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Bank of America v. The American Homeowner

Yves Smith exposes the underbelly of foreclosure review processes that left Americans without justice.

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Editor's Note:  This is the second post in a new series examining foreclosure settlements and the disturbing patterns of incomptency, malfeasance, and conflicts of interest which have marked their execution. Yves Smith of Naked Capitalism takes a deep dive into the mire of America's mortage industry and investigates the continued suffering of the public at the hands of greedy predators.

In the executive summary to this series, we provided an overview of OCC/Federal Reserve foreclosure reviews which were abruptly settled at the beginning of January, 2013. Critics anticipated that the flawed design, of having supposedly “independent” review firms hired by the banks themselves, meant the reviews were highly unlikely to find much if any damage to homeowners. Leaks during the course of the reviews confirmed these concerns, revealing that the review process at many of the major servicers was chaotic and the reviews were designed and scored so as to make a finding of harm virtually impossible.

As bad as that sounds, the reality is even worse. We obtained extensive review documentation from whistleblowers at Bank of America and debriefed them at length. They provided compelling evidence that the foreclosure reviews were plagued by persistent, widespread efforts by Bank of America to avoid any finding of borrower harm. These efforts were supported and enabled by its “independent” review firm, Promontory Financial Group.

The whistleblowers, all of whom were told their role would be to act as investigators and help borrowers get compensation they deserved, described the review process as seriously flawed. Yet even with those obstacles, they saw abundant evidence of serious damage to borrowers. The whistleblowers reviewed 1600 borrower files in a “live” environment, and saw hundreds more in the attenuated start-up period. Reviewer estimates of harm varied widely primarily because they worked on different tests and thus focused on different documents and issues (see Appendix II to the Executive Summary for a description of tests). Whistleblowers were asked to estimate the percentage of harm and serious harm in the files they reviewed. The lowest estimate of harm was 30% and the highest estimate of serious harm was 80% of files reviewed.

We said we would set forth the support for our major findings, in a series of additional posts. These findings are:

Overwhelming evidence of widespread, systematic abuses . No interviewee estimated harm as occurring in less than 30% of the files they reviewed; one put it at 80%. The interviewees did not simply describe individual borrower suffering in graphic terms (as one put it, “I saw files that would make your stomach turn.”) Multiple interviewees would describe widespread, sometimes pervasive patterns of impermissible conduct.

OCC’s badly flawed review structure compounded by complex, chaotic, and undermanaged implementation by Promontory. By delegating so much of the review process to “independent” firms (many of whom had little or no experience with servicing and foreclosure), the OCC doubled down on the same incompetence and poor standards that Bank of America and the other servicers already had in their servicing departments. Many of the flaws in the review process (compartmentalized reviews, conflicted supervisors, poor senior review for issues or disputes) were mirror images of the problems at the servicer. These problems were made worse by a bizarre management structure and frequent changes to test content and directives.

Concerted efforts to suppress finding of harm. The organizational design, the way the reviewers were managed, the elimination of areas of inquiry, and evidence of records tampering with Bank of America records all point to a multifacted, if not necessarily well orchestrated, program to make sure as much damaging information as possible was not considered or minimized.