At a Senate subcommittee hearing held this week to examine the progress of the foreclosure review process ordered earlier this year by the Office of the Comptroller of the Currency (OCC) and the Federal Reserve, lawmakers questioned the impartiality of the ""independent reviews.""
[IMAGE]The consent orders designed in April call for the independent review of about 4.5 million foreclosure actions by 10 servicers to determine instances in which borrowers were financially harmed and compensate those borrowers.
Julie Williams, first senior deputy comptroller and chief counsel for the OCC, attempted to assure the senators posing questions that the reviews would be unbiased.
Williams explained that the banks proposed the independent consultants, and the OCC and Federal Reserve reviewed the proposals and rejected those in which they found a conflict of interest.
When asked if many of the approved consultants have worked with the servicers previously, Williams admitted that some had. ""There are a number of situations where they have done previous work for the servicers in different areas, generally, but they have had previous business engagements with those servicers.""
""This raises questions about the true independence of these organizations,"" Sen. Jack Reed (D-Rhode Island) stated.
[COLUMN_BREAK]In her testimony, Williams stated that the OCC is requiring the independent reviewers to ""ensure its work under the foreclosure review would not be subject to direction, control, supervision, oversight, or influence by the servicer, its contractors, or agents.""
In its written testimony, the Federal Reserve corroborated Williams's claim. ""In determining the acceptability of consultants, the Federal Reserve closely scrutinized their independence,"" stated Scott G. Alvarez, general counsel for the Federal Reserve.
""Everyone involved in this process â€" the residential mortgage loan servicers, consultants and the regulators â€" has the desire to get it right,"" stated Paul Leonard, vice president of the Housing Policy Council/The Financial Services Roundtable.
Another witness at the hearing expressed an entirely different set of concerns. ""My concern is not with the selection of independent consultants, but with the time and costs involved in such a laborious review process relative to the expected economic assessment of harm,"" stated Anthony B. Sanders, professor of real estate finance at George Mason University.
Sanders suggests out of the 4.5 million loans, there may be 100 instances of ""egregious errors.""
""Once the review is completed and the remediation for financial harm is concluded, I urge everyone to put the foreclosure issue aside and allow the market to heal itself,"" Sanders stated.
Meanwhile, servicers will have sent more than 4 million letters by the end of this year and will begin an advertising campaign beginning early 2012 to inform borrowers that they can request an independent review of their foreclosure action.
In addition to a sample set of foreclosure actions, independent reviewers will examine all foreclosure actions on military members covered by the Servicemembers Civil Relief Act, borrowers who previously filed a complaint regarding their foreclosure, and ""high risk"" cases involving bankruptcy.