This week we’ve covered how Wall Street has to pay out a relatively paltry $3.6 billion from their foreclosure scandal even though they likely made over $20 billion from their shoddy foreclosure practices, and even though this means that 70% of homeowners who faced foreclosure will be compensated less than $500.
Well, it turns out that the situation is even more egregious than we’d thought. It turns out that Wall Street itself—not the regulators—were chosen to decide “who had been harmed” and who should therefore receive compensation.
This is as though a serial petty thief got caught by the police and was given the chance to decide which of the culprits he thought deserved to be given back their stuff. Only it’s worse in this case because many victims can’t get their homes back since the compensation isn’t high enough, or since their homes are already owned by someone else.
This is a major part of what Elizabeth Warren was getting at in the hearing yesterday. Here’s the transcript, which illustrates the frustrating aspects of the foreclosure settlement:
Senator Warren: I just want to take a look at the Independent Foreclosure Review Payment Agreement details. I think you’ve probably all seen this one page agreement that lists all of the things that the banks did wrong and then boxes for how many people fall into each category and how much money they’re going to be paid. Is that right? You’ve all seen this? [Panel indicates they have seen it.] And this was put out – who put this out? I think this is put out by the OCC and Federal Reserve. Is that right? As part of the settlement details. So I just want to ask you about this. It has some pretty amazing categories here. The first category is about service members who were protected by Federal law whose homes were unlawfully foreclosed. It’s got people who were current on their payments whose homes were foreclosed. It’s got people who were performing all of the requirements under a modification who lost their homes to foreclosure. And it tells how many people fall into each category and how much money the people in that category will receive. And, it ultimately resolves what will happen to 3,949,896 families. So the question I have is having resolved this nearly 4 million families, who put the people, the families, into each of these boxes. Is that what your firms did. Mr. Ryan?
Owen Ryan, Partner, Deloitte & Touche LLP: No, Senator, we did not.
Senator Warren: So who put them in.
Ryan: I’m not sure how that schedule is prepared. I saw it for the first time yesterday.
Senator Warren: Mr. Flanagan?
James Flanagan, Leader, U.S. Financial Services Practice, Pricewaterhouse Coopers LLP: Same response. We were not involved in the accumulation of that information.
Senator Warren: Mr. Alt?
Konrad Alt, Managing Director, Promontory Financial Group: Senator, I’ve seen the schedule but I’m not familiar with the basis for its preparation.
Senator Warren: So let me understand this. You ran the independent reviews, right. That’s what you got paid to do. And yet, I presume, the only one left is the banks must have put them in these boxes and you made no independent review of their going into these boxes. You were not asked to do that? Mr. Alt.
Alt: No Senator, we were not asked to do that.
Senator Warren: Mr. Flanagan.
Flanagan: No we were not.
Senator Warren: Mr. Ryan.
Ryan: We were not Senator.
Senator Warren: So that leaves us with the banks that broke the law were then the banks that decided how many people lost their homes because of their lawbreaking. And, as a result, how many people would collect money in each of these categories. Is that right Mr. Alt?
Alt: Senator, I’m not familiar with the basis for the scheduling.
Senator Warren: So far as you know, there’s no independent review of the banks’ analysis…you looked at 100,000 cases and the banks have now put 4 million people into categories and resolved finally how much they will get from this review by the OCC and the Federal Reserve.
Incredible, isn’t it? The banks themselves were allowed to put 4 million people into categories and resolve how much they will be compensated. It’s a story that deserves more attention that it’s getting.
An article this morning from Wall Street Parade gives a good overview of the story (including showing the transcript above). They called the OCC and said this:
“A call to the Office of the Comptroller of the Currency confirmed that the OCC and the Federal Reserve allowed the banks to determine who had been harmed and in what manner. The OCC said it “spot checked” the work by the banks. When asked how the results could be legitimate if only 100,000 foreclosure files out of 4 million had been reviewed for errors or fraud, not a large enough amount to be a statistically reliable sample, the OCC spokesperson said the injuries were only hypothetical and might have happened.”
Something very fishy seems to be going on, and it looks to be mostly beneficial for Wall Street.