to individual borrowers. Borrowers subject to the amended  consent orders received postcards informing them they would receive a  cash payment. The postcards, however, did not include information about  the process by which their payment amounts would be determined.  Moreover, the letter accompanying the cash payment does not include  information about the category in which a borrower was placed.  Consumer groups we interviewed maintained that borrowers should have  been given information about the category into which they were placed  and an explanation of how they were categorized.
Regulators said that borrowers could obtain additional information from  other sources. Federal Reserve staff explained that the letter to borrowers  does not include information on the borrower’s cash payment category,  but they said that a borrower may be able to figure out this information  using the publicly issued cash payment framework, which includes cash  payment amounts for each category. Regulators also told us that  borrowers could call the payment administrator with questions or  complaints related to the cash payment process under the amended  consent orders. However, according to the payment administrator’s  protocol, staff were instructed to provide general information on the cash  payment process, but did not have specific information about the category  in which borrowers were placed or how those determinations were made.  Federal Reserve staff stated that borrowers who have complaints about  their servicer could also write to their servicer’s regulator directly, but  consumer groups said that very few borrowers would file a formal  complaint with the regulators because they never received an explanation  of what category they were placed in and regulators did not establish an  appeals process. Further, letters sent to borrowers stated that the  payments were final and there was no appeals process. Regulators told  us they did not establish an appeals process because borrowers did not  waive their rights to take legal action by accepting the payment. Federal  Reserve staff stated that although there was not a process for borrowers  to appeal their payments, borrowers who are not satisfied with the  payment amounts can pursue any legal claims they may have.
With additional information on processes, regulators have opportunities to  enhance transparency and public confidence with the amended consent  order activities. The majority of cash payments have been deposited. As  such, regulators have missed key opportunities to provide information that  would have enhanced transparency of the cash payment process for  individual borrowers. Further, since borrowers cannot obtain further  information by formally appealing the results of the direct payment  process, the lack of information about the criteria for placement in the  various categories may hinder public confidence in the process. The final  reports that regulators plan to issue represent an important opportunity to  provide additional information on processes to clarify for borrowers and  the general public how payment decisions were made.
section_title: Conclusions
paragraphs: The amended consent order process—with the distribution of cash  payments to 4.4 million borrowers and requirements that servicers  provide $6 billion in foreclosure prevention actions—terminated the  review of 2009 and 2010 foreclosure-related files for 15 servicers prior to  completion. This process addressed some of the challenges identified by  regulators with the file review process—for example, it provided cash  payments to borrowers more quickly than might have occurred had the  file reviews continued. In addition, through the foreclosure prevention  component of the amended orders, regulators were able to convey their  commitment to specific principles to guide loss mitigation actions— including that servicers’ foreclosure prevention activities provide  meaningful relief to borrowers and not disadvantage a specific group.  While views varied on the usefulness of the file review process, regulators  are taking steps to use what was learned to inform future supervisory  activities.
While regulators used the amended consent orders to establish principles  for foreclosure prevention activities, they did not require examination  teams to evaluate or test servicers’ activities related to these principles. In  particular, they did not require evaluation or testing of servicers’ policies,  monitoring controls, and performance measures, to determine the extent  to which servicers are implementing these principles to provide  meaningful relief to borrowers. In contrast, other parts of the guidance  provided to examination teams for oversight of the consent orders do  require evaluation and testing, and the requirements in regulators’  supervisory manuals and federal internal control standards also include  such requirements. For OCC examination teams, which have completed  reviews of servicers’ activities related to the foreclosure prevention  principles, additional planned supervisory activities, such as a review of  servicers’ foreclosure prevention actions, may help identify concerns with  servicers’ implementation of aspects of the foreclosure prevention  principles. However, the specific procedures to conduct these additional  planned activities have not been established. In comparison, for Federal  Reserve examination teams that have not yet completed the reviews,  there is an opportunity to implement a more robust oversight process that  includes evaluation and testing, but the extent to which the Federal  Reserve will take these steps is unclear. In the absence of specific  expectations for evaluating and testing servicers’ actions to meet the  foreclosure prevention principles, regulators risk not having enough  information to determine whether servicers are implementing the  principles and protecting borrowers.
Finally, although regulators communicated information about the status  and results of the cash payment component of the amended consent  orders, they missed opportunities to communicate additional information  to borrowers and the public about key amended consent order processes.  One of the goals that motivated the original file review process was a  desire to restore public confidence in the mortgage market. In addition,  federal internal control standards and our prior work highlight the  importance of providing relevant, reliable, and timely communications,  including providing information about the processes used to realize  results, to increase the transparency of activities to stakeholders—in this  case, borrowers and the public. Without making information about the  processes used to categorize borrowers available to the public, such as  through forthcoming public reports, regulators may miss a final  opportunity to address questions and concerns about the categorization  process and increase confidence in the results.
section_title: Recommendations for Executive Action
paragraphs: We are making the following three recommendations:  1.  To help ensure that foreclosure prevention principles are being  incorporated into servicers’ practices, we recommend that the  Comptroller of the Currency direct examination teams to take  additional steps to evaluate and test servicers’ implementation of the  foreclosure prevention principles.  2.  To help ensure that foreclosure prevention principles are being  incorporated into servicers’ practices, we recommend that the  Chairman of the Board of Governors of the Federal Reserve System  ensure that the planned activities to oversee the foreclosure  prevention principles include evaluation and testing of servicers’  implementation of the principles.  3.  To better ensure transparency and public confidence in the amended  consent order processes and results, we recommend that the  Comptroller of the Currency and the Chairman of the Board of  Governors of the Federal Reserve System include in their forthcoming  reports or other public documents information on the processes used  to determine cash payment amounts, such as the criteria servicers  use to place borrowers in various payment categories.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OCC, the Federal Reserve, and  CFPB for comment. We received written comments from OCC and the  Federal Reserve; these are presented in appendixes III and IV. CFPB did  not provide written comments. We also received technical comments from  OCC, the Federal Reserve, and CFPB and incorporated these as  appropriate. In their comments on this report, the Federal Reserve agreed  with our recommendations and OCC did not explicitly agree or disagree.  However, OCC and the Federal Reserve identified actions they will take  or consider in relation to the recommendations.
For the two recommendations on assessing servicer implementation of  foreclosure prevention principles, OCC stated that it included this  requirement in its examination plans. OCC added that foreclosure  prevention principles will be used as considerations when assessing the  effectiveness of servicer actions. We continue to believe that identifying  specific procedures for testing and evaluating servicers’ application of the  foreclosure prevention principles to their mortgage servicing practices will  help regulators determine how effectively servicers’ policies and  procedures are protecting borrowers and providing meaningful relief. The  Federal Reserve noted that examination teams plan to use testing during  their servicer assessments. The Federal Reserve plans to conduct the  assessments in 2014, as we noted in the report.
For the recommendation on improving the transparency of the consent  order processes, OCC stated that it will consider including additional  detail about the categorization of borrowers in its public reports. The  Federal Reserve said it will consider the recommendation as it finalizes  reporting and other communication strategies. Both regulators also noted  that they had made information about the foreclosure review and  amended consent order processes available on their public websites. As  we discussed in our report, regulators have taken steps to communicate  information about the status of activities and results of the amended  consent orders, and communicating information on the processes for  determining borrowers’ cash payment amounts provides an additional  opportunity for regulators to realize their goal of increasing public  confidence in these processes.
We are sending copies of this report to interested congressional  committees, the Board of Governors of the Federal Reserve System, the  Consumer Financial Protection Bureau, and the Office of the Comptroller  of the Currency. In addition, the report is available at no charge on the  GAO website 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 V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: The objectives of this report were to assess: (1) the factors regulators  considered in negotiating servicers’ cash payment obligations under the  amended consent orders and the extent to which regulators achieved  their stated goals for the cash payments; (2) the objectives of the  foreclosure prevention actions in the amended consent orders and how  well regulators designed and oversaw the actions to achieve those  objectives; (3) the extent to which regulators are sharing information from  the file review and amended consent order processes; and (4) the extent  to which regulators have promoted transparency of the amended consent  orders and remaining review. The scope of our work covered the 16  servicers that were issued consent orders in 2011 and 2012 requiring  they conduct file reviews.
To address the factors the Office of the Comptroller of the Currency  (OCC) and the Board of Governors of the Federal Reserve System  (Federal Reserve) considered in negotiating servicers’ cash payment  obligations, we interviewed regulatory staff about the factors they  considered and analyses they conducted to inform the negotiations. We  also asked staff about the extent to which the factors and analyses  differed from typical enforcement action negotiations. We reviewed the  analyses regulators’ used to inform the negotiations and other  documentation on the decision to replace the foreclosure review with a  cash payment agreement, such as OCC’s decision memorandum. We  also reviewed data consultants provided to regulators on incurred and  remaining costs, progress of reviews, and findings of error. In addition, we  conducted a sensitivity analysis to test the impact of changes to major  assumptions and a reasonableness review of the final negotiated cash  payment amount. According to Office of Management and Budget  guidance, a sensitivity analysis examines the effects of changing  assumptions and ground rules on estimates. Further, our Cost  Estimating and Assessment Guide states that a sensitivity analysis  provides a range of results that span a best and worst case spread and  also helps identify factors that could cause an estimate to vary. To  conduct our sensitivity analysis, we followed three key steps outlined in  our Guide: (1) identify the key drivers and assumptions to test, (2)  estimate the high and low uncertainty ranges for significant input  variables, and (3) conduct this assessment independently for each input  variable. We identified and tested major assumptions related to projected  costs, error rates, and borrower categorizations. We also used the results  of our analysis to test the reasonableness of the final negotiated cash  payment amount. Our Cost Estimating and Assessment Guide describes  a reasonableness review as a process to independently test whether  estimates are reasonable with regard to the validity of major assumptions.
Projected costs. To test assumptions related to the projected  remaining costs to complete the reviews as reported by consultants,  we calculated monthly costs for each consultant using consultants’  cost reports that were available from September 2012 through  December 2012. We then selected the shortest, median, and longest  projected additional months of review across servicers to calculate the  projected costs under these scenarios (see table 4). We compared  our calculated costs in these scenarios to regulators’ cost analyses  and the final negotiated cash payment amount.
Error rate. To test assumptions related to the error rate, we reviewed  error rates in status reports consultants provided to regulators for the  13 servicers that agreed to the payment agreement in the January  2013. The amended consent orders implementing the payment  agreement required the consultants of the participating servicers to  submit data on the progress of the file reviews as of December 31,  2012. We used these data, which the consultants submitted to  regulators in the months following the payment agreement, to select  the lowest, median, aggregate, and highest error rates reported by  consultants and calculated the potential remediation payments under  these scenarios (see table 5). We compared our calculated  remediation payments under these scenarios to the payment  calculated in regulators’ analyses and the final negotiated cash  payment amount.
Borrower categorization. To test assumptions related to the  categorization of borrowers across the payment categories used in  OCC’s error rate analysis, we analyzed borrower distributions for the  other five servicers involved in the initial amended consent order  negotiations. We used categorizations servicers provided to the  regulators during the negotiation process in December 2012. We then  calculated the potential remediation, using the 6.5 percent financial  harm error rate used in regulators’ analysis, under each scenario (see  table 6). We compared our calculated remediation payments under  these scenarios to the payment calculated in regulators’ analyses and  the final negotiated cash payment amount.
We verified the accuracy of regulators’ analyses by performing some logic  tests and recreating the tables and formulas they used for their  calculations. To assess the reliability of data on the status and preliminary  financial harm error rates we used in our analyses, we collected  information from exam team staff for all servicers that participated in the  amended consent order payment agreement. Because exam team staff  were responsible for the day-to-day oversight of consultants’ work, we  collected information on the steps they took to determine whether the  data were reasonably complete and accurate for the intended purposes.  All exam team staff stated they conducted data reliability activities such  as observing data entry procedures and controls, participating in or  observing training for the systems used to generate status reports,  conducting logic tests, or reviewing status reports. Exam team staff did  not note any limitations related to the results of the final reviews  completed by consultants as of December 2012 that would affect our use  of these data. As such, we determined the data to be sufficiently reliable  for the purposes of this report.
We were unable to assess the reliability of data on consultants’ incurred  costs or servicers’ initial borrower categorization results used in our  analyses. Because most consultants had terminated their work on the  foreclosure review during our data collection, we had limited access to the  underlying cost data reported by consultants to regulators, and regulatory  staff told us they did not assess these data. In addition, the initial  borrower categorizations performed by servicers during negotiations  represented preliminary results that were intended to provide regulators  with information about how the cash payment amount might be  distributed. These data were described as preliminary by servicers, and  neither servicers nor regulatory staff validated the accuracy of the  information used during negotiations. Given that limited information was  available from the sources and users of these data, we were not able to  assess their reliability. As such, we determined that the data related to  consultants’ costs and servicers’ initial borrow categorizations are of  undetermined reliability. However, because our use of these data is  consistent with regulators’ intended use to inform negotiations we  determined that the risk of using data of undetermined reliability was low,  and we concluded that the data were appropriate for our purposes in this  report.
To determine the stated goals for the cash payments and assess the  extent to which regulators took steps to ensure servicers achieved them,  we reviewed the amended consent orders, OCC’s and the Federal  Reserve’s decision memorandums, and statements made by regulators  about the amended consent orders, including press releases and  speeches or testimony. We then assessed achievement of these goals  using data we collected and analyzed and information from interviews we  conducted with regulators. Specifically, we reviewed regulators’  instructions to servicers and examination teams for the categorization  process and subsequent oversight activities and interviewed OCC  headquarters and Federal Reserve Board staff about implementation of  these activities and their oversight actions. In addition, we analyzed  regulators’ reports on the results of the servicers’ categorization process,  in particular information on the number of borrowers placed into each  category by servicer and any subsequent changes to categorization  results. We also reviewed examination teams’ conclusion memorandums  describing their oversight activities to verify and validate servicers’ cash  payment categorization activities, and 10 of the 11 examination teams we  interviewed or received written responses from provided information  about their specific approach. We also interviewed three consultants  responsible for categorizing borrowers into some categories—for  example, borrowers eligible for protections under the Servicemembers  Civil Relief Act (SCRA), Pub. L. No. 108-189, 117 Stat. 2835 (2003)  (codified at 50 U.S.C. app. §§ 501-597b)—about their methodology and  regulators’ oversight, and of the eight servicers we interviewed seven  provided information about their process to categorize borrowers for cash  payments and regulators’ role in this process. To identify the examination  teams and servicers to interview, we selected examination teams and  servicers that were overseen by each regulator and also considered a  range of sizes of eligible populations for the file reviews, including some  of the largest servicers. To identify the consultants to interview, we  considered those consultants that supplemented information gathered  from consultants in prior work on the file review process. Finally, we  assessed the reliability of these data by reviewing related documentation  and interviewing payment administrator officials knowledgeable about the  data. We determined that these data were sufficiently reliable for the  purposes of this report.
To assess the objectives for the foreclosure prevention actions and how  well regulators designed the actions to realize those objectives, we  reviewed the amended consent orders to understand the parameters and  requirements for foreclosure prevention actions, reviewed regulators’  decision memorandums, and reviewed regulators’ statements about the  foreclosure prevention actions in press releases and speeches or  testimony. We also interviewed regulators about their intentions for the  actions and the analysis they conducted to support the negotiations of the  design and amounts. We compared this process with regulators’ typical  processes for issuance of enforcement actions, as described in their  supervisory manuals and in interviews with regulators’ staff. We also  interviewed three experts familiar with negotiations and the design of  settlements, including staff from the National Mortgage Settlement, to  understand elements typically considered in the design of settlements.  We selected these experts based on their familiarity with similar mortgage  servicing settlements or their recognized expertise in the field of  settlements involving potential financial harm or where cash payments  were to be made to victims. In addition, we interviewed staff from one  regulatory agency, the Bureau of Consumer Financial Protection  (commonly known as the Consumer Financial Protection Bureau, or  CFPB), about their policies and procedures for negotiating enforcement  actions, in particular related to mortgage servicing. Finally, we reviewed  two settlements that included foreclosure prevention components—the  National Mortgage Settlement and the separate California Agreement in  the National Mortgage Settlement—to help identify various factors to  consider in the design of foreclosure prevention actions in enforcement  orders or settlements.
Further, to address how regulators oversaw achievement of the  objectives of the foreclosure prevention component in the amended  consent orders, we considered both regulators’ activities to oversee  servicers’ financial obligations and actions to oversee the foreclosure  prevention principles in the amended consent orders. To facilitate this  process, we reviewed regulators’ instructions to servicers for reporting on  their foreclosure prevention obligations and servicers’ reporting  submissions for May, July, September, and December 2013. We also  reviewed OCC’s and the Federal Reserve’s instructions to its examination  teams for oversight of the foreclosure prevention principles. To further  understand regulators’ oversight of the financial obligations and  foreclosure prevention principles, we interviewed OCC and Federal  Reserve staff, including headquarters and Federal Reserve Board staff  and staff from 10 of the 11 examination teams we interviewed— representing both OCC and the Federal Reserve and a mix of larger and  smaller servicers (determined by the number of eligible borrowers from  the foreclosure review)—about their oversight activities. We compared  these instructions and their implementation with the supervisory  expectations in regulators’ supervisory manuals, the supervisory  instructions for the other articles of the original consent orders, and  federal internal control standards. To supplement our understanding of  the foreclosure prevention reporting and oversight activities, we  interviewed representatives from six of the eight mortgage servicers we  spoke with (representing servicers overseen by both OCC and the  Federal Reserve of various sizes based on the size of the eligible  population from the foreclosure review) about their activities to comply  with the foreclosure prevention requirement and regulators’ oversight  activities. We also interviewed staff from the National Mortgage  Settlement, which requires five mortgage services to provide foreclosure  prevention actions, to understand their experience and approach.
To assess the extent to which regulators are leveraging and sharing  information from the file review process, we analyzed consultants’  preliminary findings from the file review process, in particular information  they reported to regulators in exit surveys and during exit interviews with  regulators. We also reviewed OCC’s examination teams’ conclusion  memorandums from their oversight of the file review process. We  compared these with publicly available information on regulators’ findings  from the 2010 coordinated file review conducted by OCC, the Federal  Reserve, the Federal Deposit Insurance Corporation, and the Office of  Thrift Supervision to identify the extent to which the findings were similar.  We also interviewed staff from OCC headquarters and Federal Reserve  Board and 10 of the 11 examination teams, and representatives from 8  mortgage servicers about what they learned about mortgage servicing  from the preliminary file reviews and cash payment categorization  processes and changes in mortgage servicing practices since the 2009  and 2010 period covered by the file review process. In addition, we  asked regulator staff, including the examination teams, about steps they  had taken or were planning to take to share this information among  examination teams or with other regulators, such as CFPB, or to use this  information for future oversight. We also interviewed CFPB staff about  information they had requested or received about the preliminary file  review results. We compared regulators’ plans to share and leverage  information with federal internal control standards for recording and  communicating information to help management and others conduct their  responsibilities.
To assess regulators’ efforts to promote transparency of the amended  consent orders and remaining review, we reviewed press releases and  documents from regulators related to the amended consent orders and  the remaining review. In particular, we reviewed what documents were  available about the amended consent orders and the remaining review on  the regulators’ websites, such as frequently asked questions, webinars,  press releases, and status updates related to check issuance, and  analyzed the content of these materials. We also reviewed the payment  administrator’s telephone instructions to respond to questions about the  amended consent order process. In addition, we reviewed examples of  the postcards and letters sent to borrowers to communicate about the  amended consent order payments and to provide cash payments. We  also interviewed regulator staff about the steps they took to promote  transparency and their plans for future reporting. We compared this  documentation to federal internal control standards on communications  and our work on organizational transformation to identify any similarities  or differences. Further, we considered our prior recommendation about  lessons learned about transparency of the foreclosure review for the  amended consent order process. Finally, we also conducted interviews  with representatives of consumer groups.
We conducted this performance audit from May 2013 through April 2014  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: Office of the Comptroller of the Currency (OCC) and the Board of Governors of the Federal Reserve System (Federal Reserve) Actions in Response to GAO’s Recommendations on the Independent Foreclosure Review
paragraphs: We have issued two prior reports on the foreclosure review process. In  our first report on the outreach component of the foreclosure review, we  found that the Comptroller of the Currency (OCC) and the Board of  Governors of the Federal Reserve System (Federal Reserve) and  servicers had gradually improved the communication materials for  borrowers, but that regulators could make further enhancements to the  outreach efforts. In our second report, we identified lessons learned from  the file review process that could be used to enhance the activities under  the amended consent orders and the continuing reviews. Below we list  the recommendations made in each report and the actions taken by  regulators in response.
section_title: Appendix III: Comments from the Office of the Comptroller of the Currency
section_title: Appendix IV: Comments from the Board of Governors of the Federal Reserve System
section_title: Appendix V: GAO Contact and Staff Acknowledgements
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Jill Naamane (Assistant Director),  Bethany M. Benitez, Maksim Glikman, DuEwa Kamara, John Karikari,  Charlene J. Lindsay, Patricia MacWilliams, Marc Molino, Jennifer  Schwartz, Andrew Stavisky, Winnie Tsen, and James Vitarello made key  contributions to this report.