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OCC Servicing Settlement--Will Homeowners Get Screwed (Again)?

posted by Adam Levitin

The WSJ reports on the latest development in the implementation of the OCC's mortgage servicing fraud consent orders.  It seems that the banks will have OCC approved "independent" foreclosure review consultants (chosen and paid by the banks) review foreclosure files from 2009-2010 and pay homeowners damages if there are any problems found.  

This proposal really worries me.  It's hard to imagine that the banks will part with any money unless they receive releases--broad releases--from the homeowners.  The homeowners, however, will not typically have legal representation and will lack the ability adequately value their claims against the banks. $100 for a complete release?  Why not?  

There's a real danger that the "independent" consultants will come in with low-ball damage figures when they do in fact find problems (which itself is likely to be rare). Indeed, I would suggest that this sort of practice would be precisely the sort of thing that might fit under the new Dodd-Frank UDAAP rubric, as the banks would be using their superior knowledge to take advantage of consumers who lack the legal expertise to evaluate their options. (And note that this is not the same as a consumer approaching a bank for a loan--this is the bank approaching the consumer with an offer). The solution here is to have someone negotiating on behalf of the homeowners. The homeowners should get to choose counsel, and the banks should be paying for that representation on a reasonable hourly fee schedule. 

So, from what I can get from the WSJ story, I think we have three intertwined problems.  First, there's the problem of sophisticated banks dealing with homeowners who are not represented by legal counsel. Procedurally that's an unlevel field.  Second, there's the substance of what that means. It means that the banks might snooker consumers into signing releases of any sort for too little money. It also means that the releases might be too broad. At most the releases should cover the robosigning (writ narrowly), force-placed insurance, and any issues that the banks' foreclosure reviewers actually look for. If the foreclosure reviewers aren't looking for chain of title problems (and they certainly won't), then that shouldn't be covered by the release. Similarly, origination-related claims shouldn't be included. 

The third problem is the foreclosure review consultants themselves.  Who are they? I'm not aware of any firms in the country with real expertise in determining whether a foreclosure has been done properly or not. It would be a stunning conflict of interest to ask any law firm that has done a foreclosure to undertake such a review--their malpractice policies are on the line. And I can't fathom what McKinsey or the like would know about a legal matter like this. So, I'm guessing that the banks will hire some fancy big name white shoe law firms do to this work. But honestly, what do fancy law firms know about foreclosures? They don't do that kind of work. But I'm just speculating here because we don't really know anything. I think it's important as a transparency matter that we know who the foreclosure review consultants are. I hope the OCC understands that this sort of transparency is critical if their consent orders are to be taken as a serious engagement with the problem of foreclosure fraud.  I don't have a lot of faith that they will.  

Comments

In addition to knowing little about foreclosures, it's hard to imagine big name white shoe law firms would not have a conflict with the banks. That's who hires Big Law to do their legal work. Given this reality, there should be a presumption of conflict until proven otherwise. The wiser course of action would be not to consider Big Law as foreclosure review consultants.

Barry Fagan v Wells Fargo Bank

Re: Link to Lis Pendens with Evidence of Deed of Trust alteration and fraud by Wells Fargo Bank.

http://www.scribd.com/doc/71080695/Barry-Fagan-v-Wells-Fargo-Bank-LIS-PENDENS-With-Evidence-of-Deed-of-Trust-Alteration-and-Fraud

And evidence of multiple authors of Wells Fargo Bank employee Rhonda Bernard Thomas

http://www.scribd.com/doc/71082634/Barry-Fagan-v-Wells-Fargo-Declaration-of-Dr-Laurie-Hoeltzel-Re-Multiple-Authors-of-Rhonda-Bernard-Thomas-Signatures

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