Critique Of Foreclosure Review Process Increasingly Cited By Consumer Groups

In June the Government AccountabilityrnOffice (GAO) issued a report critical of outreach undertaken by mortgagernservicers to inform and enroll borrowers in the Independent Foreclosure Reviewrn(IFR) process.  The report also faultedrnthe role of regulators in monitoring that outreach.</p

At the time the report was released itrnreceived very little attention, in fact we could find no mention of it at allrnin the mainstream press.  Now, however, elevenrnadvocacy groups led by the Center for Responsible Lending (CRL) have askedrnfederal regulators to take steps torncorrect the problems found by GAO.</p

IFR originated in April 2011 when thernOffice of Comptroller of the Currency (OCC), the Office of Thrift Supervisionrn(OTS) and the Federal Reserve (Fed) directed 14 major servicers to hire thirdrnparty consultants to review 2009 and 2010 foreclosure action to determine ifrnfinancial injury had occurred and to determine appropriate remediation.  Appropriate outreach to borrowers was part ofrnthe requirements for the IFR. </p

According to the review undertaken byrnGAO, servicers sent out 4.3 million outreach letters, 95 percent of which wererndelivered to borrowers.  The responsernrate as of June 2012 was 5.2 percent. rnHowever, GAO found that servicers had done an insufficient job ofrnoutreach to borrowers, faulting them for the quality of their outreachrnmaterials when measured against best practices and federal guidelines.  Specifically, GAO posted the followingrncriticisms of the materials.  Somernregulator responses were also noted.    </p<ul class="unIndentedList"<liRegulatorsrnand servicers failed to conduct readability tests or use focus groups inrndeveloping communication materials. The Fedrnsaid this was a trade off to expedite the remediation process.</li<liRegulatorsrndid not solicit input from consumer groups in reviewing the initial materials.</li<liReadabilityrntests found the initial outreach letter, request-for-review form, and programrnwebsite to be written above the average reading level of the U.S. population. Regulators said they had discussed usingrnplain language but use of complex mortgage and legal terms was necessary forrnaccuracy and precision.</li<liClearrnlanguage on the program website was particularly important as borrowers were encouragedrnto submit requests for review on line.</li<liCommunicationrnmaterials included information about the purpose, scope and process for reviewrnand noted that borrowers might be eligible for compensation, but did notrnprovide specific information about remediation.rnBest practices suggest that this is important to encourage responses.</li</ul

GAO found that outreach planning andrnevaluation did take into account the extent to which the plan promoted nationalrnawareness and was appropriate to reach the demographics of the target audience.rn It was largely uniform with some effortsrntargeted to Spanish-speaking and African-American borrowers.  Regulators did not call for servicers tornanalyze eligible borrowers by characteristics such as limited English proficiency.  </p

Community groups are effectivernmessengers, GAO said, but servicers utilized them to varying degrees.  Community groups told GAO that borrowers mayrnhave ignored communications because they did not understand who was providingrnthe information and believed the communications were fraudulent.  </p

Regulators did not analyze characteristicsrnof respondents and nonrespondents in preparing a second wave of outreach andrnthus may not know if certain groups of borrowers were underrepresented in thernreview.  GAO said it is unclear ifrnadditional outreach to target these groups or changes to the file review processrnitself are needed to help ensure that all borrowers have a fair opportunity forrnreview. </p

 Inrnits press release CRL said the GAO report reveals serious flaws “that threaten to undermine the program’s success.”  It calls IFR the most significant effort thernfederal government has undertaken to help people “who should never have facedrnforeclosure at all, or who were harmed by errors their servicers made in thernprocess.”  </p

DebbyrnGoldberg, Special Project Director, National Fair Housing Alliance (NFHA), onernof the consumer groups signing the press release said that regulators did notrntell the servicers to gather the information needed to see what type ofrnborrowers were requesting help. “Without this basic information,” Goldberg said,rn”we’ll never know whether borrowers in communities hardest hit by thernforeclosure crisis are being helped by this program.” <br /<br /That the program materials were found by GAO to be hard to understand and failedrnto enumerate the compensation available may account for the program's very lowrnresponse rate, the release said, which may account for the program's very lowrnresponse rate. Very limited outreach has been done in languages other thanrnEnglish, which may prevent borrowers with limited English proficiency fromrngetting a fair shot at help through the program.</p

 “Communities of color have suffered higherrnrates of foreclosure and disproportionate loss of wealth because they wererntargeted for risky, unsustainable loans,” Goldberg said. “It is criticallyrnimportant that these borrowers have fair access to the IFR program.”</p

CRL said that, in addition to thernproblems documented by GAO, the IFR program has a number of other seriousrnflaws. To correct these, the regulators must do the following:</p<ul class="unIndentedList"<liEliminate unfair distinctions amongrngroups of borrowers who all faced foreclosure because of mistakes made by theirrnmortgage servicers including borrowers wrongfully denied loan modifications orrnthose who were foreclosed while paying under a forbearance plan; </li<liIncrease compensation provided forrnother types of servicer errors;</li<liProvide an appeals process forrnborrowers;</li<liMake information available tornborrowers, their advocates, and the public about the method used to determinernwhether borrowers suffered harm;</li<liReport regularly to the public onrnthe progress of the file reviews and the errors that have been found;</li<liExtend the application deadlinernthrough the end of the year.</li</ul

In addition to NFHA and CRL thernpress release was signed by California Reinvestment Coalition, Consumer Action,rnEmpowering and Strengthening Ohio’s People, National Association of ConsumerrnAdvocates, National Consumer Law Center, National Council of La Raza, NationalrnPeople’s Action, Neighborhood Assistance Corporation of America, NeighborhoodrnEconomic Development Advocacy Project.

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