Yves Smith of Naked Capitalism reports on the OCC’s newly released chart of payments made pursuant to the “Interagency Foreclosure Review” that ended in futility, with only the consultants being enriched for their hard work in botching the review.
One of our Tampa Bay witnesses recounted how Promontory argued that a borrower had not been harmed when his payment checks were sent back by the servicer: “the bank was sending back payments because the borrower was not making any.” Huh?
As reader MBS Guy said via e-mail:
What is the point of sending $300 to 2.4 million people? Under what scenario does that accomplish anything?
The banks spent over $10,000 a loan in the IFR so that they could send the borrowers $300?
The servicers don’t even get a release from liability in exchange for the payments.
About the only thing that seems to have been accomplished is that the IFR was stopped before higher borrower losses could be uncovered.
Even by the sorry standards of the earlier Treasury Dept shams, this is particularly lame.
The Wall Street Journal also focuses on the modest payouts:
The vast majority of borrowers being compensated for mortgage-related abuses will get $1,000 or less apiece, a sobering coda to a protracted attempt to help those who may have been placed into foreclosure as a result of banks’ mistakes…
Those affected by foreclosure mistakes questioned the fairness of the payouts. Eric Krasner, 52 years old, of Duluth, Ga., filed for bankruptcy before losing his Frederick, Md. house to foreclosure in 2010, a mistake that should mean a payment of $62,500 according to the regulators’ compensation schedule. Mr. Krasner, who had a mortgage of $365,000, filed for bankruptcy after a gift shop he owned sunk under the weight of the recession and wound up losing his home.
If the “bulk of people get $500 or $800 after losing their houses, is that making good on things?” he said.
Well it did accomplish at least one thing. It greatly enriched the consultants, particularly Promontory. Various sources have estimated that Promontory pulled in $1 billion in gross fees. For a services firm, that’s a monster payday. And the firm’s leadership wasn’t doing too badly before the foreclosure reviews. As the New York Times reports:
But Promontory and other consultants are now facing scrutiny in Congress, amid growing unease over their influence and their close ties to federal authorities. The Senate Banking Committee is set to hold a hearing on Thursday to examine whether regulators inappropriately “outsource” oversight to consultants like Promontory, which are paid billions of dollars by the banks….
Banks are also privately raising concerns about Promontory and its steep fees, which can total as much as $1,500 an hour, according to people with knowledge of the matter. Bank executives, who were not authorized to speak publicly, said they sometimes hired Promontory to appease regulators, who think highly of the firm’s expertise.
If banks, who are used to paying big ticket M&A fees and not-shy-about-charging consultants like McKinsey are choking on Promontory’s fees, you know something doesn’t smell right. They don’t think they are getting the value, yet Promontory’s dominant position leaves them feeling they have no choice.
The article focuses on the role of the founder and CEO of the firm, former Comptroller of the Currency, Gene Ludwig:
Mr. Ludwig has occasionally invited Fed governors and other top officials to parties at this 13,000-square-foot Washington home, an $11.5 million estate replete with a tennis court and a modern art collection. Mr. Ludwig, a former executive at Bankers Trust, is also a regular at the Four Seasons restaurant in New York, where he is known by name and salad order.
Promontory said that Mr. Ludwig entertains regulators on occasion but that “there is no discussion of current matters.”
According to people with knowledge of the matter, Mr. Ludwig regularly travels by private jet and earns more than $30 million annually, making him better paid than top executives at many big banks. He has shared some of his fortune with a range of philanthropic causes, including the National Academy Foundation, Yale Law School and community groups like the Neighborhood Assistance Corporation of America.
Through Promontory and other companies, Mr. Ludwig has a vast reach, overseeing a private equity firm that invested in struggling banks during the financial crisis and another business that helps banks bundle mortgages and other consumer loans. He also started the Promontory Interfinancial Network, an independent firm that splits up companies’ large bank deposits into multiple $250,000 chunks so that the F.D.I.C. will insure the cash. The business processes more than $1 billion a week in customer funds, according to court filings.
I strongly suggest you call or e-mail Sherrod Brown and other members of his subcommittee to express outrage and suggest questions. His hearings are scheduled for Thursday. Please also campaign for hearings in the House. Maxine Waters, who is the ranking member of the House Financial Services Committee, has asked for them, and public pressure would overcome Republican inertia. The most important targets are Jeb Hensarling, Scott Garrett (Capital Markets/GSEs Subcommittee Chair) and Randy Neugebauer (Housing Subcommittee Chair).