The Federal Reserve released a plan between Ally Financial and third-party consultant PricewaterhouseCoopers, hired to conduct the independent foreclosure review.
The release also included an action plan from Citigroup (C), updating the Fed on its implementation of consent order requirements agreed to in April 2011. The Fed also included a letter from HSBC (HBC) covering how the bank plans to implement single-point-of-contact requirements under the consent order.
The consent orders came after an investigation into widespread foreclosure abuses and documentation problems. The agreements include new servicing standards and oversight responsibilities. A total of 14 mortgage servicers signed consent orders with the Fed and the Office of the Comptroller of the Currency.
Citi will create 880 positions, filled by new hires and transfers, to implement its mortgage servicing changes. More than 820 of them will be deployed to its CitiMortgage division.
The Fed also reached an agreement with Ally, cementing the bank's obligation under the consent order as its mortgage unit Residential Capital maneuvers through the bankruptcy process and sale. Nationstar Mortgage Holdings (NMS), which made a bid for some ResCap servicing assets, said it would assist with the obligations if the deal goes through.
Ally previously disclosed the foreclosure reviews could end up costing the top mortgage servicers $200 million total.
Reviews to cover a fraction
The engagement letter between Ally and PricewaterhouseCoopers gives an idea of how the foreclosure review — to be conducted over a population of 4.3 million loans major servicers foreclosed on in 2010 and 2011 — will play out for remediating damaged borrowers.
First, PwC defines what "financial injury" means:
"Financial injury means monetary harm to the borrower or the owner of the mortgage loan directly caused by errors, misrepresentations or other deficiencies. Monetary harm does not include physical injury, pain and suffering, emotional distress, or other nonfinancial harm. Monetary harm does not include financial injury that did not result as a direct consequence of errors, misrepresentations or other deficiencies identified in the foreclosure review. Errors include miscalculation of fees or other charges, where the total aggregate miscalculated fees or charges applied to and paid by the borrower exceeds $99."
PwC also disclosed how many loans it would be evaluating for possible damages. Any borrower can have his or her loan reviewed by request, but the deadline for that is quickly approaching with slightly more than 165,000 responses so far, according to the OCC.
The rest will not be given such a loan-by-loan screening.
According to the letter, Ally estimates 232,132 foreclosures to be reviewed, including more than 95,000 foreclosure sales.
One in every 115 foreclosures initiated in judicial states must be reviewed, the same ratio for nonjudicial states. One of every 100 foreclosure sales must be reviewed as well.
According to these ratios, PwC estimates evaluating 330 of the nearly 330,000 foreclosure filings and foreclosure sales for possible remediation.
Other reviews show 'high' risks
The consultants must conduct more thorough reviews for particular problems addressed under the consent orders.
PwC will review 89 mortgages where it is possible a foreclosure sale was completed when the borrower was less than 105 days delinquent. PwC showed this to be a "high risk" for remediation, meaning it would likely fall under the financial injury definition.
There is also an estimated population of 1,577 foreclosure sales completed on borrowers being considered for a modification at the time, a tactic known as dual-tracking.
Of the 62,000 loans with a bankruptcy start date in 2010 or 2011, PwC will screen 308 for any foreclosure sales completed while the bankruptcy was still in process, which is illegal in many states. According to the letter, PwC considers this area a "high risk" for Ally.
PwC will be looking for other missteps as well. Foreclosures initiated on military servicemembers carry a "high/medium" risk grade.
The consultant also has the ability to expand the scope of the reviews if enough violations are found.
"PwC will analyze the information in the sample for potential errors, misrepresentations or deficiencies identified to determine if further review is needed on additional foreclosure actions," according to the letter.