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Consumer Financial Services Alert
GAO Releases Report on Independent Foreclosure Review

The GAO released a report on Independent Foreclosure Review, an evaluation of the foreclosure practice of several mortgage servicers required by the consent orders entered into with the OCC and FRB in 2011. The consent orders required certain mortgage servicers to engage third-party consultants to review loan files and identify borrowers who suffered financial injury through errors, misrepresentations, or other deficiencies in foreclosure processes in 2009 and 2010. Overall, the GAO found that complexities of the foreclosure review process and limitations in regulator’s guidance and monitoring may have impeded the ability of the OCC and FRB to achieve the goals of the Independent Foreclosure Review. The GAO also found that lack of clarity in regulators’ sampling guidance may have limited the usefulness of the information obtained from the review and faulted broad guidance and limited monitoring as a source of inconsistencies in the treatment of similarly-situated borrowers. For example, the repeated extension of the deadline for borrowers to submit requests-for-review created challenges for the reviewers. The wide variety of complex issues including differing state foreclosure laws, federal laws and regulations, and federal and servicer proprietary loan modification programs also caused challenges for the reviewers. In some instances, third-party consultants reported 16,000 test questions in reviewing the files.

The GAO recommended three executive actions: (1) improvement of oversight of sampling methodologies and mechanisms to centrally monitor consistency; (2) identification and application of lessons learned from the foreclosure review process as the regulators develop and implement the activities under the amended consent orders; and (3) development and implementation of a communication strategy to regularly inform borrowers and the public about the processes, status, and results of the activities under the amended consent orders and continuing foreclosure reviews.

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