Monday, April 8, 2013

GAO To Hammer Federal Reserve, OCC In Upcoming Report For Mishandling Of Clean-Up Necessitated By Flawed Foreclosures

The New York Times reports:

  • Federal authorities plan to issue a stinging critique of how banking regulators responded to wide-ranging foreclosure abuses, blaming officials for a bureaucratic maze that delayed relief to homeowners.

    In a long-anticipated report, the Government Accountability Office will take aim at the Federal Reserve and the Office of the Comptroller of the Currency for their role in cleaning up flawed foreclosures at the nation’s biggest banks, according to a preliminary draft of the document provided to DealBook. The regulators, the report found, failed to properly coordinate a review of foreclosed loans and even potentially allowed some errors to go undetected.

    The regulators did not comment on the report. In a letter to the Government Accountability Office, however, the comptroller’s office said it “appreciates your understanding of the complexity” of the foreclosure review process and the “intent of your recommendations.” The agency added that it would incorporate suggestions from the the report into its future oversight of the banks.

    People briefed on the report cautioned that it was not yet final and could still be changed. The accountability office is expected to release the report in the coming days.

    The report stems from an investigation that began in 2011 at the behest of Congressional Democrats, including Representative Maxine Waters, who is now the ranking Democrat on the House Financial Services Committee. Ms. Waters raised concerns about the use of private consultants to conduct a sweeping review of the foreclosures. The consultants, tasked with unearthing whether homeowners were wrongfully evicted, had close ties to both the regulators and the banks they were expected to examine.

    The report shows that lawmakers had reason to worry. The review was fraught from the start, according to the Government Accountability Office, as consultants racked up more than $2 billion in fees while reviewing only a fraction of the loans in question.

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