Series: Foreclosure Crisis How Banks and Government Fail Homeowners

The Independent Foreclosure Review is the government's main effort to compensate homeowners for harm they suffered at the hands of banks — and, as its name indicates, it's supposed to be independent.

But until recently, that was hardly the case with Bank of America. Supposedly independent, third-party reviewers would sit at a computer, analyzing each homeowner's case by going through hundreds of questions, such as whether the bank had properly reviewed a homeowner for a modification or had charged bogus fees. But the reviewers weren't starting from a blank slate. Bank of America employees had already supplied the answers, which the reviewers would have to override if they did not agree.

No evidence has emerged that Bank of America pressured reviewers to accept its answers, and the bank did not supply answers for the final questions: whether the bank should pay compensation and, if so, how much. But those ultimate determinations depended on responses to the preceding questions, and for reviewers the path of least effort was to accept the bank's answers.

This practice only ended a month after ProPublica published a story showing that Bank of America was doing much of the work itself. When that story was published, ProPublica hadn't yet learned that the answers the bank supplied showed up on the reviewers' computer screens as defaults, and Bank of America strenuously denied that it had compromised the integrity of the review. Since November, the reviewers now begin their analysis without the bank's answers.

Bank of America spokesman Dan Frahm confirmed the change: "Steps were taken" so that the independent reviewer, Promontory Financial Group, "could not view answers supplied by the Bank of America Claim Researcher."

Frahm maintained, however, that the change didn't mean the reviews completed under the prior system were tainted. Promontory's employees have always had the ability to "override any answer supplied by the Bank of America Claim Researcher," he said.

Advocates for homeowners aren't convinced. "It's hard to imagine" that Promontory's reviewers weren't influenced by having the bank's answers right in front of them, said Alys Cohen of the National Consumer Law Center. "As a result it seems obvious that the earlier reviews should be re-reviewed."

Potential Conflict of Interest

The Independent Foreclosure Review is the government's largest program to compensate victims of the banks' foreclosure abuses. 4.4 million homeowners are eligible, but homeowners must submit a claim to ensure they're covered by the review. As of the end of November, only 315,000 homeowners had done so, according to regulators, a low response rate of about seven percent.

Victims could receive up to $125,000 in cash compensation or, if possible, get their home back. The review is overseen by the nation's bank regulators, who were spurred to action in 2011 by the robo-signing scandal.

The review has been dogged by criticism since the outset, partly because of how it works. Banks hire and pay consultants to be the independent, third-party reviewers. Bank regulators must approve them, which the regulators say ensures the independence of the review. But critics argue that the consulting firms have other contracts with the banks and so have a conflict of interest: If the consultants anger the banks, they may lose future business.

For its "independent consultant," Bank of America hired Promontory. Promontory is also conducting the review for Wells Fargo, which has the second largest number of loans eligible for review (about 933,000) after Bank of America (1.3 million) of all the banks.

"A Technical Change"

As ProPublica reported in October, all four of the country's largest banks planned to participate heavily in evaluating whether homeowners were harmed, according to their contracts with the consultants. Of course, homeowners claiming their bank abused them were never told the same bank would be integrally involved in the review.

In October, ProPublica uncovered internal Bank of America memos and emails indicating that, while Promontory made the ultimate decision as to a homeowner's compensation, the bank was doing much of the review work itself.

When ProPublica first presented this evidence to Promontory, Bank of America, and the bank's primary regulator, the Office of the Comptroller of the Currency, all three initially denied that Promontory was using analysis performed by the bank's own employees.

Now, even as Promontory and Bank of America confirmed they had changed their system to make the bank's analysis invisible to Promontory's reviewers, both companies insisted that the independence of the reviews had never been compromised.

"Promontory resources have always reviewed the files, performed all tests, and reached independent conclusions, without input or influence from Bank of America," said Promontory spokeswoman Debra Cope. "A technical change was made in November with respect to the visibility of information uploaded by Bank of America file preparers.... Although these responses were previously visible to Promontory reviewers, they never had any bearing on Promontory's independent testing processes."

OCC spokesman Bryan Hubbard said the OCC has a policy of not commenting on specific institutions, but added, "as we have stressed before, the OCC expects the independent consultants to exercise their independence in reviewing and evaluating each file. Our examiners are ensuring that occurs."

The NCLC's Cohen said the core problem with the Independent Foreclosure Review is that it is largely being handled in secret.

"At the end of the day, if the regulators and servicers want to put this behind them, they need the public to believe this is legitimate. Without transparency, you can't have real accountability."