A federal government watchdog faulted U.S. bank regulators for the poor performance of third-party consultants reviewing more than 4 million home foreclosures by mortgage servicers in a botched process that was halted earlier this year.
A report released on Thursday by the U.S. Government Accountability Office, an independent arm of Congress, said the Office of the Comptroller of the Currency and the Federal Reserve issued overly broad instructions to consultants involved in the project and failed to monitor it for consistency.
The reviews, mandated by regulators in 2011 after widespread foreclosure shortcuts came to light, aimed to determine if banks needed to compensate borrowers who lost their homes.
But the reviews proved time-consuming and expensive, costing banks about $2 billion in fees to consultants such as Deloitte & Touche and Promontory Financial Group. The cost amounted to nearly $20,000 per loan file, lawmakers have said.
In the end, regulators scrapped the reviews. Instead, 13 banks agreed to pay $9.3 billion to end the reviews and compensate foreclosed borrowers.
"Ultimately, the complexity of the foreclosure reviews and limitations in regulators' guidance and monitoring of the foreclosure review challenged their ability to achieve the stated goals," the report stated.
Several lawmakers have slammed regulators over their handling of the reviews and raised questions about the end of the reviews and the settlement.
Representative Maxine Waters, the ranking Democrat on the House Financial Services Committee, requested the GAO study. In a statement, she called the independent reviews "severely deficient" and said she planned to introduce legislation to address the "problem of relying on outside contractors for enforcement actions."
Senator Elizabeth Warren and Representative Elijah Cummings, also Democrats, are seeking documents that could shed more light on the problems the reviews uncovered and how the $2 billion was spent. The two requested a meeting with regulatory officials as they seek further information about the reviews.
The GAO said the third-party consultants hired by the mortgage servicers were given "ambiguous" guidance from regulators that was later revised, resulting in delays.
Consultants had said the volume of loan files and the complexity of the issues, including different state and federal foreclosure laws, hampered the document reviews.
U.S. officials also lacked clear, objective measures to assess the extent of borrower harm and communicated poorly about the process both with borrowers who requested reviews and with the public, the report said.
Some borrowers who requested reviews at the beginning of the process waited nearly a year to receive an update, according to the GAO.
"Regulators risked not achieving the intended goals of identifying as many harmed borrowers as possible," the report concluded. Without clear guidance, "the usefulness of the reports for identifying inconsistencies was limited."
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