In June the Government Accountability
Office (GAO) issued a report critical of outreach undertaken by mortgage
servicers to inform and enroll borrowers in the Independent Foreclosure Review
(IFR) process. The report also faulted
the role of regulators in monitoring that outreach.
At the time the report was released it
received very little attention, in fact we could find no mention of it at all
in the mainstream press. Now, however, eleven
advocacy groups led by the Center for Responsible Lending (CRL) have asked
federal regulators to take steps to
correct the problems found by GAO.
IFR originated in April 2011 when the
Office of Comptroller of the Currency (OCC), the Office of Thrift Supervision
(OTS) and the Federal Reserve (Fed) directed 14 major servicers to hire third
party consultants to review 2009 and 2010 foreclosure action to determine if
financial injury had occurred and to determine appropriate remediation. Appropriate outreach to borrowers was part of
the requirements for the IFR.
According to the review undertaken by
GAO, servicers sent out 4.3 million outreach letters, 95 percent of which were
delivered to borrowers. The response
rate as of June 2012 was 5.2 percent.
However, GAO found that servicers had done an insufficient job of
outreach to borrowers, faulting them for the quality of their outreach
materials when measured against best practices and federal guidelines. Specifically, GAO posted the following
criticisms of the materials. Some
regulator responses were also noted.
and servicers failed to conduct readability tests or use focus groups in
developing communication materials. The Fed
said this was a trade off to expedite the remediation process.
did not solicit input from consumer groups in reviewing the initial materials.
tests found the initial outreach letter, request-for-review form, and program
website to be written above the average reading level of the U.S. population. Regulators said they had discussed using
plain language but use of complex mortgage and legal terms was necessary for
accuracy and precision.
language on the program website was particularly important as borrowers were encouraged
to submit requests for review on line.
materials included information about the purpose, scope and process for review
and noted that borrowers might be eligible for compensation, but did not
provide specific information about remediation.
Best practices suggest that this is important to encourage responses.
GAO found that outreach planning and
evaluation did take into account the extent to which the plan promoted national
awareness and was appropriate to reach the demographics of the target audience.
It was largely uniform with some efforts
targeted to Spanish-speaking and African-American borrowers. Regulators did not call for servicers to
analyze eligible borrowers by characteristics such as limited English proficiency.
Community groups are effective
messengers, GAO said, but servicers utilized them to varying degrees. Community groups told GAO that borrowers may
have ignored communications because they did not understand who was providing
the information and believed the communications were fraudulent.
Regulators did not analyze characteristics
of respondents and nonrespondents in preparing a second wave of outreach and
thus may not know if certain groups of borrowers were underrepresented in the
review. GAO said it is unclear if
additional outreach to target these groups or changes to the file review process
itself are needed to help ensure that all borrowers have a fair opportunity for
its press release CRL said the GAO report reveals serious flaws "that threaten to undermine the program's success." It calls IFR the most significant effort the
federal government has undertaken to help people "who should never have faced
foreclosure at all, or who were harmed by errors their servicers made in the
Goldberg, Special Project Director, National Fair Housing Alliance (NFHA), one
of the consumer groups signing the press release said that regulators did not
tell the servicers to gather the information needed to see what type of
borrowers were requesting help. "Without this basic information," Goldberg said,
"we'll never know whether borrowers in communities hardest hit by the
foreclosure crisis are being helped by this program."
That the program materials were found by GAO to be hard to understand and failed
to enumerate the compensation available may account for the program's very low
response rate, the release said, which may account for the program's very low
response rate. Very limited outreach has been done in languages other than
English, which may prevent borrowers with limited English proficiency from
getting a fair shot at help through the program.
"Communities of color have suffered higher
rates of foreclosure and disproportionate loss of wealth because they were
targeted for risky, unsustainable loans," Goldberg said. "It is critically
important that these borrowers have fair access to the IFR program."
CRL said that, in addition to the
problems documented by GAO, the IFR program has a number of other serious
flaws. To correct these, the regulators must do the following:
Eliminate unfair distinctions among
groups of borrowers who all faced foreclosure because of mistakes made by their
mortgage servicers including borrowers wrongfully denied loan modifications or
those who were foreclosed while paying under a forbearance plan;
Increase compensation provided for
other types of servicer errors;
Provide an appeals process for
Make information available to
borrowers, their advocates, and the public about the method used to determine
whether borrowers suffered harm;
Report regularly to the public on
the progress of the file reviews and the errors that have been found;
Extend the application deadline
through the end of the year.
In addition to NFHA and CRL the
press release was signed by California Reinvestment Coalition, Consumer Action,
Empowering and Strengthening Ohio's People, National Association of Consumer
Advocates, National Consumer Law Center, National Council of La Raza, National
People's Action, Neighborhood Assistance Corporation of America, Neighborhood
Economic Development Advocacy Project.