Servicers Committed Loan Error Rates of Either 4.2% or 97.2%, Take Your Pick

Dave Dayen: Servicers Committed Loan Error Rates of Either 4.2% or 97.2%, Take Your Pick

By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen

Anyone paying a smattering of attention justifiably raised a skeptical eyebrow at the Office of the Comptroller of the Currency’s assurances to Congress that the Independent Foreclosure Reviews revealed hardly any borrower harm from servicer malfeasance. First of all, from the reporting we know, OCC just dropped this 4.2% error rate number without supporting information from the loan files. Second, the error rate contrasted wildly with what Yves uncovered in her superlative series on Bank of America reviews. Most critically, if the reviews were finding no borrower harm, there would have been no real reason to ditch them. They would have reinforced the bank-supported view that foreclosure fraud was simply overblown, would have silenced critics, would have reduced bank exposure to payouts from the settlement and probably in future litigation. This would have been well worth the expense of paying out another couple billion to the consultants, for the banks to get an on-the-record fact pattern establishing their relative innocence.


That’s what makes the bombshell story from the Wall Street Journal of all places, so damaging to the entire cover story, particularly for the OCC. If true, this actually establishes that the agency at least massaged the truth to Congress, if they didn’t outright lie:

Some 6.5% of files reviewed unveiled errors requiring compensation, officials at the Office of the Comptroller of the Currency said in January. They later revised the error rate to 4.2% after requesting new data, raising the total number reviewed to roughly 100,000 files.
But a breakdown of the information provided to the regulator shows that more than 11% of files examined for Wells Fargo & Co. and 9% of those for Bank of America Corp. had errors that would have required compensation for homeowners, said people who have reviewed the figures. A narrower sample of files—representing cases selected by outside consultants—showed error ratios of 21% for Wells Fargo and 16% for Bank of America, the people said.

The OCC findings appear skewed by the outsize contribution of one bank, J.P. Morgan Chase & Co., which reported an error rate far below rivals that oversaw a much larger universe of loans.

(Incidentally, you have to love the Wells Fargo flak’s claim that the error rate “does not provide conclusive information about actual financial harm.”)

The reason OCC could publish their 4.2% number is that JPMorgan reported just a 0.6% error rate, according to these anonymous sources. They also completed far more reviews than their confreres. PNC Bank reported rates over 20%, but they only delivered a small share of the reviews (Yves may have more on that bit, from her reporting she’s basically gobsmacked that PNC managed to deliver any reviews at all),. How lucky for OCC that the one bank which presented a near-perfect record submitted the most reviews!

It doesn’t pass the smell test at all that you would get such a wide discrepancy, and in particular that JPMorgan Chase would show itself to be such a precision servicer. I remember attending a NACA event where they gave out Jamie Dimon’s cell phone number to homeowners, urging them to call and harass him over the abuse his bank had exhibited on borrowers. They were seen as uniformly the worst by a wide margin.

But of course, as ably documented in this space, the entire concept of real numbers from the reviews is fanciful. When you talk to the actual reviewers, as WSJ did for their story, you get error rate numbers as high as 80%. And the files themselves were kept in such disarray that it borders on impossible to grade them at all. The numbers reported by the banks to OCC merely reflect how successful they were at controlling the review process and limiting the finding of borrower harm. This window into how Deloitte handled the JPMorgan reviews tells you everything you need to know about their numbers:


Read more at http://www.nakedcapitalism.com/2013/03/dave-dayen-servicers-committed-loan-error-rates-of-either-4-2-or-97-2-take-your-pick.html#AWXyMSaiwvFAKqAp.99