Congresswoman Seeks Inquiry on Costs of Foreclosure Reviews

New York Congresswoman Seeks Inquiry on Costs of Foreclosure Reviews

The high cost of reviewing foreclosures at big banks has ignited an inquiry by one member of Congress.

Rep. Carolyn Maloney, shown in 2010, has asked regulators overseeing foreclosure reviews to provide details about the independent contractors who examined borrowers’ cases.

Carolyn Maloney, a New York Democrat who is a member of the House Financial Services Committee, has asked federal regulators overseeing foreclosure reviews to provide details about the independent contractors who examined borrowers’ cases. The contractors reportedly received more than $1 billion in fees for their work doing foreclosure reviews, which ultimately led to a $3.3 billion cash settlement for borrowers.

Regulators required the foreclosure reviews in 2011 after evidence had emerged of rampant improprieties by banks servicing troubled loans. The audits were supposed to cover some four million loans that entered foreclosure during 2009 and 2010.

In a letter sent late Thursday to Thomas J. Curry, the comptroller of the currency, and Ben S. Bernanke, the chairman of the Federal Reserve, Ms. Maloney asked for copies of the contracts awarded to the consulting firms by the 12 banks involved in the review program. She also asked for information about how the consultants’ fee structures were determined and what role officials with the Fed and comptroller’s office played in those determinations.

“Although I understand that hiring independent consultants was a requirement under the consent order,” Ms. Maloney wrote, “I can’t help but question the effectiveness of a process that led to $1.5 billion in fees to a small number of consultants and only slightly more than twice that in relief to millions of injured borrowers.”

Eight consulting firms were hired by the banks to conduct the foreclosure reviews required under the regulatory consent order. They included Ernst & Young, Deloitte & Touche, PricewaterhouseCoopers and Promontory Financial Group. The review was shut down this month after only a small portion of the loans had been analyzed.

It is unclear how the $3.3 billion will be divided among borrowers. When it stopped the review program, the comptroller’s office said it was doing so to benefit borrowers who would receive compensation more quickly than if the audit had continued.

“Millions of Americans fell victim to abusive mortgage practices. This review process was supposed to identify the injured borrowers, but it has taken too long and has been enormously expensive,” Ms. Maloney said in an interview last week. “The announcement of the settlement was clearly an indication that something went wrong with the process. Why were these consultants paid so much money and what did they do”

Troubled borrowers and lawyers who represent them have raised questions about the effectiveness of the foreclosure review and the aggressiveness of the consultants’ approach to their auditing duties. According to a person briefed on House Financial Services committee discussions, some staff members are considering asking regulators to claw back some of the consultants’ compensation if the payments appear excessive.

In her letter, Ms. Maloney asked the Fed and comptroller’s office to respond to her request by March 1. “It is important that members of Congress and the public understand as much as possible about how these fees were ultimately generated,” she wrote, “and how your supervision of the institutions impacted the progress of the independent foreclosure review process.”