Federal banking regulators have fallen short in specifying for servicers what foreclosure prevention actions are acceptable for the amended consent orders.
The consent orders reached between the nation’s largest mortgage servicers and their regulators — the Office of the Comptroller of the Currency and the Federal Reserve System — called for an independent review of prior foreclosures by approved consultants hired by the servicers.
However, the review requirement was abandoned last year for all but one servicer and replaced with a requirement to make $3.9 billion in cash payments to 4.4 million borrowers.
The revised terms also required $6 billion in foreclosure prevention actions.
The Government Accountability Office conducted a review of the revised settlement and found that the negotiated amounts were fair and the regulators generally achieved their goals for timeliness and amount of the cash payments.
In addition, the GAO found that between $300 and $125,000 had been distributed to most eligible borrowers by December 2013, according to a report.
But the regulators fell short in defining specific objectives for the $6 billion in foreclosure prevention. Instead, they identified broad principles and said the actions need to be meaningful and that borrowers need to be kept in their homes.
The GAO said available data like servicers’ recent volume of foreclosure prevention actions weren’t analyzed in designing the actions.
They also didn’t analyze the various approaches by which servicers’ actions could be credited toward the amount.
Among servicers that the GAO spoke with, most expected they could meet their obligation using their existing level of foreclosure prevention activity.
While the OCC and Fed are verifying servicers’ foreclosure prevention policies, they aren’t testing policy implementation.
“OCC and the Federal Reserve should define testing activities to oversee foreclosure prevention principles and include information on processes in public documents,” the GAO concluded. “In their comment letters, the regulators agreed to consider the recommendations.”
