Ranking Member calls on federal bank regulators to provide copies of agreements to review widespread mortgage abuses
Washington, DC – Today, Ranking Member Elijah E. Cummings wrote to federal banking regulators to request copies of “engagement letters” between 14 mortgage servicing companies and the private consultants they hired to review their widespread foreclosure abuses. The deadline for federal regulators to approve these engagement letters is today.

The engagement letters were required after the Office of Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Department of Treasury’s Office of the Thrift Supervision issued a report on April 13 finding “critical weaknesses” and widespread risk” with the foreclosure practices of the 14 banks, and ordering more comprehensive reviews.

“After reviewing only a sampling of the banks’ files, the federal regulators found systemic problems, illegal foreclosures, and inflated fees.  I’m worried that this is only the tip of the iceberg,” said Cummings.

The regulators directed the mortgage servicing companies to hire private consultants to conduct broader reviews, to determine any financial injury to borrowers caused by errors, misrepresentations, or other deficiencies, and to remediate those deficiencies. Some outside groups have criticized the federal regulators’ decision to allow banks to hire their own private consultants and set the terms of the reviews, asserting that their results will be biased and favor the banks.

“There has been a lot of concern with the idea of letting the banks hire their own private consultants to police themselves,” said Cummings.  “The regulators say they are approving these agreements and holding banks accountable—we want to make sure.”

Ranking Member Cummings has requested copies of these letters by June 3. A copy of his letter follows.

DAN BURTON, INDIANA
JOHN L. MICA, FLORIDA
TODD RUSSELL PLATTS, PENNSYLVANIA
MICHAEL R. TURNER, OHIO
PATRICK McHENRY, NORTH CAROLINA
JIM JORDAN, OHIO
JASON CHAFFETZ, UTAH
CONNIE MACK, FLORIDA
TIM WALBERG, MICHIGAN
JAMES LANKFORD, OKLAHOMA
JUSTIN AMASH, MICHIGAN
ANN MARIE BUERKLE, NEW YORK
PAUL A. GOSAR, D.D.S., ARIZONA
RAUL R. LABRADOR, IDAHO
PATRICK MEEHAN, PENNSYLVANIA
SCOTT DESJARLAIS, M.D., TENNESSEE
JOE WALSH, ILLINOIS
TREY GOWDY, SOUTH CAROLINA
DENNIS A. ROSS, FLORIDA
FRANK C. GUINTA, NEW HAMPSHIRE
BLAKE FARENTHOLD, TEXAS
MIKE KELLY, PENNSYLVANIA
ONE HUNDRED TWELFTH CONGRESS
Congress of ttje Unite* States
House of ^epresfentattoesi
C O M M I T T E E O N O V E R S I G H T A N D G O V E R N M E N T R E F O RM
2 1 5 7 RAYBURN HOUSE OFFICE BUILDING
WASHINGTON, D C 2 0 5 1 5 - 6 1 43
MAJORITY (202)225-5074
FACSIMILE (202)225-3974
MINORITY (202) 225-5051
http://oversight.house.gov
ELIJAH E. CUMMINGS, MARYLAND
RANKING MINORITY MEMBER
EDOLPHUS TOWNS, NEW YORK
CAROLYN B. MALONEY, NEW YORK
ELEANOR HOLMES NORTON,
DISTRICT OF COLUMBIA
DENNIS J. KUCINICH, OHIO
JOHN F. TIERNEY, MASSACHUSETTS
WM. LACY CLAY, MISSOURI
STEPHEN F. LYNCH, MASSACHUSETTS
JIM COOPER, TENNESSEE
GERALD E. CONNOLLY, VIRGINIA
MIKE QUIGLEY, ILLINOIS
DANNY K. DAVIS, ILLINOIS
BRUCE L. BRALEY, IOWA
PETER WELCH, VERMONT
JOHN A. YARMUTH, KENTUCKY
CHRISTOPHER S. MURPHY, CONNECTICUT
JACKIE SPEIER, CALIFORNIA
LAWRENCE J. BRADY
STAFF DIRECTOR May 31, 2011
Mr. John Walsh
Acting Comptroller of the Currency
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Mr. John E. Bowman
Acting Director
Office of Thrift Supervision
Department of Treasury
Washington, D.C. 20552
The Honorable Sheila Bair
Chairman
Federal Deposit Insurance Corporation
Washington, D.C. 20429
Dear Acting Comptroller Walsh, Chairman Bernanke, Acting Director Bowman, and Chairman
Bair:
I am writing to request copies of "engagement letters" concluded between 14 mortgage
servicing companies and the private consultants you directed them to hire to conduct reviews of
their widespread foreclosure abuses. Pursuant to consent orders issued by your offices on April
13, 2011, today is the date by which your offices were supposed to have approved these
engagement letters.
Findings of "Critical Weaknesses" and "Widespread Risk"
On April 13, 2011, your agencies announced that you had completed an "Interagency
Review" of widespread foreclosure abuses by 14 mortgage servicing companies. You issued a
public summary of your review with the following conclusions:
The reviews found critical weaknesses in servicers' foreclosure governance processes,
foreclosure document preparation processes, and oversight and monitoring of third-party
vendors, including foreclosure attorneys.1
1 Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift
Supervision, Interagency Review of Foreclosure Policies and Practices (Apr. 13, 2011) (online
at www.occ.treas.gov/news-issuances/news-releases/201 l/nr-occ-201 l-47a.pdf).
Mr. John Walsh, Hon. Ben S. Bernanke,
Mr. John E. Bowman, Hon. Sheila Bair
Page 2
Your public summary also found:
[T]he weaknesses at each servicer, individually or collectively, resulted in unsafe and
unsound practices and violations of applicable federal and state law and requirements.
The results elevated the agencies' concern that widespread risks may be presented—to
consumers, communities, various market participants, and the overall mortgage market.
The servicers included in this review represent more than two-thirds of the servicing
market. Thus, the agencies consider problems cited within this report to have widespread
consequences for the national housing market and borrowers.2
Finally, your public summary stated:
[EJxaminers did note cases in which foreclosures should not have proceeded due to an
intervening event or condition, such as the borrower (a) was covered by the
Servicemembers Civil Relief Act, (b) filed for bankruptcy shortly before the foreclosure
action, or (c) qualified for or was paying in accordance with a trial modification.3
Order to Hire Private Consultants to Conduct Further Review
To address these major systemic deficiencies, your agencies issued "consent orders" that
required these 14 mortgage servicing companies to hire private consultants to conduct a more
thorough review of the files of affected homeowners. Rather than conducting these reviews
yourselves, you directed each mortgage servicing company to "retain an independent firm to
conduct a review of residential foreclosure actions that were pending at any time from January 1,
2009, through December 31, 2010."4
According to your agencies, these more comprehensive reviews were necessary because
your Interagency Review covered a "relatively small number of files."5 These more thorough
reviews by private consultants are supposed to "identify borrowers that have been financially
harmed" and "provide remediation to these borrowers."6 Specifically, you directed the mortgage
2 Id.
3 Id.
4 Id.
5 Id.
6 Id.
Mr. John Walsh, Hon. Ben S. Bernanke,
Mr. John E. Bowman, Hon. Sheila Bair
Page 3
servicing companies to "determine any financial injury to borrowers caused by errors,
misrepresentations, or other deficiencies identified in the review, and to remediate, as
appropriate, those deficiencies."
As part of this process, your agencies permitted the mortgage servicing companies and
their private consultants to propose "the methodology for conducting the Foreclosure Review,"
the "selection of criteria for cases to be reviewed," and "any proposed sampling techniques."8
In response to critics of your decision to allow the mortgage servicing companies to hire
their own consultants to conduct these reviews, your agencies asserted that you would "ensure
that the reviews are comprehensive and the results are reliable."9 As part of this oversight effort,
you directed all 14 mortgage servicing companies to submit for your approval "engagement
letters" establishing the terms of the review and the methodologies to be used.10 These
engagement letters were due within 45 days of the date of the consent orders.11
Request for "Engagement Letters" with Private Consultants
Today is the date these engagement letters are due. I request that you provide copies of
all engagement letters by Friday, June 3, 2011. If any of the 14 mortgage servicing companies
7 Id.
o
See, e.g., Office of the Comptroller of the Currency, Consent Order in the Matter of
Bank of America (Apr. 13, 2011) (online at www.occ.treas.gov/news-issuances/newsreleases/
201 l/nr-occ-201 l-47b.pdf); Federal Reserve System, Press Release (Apr. 13, 2011)
(online at www.federalreserve.gov/newsevents/press/enforcement/20110413a.htm); Office of the
Comptroller of the Currency, OCC Takes Enforcement Action Against Eight Servicers for Unsafe
and Unsound Foreclosure Practices (Apr. 13, 2011) (online at www.occ.treas.gov/newsissuances/
news-releases/201 l/nr-occ-201 l-47.html); Office of Thrift Supervision, OTS Takes
Action to Correct Foreclosure Deficiencies (Apr. 13, 2011) (online at www.ots.treas.gov/7p
=PressReleases&ContentRecord_id=4fe2bbl5-be56-5d95-6c9c-dfd680blc6a3).
9 Federal Reserve System, Office of the Comptroller of the Currency, and Office of Thrift
Supervision, Interagency Review of Foreclosure Policies and Practices (Apr. 13, 2011) (online
at www.occ.treas.gov/news-issuances/news-releases/201 l/nr-occ-201 l-47a.pdf).
10 See, e.g., Office of the Comptroller of the Currency, Consent Order in the Matter of
Bank of America (Apr. 13, 2011) (online at http://www.occ.treas.gov/news-issuances/newsreleases/
201 l/nr-occ-201 l-47b.pdf).
Mr. John Walsh, Hon. Ben S. Bernanke,
Mr. John E. Bowman, Hon. Sheila Bair
Page 4
has not concluded an engagement letter with a private consultant, please provide an explanation
of the current status of the engagement letter.
When producing documents, please deliver copies to the Minority Staff in Room 2471 of
the Rayburn House Office Building and the Majority Staff in Room 2157 of the Rayburn House
Office Building. The Committee prefers, i f possible, to receive all documents in electronic
format. If you have any questions about this request, please contact Justin Kim at (202) 225-
5051. I appreciate your cooperation with this matter.
Sincerely,
cc: The Honorable Darrell E. Issa, Chairman
Committee on Oversight and Government Reform