Last April, 14 mortgage servicers and the federal government reached a settlement agreement of sorts that called for an independent foreclosure review process for foreclosure cases processed between January 1, 2009 and December 31, 2010. The process calls for a case-by-case analysis of foreclosures from that time period conducted by an independent board of consultants hired by the 14 mortgage servicers.The process had been shrouded in some secrecy, particularly involving the specifics of how independent consultants would be hired and how they would be held independently accountable, but recent information has uncovered more of the details lacking regarding the process.
The problem is, some homeowner advocates have serious problems with what has been revealed.
One problem is the identity of the consultants themselves. Among their number are counted big firms like Deloitte, which has pre-existing arrangements with JPMorgan Chase to audit some of their mortgage-related endeavours. The conflict of interest here is obvious; Deloitte’s relationship with JPMorgan Chase opens any foreclosure cases it reviews to possible litigation down the road if foreclosure victims are unhappy with the results – particularly if impropriety can be alleged.
Other major auditing firms contracted, including PricewaterhouseCoopers and Ernst & Young, have incentives to sidestep violations identified because all of the major accounting and auditing firms are supposed to follow the same, standardized guidelines. Casting doubt on one would cast doubt on all – and that could serve as a powerful incentive to avoid full auditing for foreclosure cases.
The auditing process raises serious questions about the interactions between the auditing firms and the banks and mortgage servicers involved in the process. After all, the reason these foreclosure reviews were created in the first place was to give 4.5 million foreclosure victims a chance to have their cases reviewed for irregularities, improprieties, and flagrant violations of the law – which would further cast a pall on the relationship between lenders and borrowers in this country.
If the auditing process to ensure a fair and impartial review of home foreclosures is not solid and completely above reproach, it does nothing to restore the credibility of the system and in fact further undermines it.
There are two engagement letters – letters detailing the identity of the audit firm attached to a particular mortgage servicer – missing, including those involving Ally Financial, one of the Big 5 who signed the National Mortgage Settlement Agreement. Until they are released, a complete picture of the auditing firms involved will not be made available – raising even more questions.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.