By Pam Martens: January 3, 2013
In April 2011, the Office of the Comptroller of the Currency (OCC), the top regulator of national banks in the U.S., signed consent orders with 14 of the largest banks and mortgage servicers requiring that they hire “independent” consultants to review 2009 and 2010 foreclosure actions to determine financial injury to borrowers and provide financial compensation for that injury.
Borrowers that suffered injuries were to receive financial awards up to a maximum of $125,000 under these consent orders. Now, out of the blue, major business media are reporting that this legally adopted plan has been scrapped and a quick fix will soon be announced to fine the whole lot of banks a cumulative $10 billion and call it quits on the investigation.
The first detail you need to know by way of background is that during the relevant foreclosure period of 2009 and 2010, a former bank lobbyist, John Dugan, sat at the helm of the OCC. Dugan has now returned to his former law firm, Covington & Burling LLP, to head its Financial Institutions Group, providing legal counsel to the same banks he previously supervised.
The second detail you need to know is that Dugan’s former law partners at Covington & Burling LLP, Eric Holder and Lanny Breuer, hold the top spots at the U.S. Department of Justice; Holder as U.S. Attorney General and Breuer as head of the Criminal Division.
The speciousness of the original OCC plan has been challenged by the General Accountability Office, ProPublica, and a host of consumer advocates. The GAO found that the letters sent to borrowers who may have been wronged in the foreclosure process were written over their heads and failed to mention any specific dollar amounts they might be entitled to – thus removing the incentive to wade through the legalese. ProPublica found that in at least one case, that of Bank of America, “supposedly independent, third-party reviewers would sit at a computer, analyzing each homeowner’s case by going through hundreds of questions, such as whether the bank had properly reviewed a homeowner for a modification or had charged bogus fees. But the reviewers weren’t starting from a blank slate. Bank of America employees had already supplied the answers, which the reviewers would have to override if they did not agree.”
But the smoking gun in the fiasco is the Engagement Letter Citigroup signed with the mega accounting firm, PricewaterhouseCoopers, LLP (PWC), when it hired it as its “independent” consultant under the terms of the OCC consent order.
Disclosed in the agreement were the following:
PWC, the so-called “independent” consultant, was already on Citigroup’s payroll working on another engagement matter;
Citigroup would have the sole responsibility for identifying the foreclosures for which a mailing would be issued;
Citigroup would have the sole responsibility for hiring a vendor to conduct the mailing to potentially defrauded borrowers – the mailing was not sent out by the OCC;
Citigroup, not PWC, would initially receive the complaint forms from potentially defrauded borrowers;
It would be the “responsibility of Citibank to prepare the case file and conduct the initial review of the complaint. Citibank will then forward the in-scope complaints, a report of Citibank’s findings and its proposed resolution to PwC for independent review.”
And then there was this mind-numbing sentence: “Any direct communication with the borrower will be conducted by Citibank or its Complaint Intake Vendor.” The Complaint Intake Vendor was the entity hired and overseen by Citigroup to conduct the mailing based on the information provided to it by Citigroup. PWC, the party responsible for identifying injured or defrauded borrowers, would not be allowed to speak directly to any of those injured individuals. All communications would be filtered through Citigroup or a vendor hired by Citigroup.
Thomas Curry, the new head of the OCC who was sworn in on April 9, 2012, has a kindly face and sincere manner in his testimony before Congress. But the test of his worth as a banking regulator will be in the small print of the settlement he fashions in this matter. I’ll be watching closely.