From the U.S. Government Accountability Office, www.gao.gov

Transcript for: Oversight of the Foreclosure Review Process

Description: Audio interview by GAO staff with Lawrance Evans, Director,
Financial Markets and Community Investment

Related GAO Work: GAO-13-277: Foreclosure Review: Lessons Learned Could
Enhance Continuing Reviews and Activities under Amended Consent Orders

Released: April 2013

[ Background Music ]

[ Narrator: ] Welcome to GAO's Watchdog Report, your source for news and
information from the U.S. Government Accountability Office. It's April
2013. For the past 2 years, the home loan files of 14 major mortgage
servicers have been under review by third-party consultants who are on
the lookout for errors in their servicing and foreclosure practices. A
team lead by Lawrance Evans, a director in GAO's Financial Markets and
Community Investment team, recently reviewed federal oversight of this
process, including its transparency and the challenges it faces. GAO's
Jeremy Cluchey sat down with Lawrance to learn more.

[ Jeremy Cluchey: ] How did the foreclosure review process come about
and what are its goals?

[ Lawrance Evans: ] Right. So, it goes back to 2010 when a number of
servicers halted their foreclosure processes because of concerns about
robo-signing--that documents that were associated with the foreclosure
were not properly notarized. And so that prompted the regulators to
conduct on-site reviews of the foreclosure processes of 14 servicers and
they found significant deficiencies. So that then led to consent orders
against the 14 servicers. And these consent orders included a
requirement that the servicers retain an independent consultant to
review their foreclosure processes. So the goals of the foreclosure
review were to one: identify and remediate as many harmed borrowers as
possible; and also, because they were across 14 servicers, to ensure
they were treated consistently. And also, one of the goals was to
restore confidence in the mortgage market.

[ Jeremy Cluchey: ] Your team looked in particular at the challenges to
the achievement of some of these goals. What did you find there?

[ Lawrance Evans: ] So the scope and the complexity of the process made
it very difficult to handle. So there were 4.5 million borrowers that
were potentially in scope and the files were pretty sizable. In some
cases as many as 50 documents, which translated to almost 2,000 pages,
so it was very complex. And there were a number of steps that the
regulators took to try to foster consistency. But then there were some
additional actions that created more challenges. For example, the
guidance was overly broad and in some places it was unclear and it left
a lot of important decisions to judgment and interpretation.

[ Jeremy Cluchey: ] You also looked at the transparency of the process.
Can you talk a little about what you found there?

[ Lawrance Evans: ] Right. So given the goal to restore public
confidence to the mortgage market, the bar for transparency was fairly
high. And many stakeholders were concerned about the lack of public
reporting. In fact, many borrowers were left in the dark. Some hadn't
received information about their file review for as much as a year.
Also, there was a lack of detailed information that was released about
how the reviews were actually being performed. And so this undermined
the credibility of the process and public confidence in it.

[ Jeremy Cluchey: ] Some of the lessons learned identified in the report
were also captured in the recommendations that GAO is making to the
Office of the Comptroller of the Currency, as well as the Federal
Reserve. Can you explain those?

[ Lawrance Evans: ] Yes. So it's important to note that the agreement,
the original consent orders against 14 servicers, was amended for 11 of
them. There was an agreement that was reached that replaced the
foreclosure review with a boarder framework which looked to remediate
all eligible borrowers instead of doing a case-by-case review and
determining remediation based on harm. And so the lessons learned, we
think, really speak to effective management practices and they are in
the area of advanced planning, consulting with knowledgeable parties,
and monitoring to assess the tracking of goals. And so the
recommendations really capture sort of that spirit.
[ Jeremy Cluchey: ] Finally for taxpayers interested in how the
government has been responding to the effects of the financial crisis on
millions of homeowners, what's the bottom line here?

[ Lawrance Evans: ] Well, you know the foreclosure market was ground
zero in the financial crisis and so we know its recovery is essential to
a full recovery. And so as a result, you have a number of government
initiatives that are targeted at restoring public confidence, including
this enforcement action which is really trying to remediate borrowers
for harm that was done and to address unsafe and unsound practices in
mortgage servicing. So the bottom line is that this is an extremely
complicated process and we see opportunities for improvement and upfront
planning and monitoring and communication. And we believe that if the
regulators take our recommendations, that they'll further their goals of
restoring public confidence in the mortgage market.

[Background Music]

[ Narrator: ] To learn more, visit GAO.gov and be sure to tune in to the
next episode of GAO's Watchdog Report for more from the congressional
Watchdog, the U.S. Government Accountability Office.