[ by Howard Haykin ]

U.S. lawmakers, led by Democrats Sen. Elizabeth Warren and Rep. Elijah Cummings, have asked bank regulators to turn over documents related to the $8.5 billion settlement that ended a government-mandated review of crisis-era foreclosures.  The politicians say their actions are inspired by the need for transparency to boost confidence in the settlement.

Warren and Cummings say the Federal Reserve and Office of the Comptroller of the Currency (OCC) must address concerns that financial institutions have not been held accountable for misdeeds during the 2007-2009 credit crisis.  In a separate letter also released Thursday, Rep. Maxine Waters said questions remain about why the independent reviews were stopped and how borrowers will be evaluated for potential compensation. 

The case-by-case reviews of foreclosures were conducted in response to the "robo-signing" scandal of 2010 - in which banks reportedly used defective or fraudulent documents to pursue home foreclosures.  But when the review process became exceedingly expensive without resulting in relief to consumers, regulators abandoned the review and opted for a different approach.  It was decided that settlements with mortgage servicers, first announced earlier this month, would replace the reviews and provide a broader framework allowing borrowers to receive compensation regardless of whether they faced actual harm.

But that alternative did not satisfy politicians who said that "public confidence in the settlement - the confidence necessary to speed recovery of the housing markets - will exist only if the OCC and the Federal Reserve provide additional transparency into the process used and information gathered during the Independent Foreclosure Review process."

Cummings and Warren became a natural pair to press the new issue.  Cummings was critical of the settlement from the get-go, while Warren was probably looking for an issue she could use to pester financial regulators.  It also didn't help that the media reported that independent  contractor fees for reviewing borrower files ended up costing over a billion dollars.

The pair called on regulators to turn over documents on the independent contractors who reviewed borrower files, the total number of reviews undertaken by each contractor and the number of files in which unsafe practices were found.
Waters, who is the top Democrat on the House Financial Services Committee, criticized the sudden end of the reviews and asked the regulators to establish an independent monitor to oversee the settlement process.

Both letters were addressed to Fed Chairman Ben Bernanke and OCC  Head Thomas Curry.  The initial settlement called for Bank of America, Citigroup, JPMorgan, Wells Fargo, MetLife Bank, and 5 others to pay $3.3 billion directly to eligible borrowers, and $5.2 billion would go toward loan modifications and forgiveness.  HSBC, Goldman Sachs and Morgan Stanley also reached a separate but similar settlement, bringing the total payout to $9.3 billion.

For further details, go to:   [ Reuters, 1/31/13 ]