Lawmakers raised sharp questions Tuesday about the ties between the 14 largest mortgage servicers and the purportedly independent consultants that were hired to review their practices, putting a top bank regulatory official on the defensive.
Julie Williams, the Office of the Comptroller of the Currency's (OCC) deputy comptroller and chief counsel, told the Senate housing subcommittee that her agency is seeking to ensure proper compensation for homeowners who were harmed in 2009 and 2010 by pervasive errors in the mortgage servicing process.
"Our goals are clear: fix what was broken; identify borrowers who were financially harmed; provide compensation for that injury; and make sure this does not happen again," Williams said.
But she faced nearly an hour of skeptical questioning from three Senate Democrats, who raised a serious of issues designed to cast doubt on the fairness of the OCC's process to homeowners.
"If we do not remain committed to transparency, consistency, and accountability, the foreclosure reviews will be toothless," said Sen. Robert Menendez, D-N.J., who chairs the subcommittee. "After being hard hit by the foreclosure crisis and other economic woes, American homeowners expect and deserve a fair review and compensation where appropriate."
Federal bank regulators ordered the 14 largest servicers in April to complete a foreclosure review process, including identifying and assisting homeowners that were harmed by robo-signing, improper foreclosures and other servicing improprieties.
As part of the process, consultants must review servicers' practices between 2009 and 2010. Borrowers who have been identified as potentially having suffered financial harm are to receive letters; they are invited to explain their own situation in a written response.
But lawmakers noted that the consultants — which include firms such as PriceWaterhouseCoopers, Ernst & Young and Deloitte & Touche — were initially chosen by the servicers. The OCC reserved the right to exclude consultants based on its own review of their past work.
The consultants are also being paid by the servicers. Under questioning from Sen. Jack Reed, D-R.I., Williams said that in some cases the consultants had previous business relationships with the servicers that hired them.
"Is there any prohibition on future work that these companies can do with the parties they're supervising?" Reed asked.
"No, sir," Williams responded.
Sen. Jeff Merkley, meanwhile, took issue with the fact that letters sent to homeowners, which informed them of their right to seek a review of their own case, did not reveal how the consultants are being paid, or the consultants' past business ties to the servicers that hired them.
"And I think even to call it independent, in that situation, is a complete betrayal of your obligation to the borrower," Merkley said. "So each time I hear you say 'independent,' I'm just going to flinch."
Merkley added: "I just request that you be fully honest and transparent. The last thing homeowners need is one more process where there's not full and accurate disclosure."
Williams said the OCC screened not only the consultants, but also the law firms that the consultants are using, to look for instances where they'd previously taken positions that might be at odds with their current role.
She also said that the OCC took steps to ensure that the consultants do not take direction from the servicers. She also said that the OCC took steps to ensure that the consultants do not take direction from the servicers.
Reed asked whether the OCC rejected any of the consultants that were proposed by the servicers?
"I believe that we did," Williams responded, "and I know that we rejected law firms."