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.”)