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Regulators and servicers are missing opportunities to enhance communication with consumers, the ""United States Government Accountability Office"":http://www.gao.gov/assets/600/592059.pdf (GAO) said in a report.
[IMAGE]The report, released June 29, examined the efforts of servicers to communicate with customers who may be eligible for an independent foreclosure review.
In April 2011, the ""Office of the Comptroller of the Currency (OCC)"":http://occ.gov/, the ""Federal Reserve"":http://www.federalreserve.gov/, and the ""Office of Thrift Supervision"":http://www.ots.treas.gov/ (OTS) issued consent orders to 14 mortgage servicers to have third-party consultants review 2009 and 2010 foreclosure actions for instances of financial injury caused by misconduct or fraudulent practices. Regulators also required servicers to establish an outreach process for borrowers to request a review of their cases. GAO evaluated these reviews and found that although servicers and regulators have improved their outreach efforts, there are still many more opportunities to enhance communication with borrowers.
One major problem identified with current communication materials is that they are too difficult for the general public to understand. The report found that while servicers and regulators worked with third-party consultants to develop outreach letters, they did not test the materials with the target audience. The Securities and Exchange Commission (SEC) suggested in the past that materials should be written at a sixth- to eighth-grade level, but one consumer group conducted a readability test and found that they are currently written at a second-year college reading level.
GAO suggested that regulators and servicers should use readability tests and focus groups to determine the complexity of their communications, activities that are both generally considered best practices for consumer outreach. Regulatory staff argued that the complex language and legal terminology was intended to ensure an accurate and quick remediation process; however, the report points out that the Plain Writing Act of 2010 requires that agencies must provide ""clear, concise, well-organized"" writing when issuing new or revised materials.
Another issue is that key markets are not being targeted specifically. For example, regulators did not call for servicers to analyze eligible borrowers by characteristics such as limited English proficiency. Furthermore, attempts to translate materials often do not take into account the nuances of different languages, instead providing a literal translation that can be hard to understand. While regulators identified community groups as effective messengers and encouraged servicers to reach out to them, few servicers have leveraged those groups to their full extent.
In addition, the report speculates that borrowers may have thought the materials they received were fraudulent because they did understand where the information was coming from. While regulators monitored the status of outreach activities and analyzed the effect of advertising on response rates, they did not look at the characteristics of respondents and non-respondents when introducing a second wave of outreach communications. Without that analysis, regulators can't know if certain groups of borrowers are being underrepresented in the foreclosure review. It's unclear if additional outreach to specific groups or changes in the review process are needed to make sure that all borrowers have an opportunity for review.
In light of these issues, GAO recommends that OCC and the Fed should enhance the language on the foreclosure review website, include specific remediation information in outreach materials, and require servicers to analyze trends in borrowers who have not responded.
In comment letters, regulators agreed to take actions to implement the recommendations. OCC and the Fed agree with many of GAO's criteria but argue that they have already taken reasonable steps to ensure maximum outreach.
