OCC Follies: Troubled Borrowers Get Shafted Yet Again


Rust Consulting, which handled the borrower mailings during the Independent Foreclosure Review and is now acting as paying agent, continues to screw up in every way imaginable.

Recall that Rust and the servicers were criticized by the GAO for producing borrowers outreach letters that were written well over the head of the average American and were deemed by the GAO to have made inadequate efforts to reach borrowers eligible for a review. After the settlement was reached in embarrassing haste and payments were determined in an arbitrary manner, Rust sent out checks that in many instances bounced. Rust also has made it cumbersome for recipients to provide current addresses (readers have reported receiving changing instructions, and apparently taking their lead from servicers, not processing completed forms). And we’ve wondered whether this incompetence is by design, since Rust’s current owner, private equity powerhouse Apollo, has deep ties to the residential real estate industry, and the firm is being sold to the venture capital arm of Citigroup.

The latest blunder: Rust sent out checks that were too small to some eligible borrowers. The Fed put out a press release with the not-exactly-forthcoming headline “Federal Reserve provides additional information on borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley” (Deontos):

Some borrowers whose mortgages were serviced by Goldman Sachs and Morgan Stanley and who were already sent a check as part of the Independent Foreclosure Review payment agreement will be sent an additional payment around May 17, Rust Consulting announced Wednesday . The payments are being made to correct an error by Rust Consulting, the paying agent, when the original payments were sent last week.

As Rust Consulting has announced, approximately 96,000 borrowers whose loans were serviced by the former subsidiaries of Goldman Sachs (Litton Loan Servicing LP) and Morgan Stanley (Saxon Mortgage Services, Inc.) were sent checks for less than the payment amount that the Federal Reserve directed Rust to pay. The new checks will make up the difference between what was in the original check sent by Rust and what should have been paid. Borrowers should cash both the original checks and the supplemental checks.

The notice indicates that the 96,000 affected borrowers were out of a total of 217,000 who were set to receive payment from the two servicers.

The New York Times wrote up the incident. Unfortunately, it conflated the Rust error with the by-design inadequate payments:

What’s more, some homeowners complain the problem is broader than Rust has acknowledged. Jennifer Lawson, whose husband is on active duty with the Navy, said she was stunned when she received a check on April 19 for $600. Under the terms of the settlement deal, Ms. Lawson expected thousands of dollars in compensation for her foreclosure.

“First we are wrongfully tossed out of our home while serving this country and then we get basically no money,” Ms. Lawson said.

The problems have alarmed Capitol Hill and prompted investigations into the settlement.

“This is the worst settlement I have seen in my life,” said Representative Elijah E. Cummings, a Democrat from Maryland, who has opened an investigation into problems with the settlement, including the use of Rust.

As NC readers who’ve read the comments section on our posts on the IFR know, the overwhelming majority people who received checks deemed them to be too small. They either felt they were eligible for payment under a category with a bigger amount attached or found their payment to have no relationship to the sort of damage they’d suffered. And that is not a mistake.

Remember, there was no way for the banks to make payments based on actual harm. First, they never completed the reviews, remember? Second, even if they had figured out who was harmed, the amount agreed to be paid per bank was too small relative to the number of people who’d suffered. Recall the estimates from the Bank of America whistleblowers, of serious harm averaging 30% to 40% across the files they’d seen.

We’ve had numerous complaints from readers, with details, about why they should have gotten more. The Times has an example too:

But anecdotal evidence suggested that Rust had encountered separate problems, beyond Goldman and Morgan. Housing advocates point to the case of Ms. Lawson.

Under a federal law, banks are required to obtain court orders before foreclosing on active-duty members like Ms. Lawson’s husband. Some military members who were wrongfully evicted are eligible to receive up to $125,000 in compensation through the settlement. Ms. Lawson, whose home near Jacksonville, Fla., was sold at a foreclosure auction in 2010, said the “piddling amount” of $600 was an injustice.

Mr. Cummings, the congressman from Maryland, also notes that Rust does not include an explanation of what homeowners are owed under the settlement.

“Borrowers are not being told how their compensation under the settlement is determined,” he said, “so it’s impossible for them to know whether they are receiving the correct amount, which just adds insult to injury.”

Earth to Representative Cummings, this is well-meaning but obtuse. This failing isn’t Rust’s doing. It is fundamental to how the settlement was arrived at. The party to blame for the mystery and nearly always too small payment amounts is the OCC. And providing explanations along with checks was never part of the deal.

Determining who got what was inherently arbitrary. From our transcript of the April 17 Senate hearings on the IFR:

Sen. Menendez: Well, it’s a question that we’re going to look to work with you. I know that Congresswoman Waters also is joining us in this effort from the House side, and Ireally want to know that. Because if people went through harm, then at the end of the day you have to have the resources to address the harm. And to come to a figure that is defective, from my perspective, because you don’t have the sound science, so to speak, to make that determination, is at best a guess. Miss Goldberg, do you have any comment on that?

Ms. Goldberg, NFHA: I’d say it’s probably a low-ball guess.

Goldberg provided more detail in response later in the hearing:

Ms. Goldberg, NFHA: I’d like to correct one thing, Senator Merkley, which is thatwhen the independent reviews were stopped, the decision was made not to find harm, not to worry about finding harm. So the categories, as I understand it, the categories that borrowers were placed in for purposes of payments was based on how far along they had gotten in the loss mitigation process, or the foreclosure process, with their servicer. So the fact that a particular borrower was in a particular category wasn’t a reflection of whether they were actually harmed, but just kind of what stage of the process they had gotten to.

The Times does provide a good recap of Rust’s numerous lapses:

Once Rust issued the first round of checks in April, it failed to move money into the bank account used for the settlement. The decision prevented some homeowners from cashing their checks.

Rust played down the mistake at first, saying in a private e-mail to banks that the “perceived issues” with a handful of checks lack “merit,” according to a copy of the e-mail reviewed by The New York Times.

But, in effect, the checks bounced. And after the incident, Rust lost significant credibility with the regulators, officials said.

More recently, homeowners have complained about clerical errors at Rust, problems like checks sent to the wrong addresses or issued to deceased borrowers.

Norma Gammon, 54, said she thought things could not get much worse after her home in Evansville, Ind., was sold at foreclosure auction in June. But then she started dealing with Rust. After contacting Rust at least six times to update her address, Ms. Gammon said, she learned that the firm had sent the check to her foreclosed property. To receive another payment, Ms. Gammon has to fill out a new form. But Rust says the form has been sent three times, apparently to the wrong address.

“It’s so frustrating that I just want to cry,” she said.

Yves here. It’s important to stress that the perception of how good or bad service is is not a function of the error rate, but of what the organization does when it recognizes it goofed. People are forgiving if the company remedies the problem quickly and apologizes, and if the mistake is significant, provides some sort of concession as a way of making amends. Rust is just digging its hole deeper by going into denial and failing to fix its procedures. But of course, that assumes they care.

The only upside to this seemingly unending saga of stuff-ups is that it keeps the IFR fiasco in the press, which in turn reminds Congressmen and the public of how dreadful the OCC is. The best outcome would be to eliminate the agency or have its role curtailed severely. To help that along, if you’ve been shortchanged by the IFR process, let your Congressmen and local media know. The more heat, the better.

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