By Alan Zibel
WASHINGTON--U.S. bank regulators didn't work hard enough to make sure the public understands a process set up to compensate borrowers who were subject to foreclosure-processing errors, a federal watchdog has found.
The Government Accountability Office, in a report released Thursday, found that the review process designed by the Office of the Comptroller of the Currency and Federal Reserve has been difficult for consumers to understand. The report echoed concerns raised over the past year by several Democratic lawmakers on Capitol Hill.
An outreach letter sent to consumers, a website and a form needed to request a review were "written above the average reading level of the U.S. population, indicating that they may be too complex to be widely understood," the GAO found. Without those details, "borrowers may not be motivated to participate," the report said.
Though the review process was launched last fall, regulators announced just last month that borrowers may be eligible for up to $125,000 per consumer, depending on the severity of the error.
Comptroller of the Currency Thomas Curry didn't dispute the report's conclusions, and said the agency will work to make sure the forms used by borrowers are more readable and contain information about how much money borrows are in line to receive.
A Fed official, Sandra Braunstein, defended the regulators' efforts, saying that regulators believe that the forms complied with federal standards for plain writing and were translated into several languages.
The review process was launched after the Fed and the OCC in April 2011 required 14 mortgage-servicing companies, including Bank of America Corp. (BAC), Wells Fargo & Co. (WFC), J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C), to hire consultants to evaluate their foreclosure practices. Consumers who suffered "financial injury" could be in line for compensation after the consultants review homeowners' cases.
The review process is one of several efforts to compensate consumers, after revelations surfaced in the fall of 2010 about banks' use of so-called robo-signers--bank employees who signed off on thousands of foreclosure filings and falsely claimed to have personally reviewed each case.
The bank regulators' compensation system is separate from a $25 billion settlement that federal and state officials announced earlier this year to settle foreclosure-abuse allegations.
However, the bank regulators' process has had problems reaching customers. Only about 194,000 of 4.4 million borrowers sent letters last year have requested a review of their cases to date, regulators said last month. Separately, independent consultants are doing reviews of about 145,000 consumers' files.
The outreach materials sent to consumers "were written in technical legal language, and provided little information to borrowers about the remediation available to them," said Rep. Maxine Waters (D., Calif.) in a statement. "I believe that this lack of clarity is one reason why, unless servicers change their approach, only a small fraction of eligible households will eventually be screened for any harm caused by improper foreclosures. "
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