By Pam Martens: April 16, 2013
The $3.6 billion in checks from a government approved settlement fund for victims of foreclosure abuse by the country’s biggest banks and mortgage servicers began arriving in mailboxes this week, with additional mailings to extend into July. But what should also be tucked into the envelope is a truth in advertising disclaimer stating that the government is now disavowing the use of the phrase “Independent Foreclosure Review” as a hyperbolic and untruthful characterization. The process was anything but “independent” and out of more than 4 million foreclosure files potentially stuffed with evidence of illegal activity on the part of banks, only 100,000 files were actually reviewed, not even enough to constitute a reliable statistical sampling.
In a Senate hearing last Thursday, Senator Elizabeth Warren revealed for the first time that it was the actual banks that engaged in the illegal foreclosure activities, not the so-called Independent Foreclosure Review consultants, that were allowed by the government to tally up and classify their own wrongdoing under various degrees of harm; deciding themselves how many people would receive anywhere from $300 to $125,000 in restitution.
The Government Accountability Office, which will send a witness to testify before a second Senate hearing on the matter this Wednesday, has issued two reports casting the process as botched and deeply flawed. But neither of those reports factually captures the depths of the settlement scam.
In the engagement letter dated September 6, 2011 between Bank of America and Promontory Financial Group, the “independent” consultant it hired to conduct its foreclosure investigation, Promontory attested to regulators that: “Promontory does not have an ongoing relationship with BAC [Bank of America], nor does it act in any advocacy capacity on its behalf.”
The veracity of that statement is severely undercut by public records. While it was denying any ongoing relationship to regulators, Promontory actually had a large scale re-branding and turnaround contract with Bank of America that had been in place since May of 2011, four months prior to its engagement letter to conduct a government investigation into the bank’s foreclosure abuses.
According to its own web site, Promontory had been hired by Bank of America for a two-phase project stretching from May 2011 through April 2012 to help the company “better serve the bank’s shareholders” and to shave $8 billion in expenses through cost reductions. Translation: fire 30,000 employees. The Promontory business unit conducting the program is called Promontory Growth and Innovation. It labeled the assignment, Project New BAC. (BAC is the stock symbol for Bank of America.) Could a consultant effectively manage the conflict of rebranding a company’s image and helping it with a massive cost reduction program while simultaneously handing it the bad news that its internal investigation showed that it owed billions in restitution to foreclosure victims it had illegally thrown out of their homes. Clearly, this is one too many hats for a consultant to attempt to wear.
The ethics of the foreclosure investigation was further undermined by the banks being allowed to directly hire, negotiate their contracts with, and directly pay the consultants conducting the foreclosure investigations. The consultants also worked directly on the premises of the banks in many cases. In addition to Promontory’s deep conflicts, Federal regulators allowed it to hire an outside law firm to assist in its foreclosure investigation that was equally conflicted. Promontory selected Fried, Frank, Harris, Shriver & Jacobson LLP which had long, deep and broad involvement with Bank of America. According to public records, Bank of America has typically been one of Fried Frank’s largest clients. In its attestation to regulators, Promontory stated that Fried Frank “has represented BAC from time to time, although none of this work is of a nature that impacts Fried Frank’s ability to act independently.”
Just three months after the engagement letter was signed, Fried Frank conducted the following work on behalf of the bank: in December 2011, it advised the bank on the $94 million initial public offering (IPO) of Sitoy Group Holdings and listing on the Hong Kong Stock Exchange; also in December of 2011, it advised the bank on its $82.3 million global IPO of Hosa International Limited, among other engagements.
The engagement letter between Bank of America and Promontory includes Attachment C, “Promontory’s Conflicts of Interest Policy,” a 3-page document. When the Federal regulators that are overseeing the foreclosure reviews released the document to the public, the 3 pages were completely blacked out. The two regulators are the Office of the Comptroller of the Currency (OCC) and the Federal Reserve.
In the OCC’s Interim Status Report dated November 2011, it said: “The OCC has stressed the importance of independence as a key requirement for the consultants and outside attorneys engaged for the review process. The OCC closely evaluated and approved consultants to prevent conflicts of interest with regard to issues the independent consultants are charged to review, and to ensure that reviews are conducted consistently and fairly across all servicers.”
The fiction of that claim and the reality of what actually happened is starkly exemplified by documents unearthed by Paul Kiel at ProPublica. In an investigative report published on October 11, 2012, Kiel linked to job ads showing that Bank of America was directly hiring its own team of reviewers. Kiel also writes that “A June 2012 internal memo from Bank of America executives to its employees working on the review says the bank will perform all analyses except the final determination of how much, if any, compensation the homeowner deserved.”
This final stage, according to Senate testimony last Thursday, was also grabbed by the banks. Senator Elizabeth Warren was able to ferret out of the consultants that they had no hand in compiling the final determination as to how much the abused homeowners would get. In a call to the OCC, a spokesman confirmed to me that the work had been done by the banks, not the consultants, and it had “spot checked” the effort.
Promontory Financial Group is run by a former head of the OCC, Eugene Ludwig; an OCC general counsel, Julie Williams, who had a hand in structuring this settlement, joined Promontory in January. Mary Schapiro, former Chair of the Securities and Exchange Commission, joined the firm this month. The firm is chock full of dozens of former regulators. Consultants working on the foreclosure reviews received over $2 billion in compensation from the banks with Promontory receiving a large portion of that amount. A representative from the firm told the Senate last Thursday that it will deliver the amount of its total compensation early this week to the Senate investigators.
Today, online forums are exploding with comments from outraged foreclosure victims who have just received $300 or $500 after losing all the equity in their homes in bogus foreclosures. Washington’s revolving door ensures that the trillions of dollars ripped off by Wall Street will never be returned to the pockets of the victims. What it’s all about now is how many former regulators can feed at the Wall Street trough.