OCC REVIEW: Sham, Shame or Opportunity for Social Justice?

By Abigail Caplovitz Field, a freelance writer and attorney who blogs at Reality Check

U.S. Housing Secretary Shaun Donovan has embarrassed himself yet again. This time, though, he’s gone in for total humiliation. See, he praised the bank-run Office of the Comptroller of the Currency’s (OCC) foreclosure reviews as an important part of the social justice delivered by the mortgage “settlement“. But thanks to an insider working on an OCC review, we know that process is a sham. Worse, the insider’s story shows that enforcement of the settlement is likely to be similar, which is to say, meaningless. Doesn’t matter how pretty the new servicing standards are if the bankers don’t have to follow them.

Let’s start with Donovan’s sales pitch for the OCC reviews:

“For families who suffered much deeper harm — who may have been improperly foreclosed on and lost their homes and could therefore be owed hundreds of thousands of dollars in damages — the settlement preserves their ability to get justice in two key ways.

First, it recognizes that the federal banking regulators have established a process through which these families can receive help by requesting a review of their file. [ACF: That’s the OCC process] If a borrower can document that they were improperly foreclosed on, they can receive every cent of the compensation they are entitled to through that process.

Second, the agreement preserves the right of homeowners to take their servicer to court. Indeed, if banks or other financial institutions broke the law or treated the families they served unfairly, they should pay the price — and with this settlement they will. [bold throughout mine]

Now, the justice of the settlement has been debunked many times over. And David Dayen debunks Donovan’s OCC pitch here. What’s important is that Bank Housing Secretary Donovan wants you to believe the Wells Fargo OCC process is a meaningful contribution to holding bankers accountable and compensating victims.

Wells Fargo’s Fraudulent OCC ‘Independent’ Foreclosure Reviews

Right around the time our Bank Housing Secretary was pitching the OCC reviews as social justice, a person temping for Promontory Compliance Solutions LLC (an affiliate of Promontory Financial Group) on the Wells Fargo OCC “independent” review project was telling Mandelman what a complete charade it was. The insider’s description exposes the reviews as the fraud on the public that they are.

The full revelations of the temp hired, trained and supervised by Promontory Compliance Solutions, working on the Wells Fargo’s OCC independent foreclosure reviews project, are available as a Mandelman blog post and a Mandelman Podcast. But here’s a few highlights to show how rigged the process is:

“I have found errors that should be moved up through the ranks, but am told “quit digging so deep”…”put your shovel away”…Focus on the questions “in scope”… The review forms are set up so no harm could ever be found. It’s equivalent of an attorney presenting his case to a judge with just 20% of the evidence.”

and

“The foreclosed victims don’t realize if they do not provide specific dates on the intake forms… their complaints are considered “general comments” out of scope.

The kicker? The forms don’t tell people their information will be ignored if the complaints are not dated.

Mandelman reports that the insider

“also says that the questions on Promontory’s form are worded in such a way that it makes it very difficult to ever find fault. For example, by using compound questions, he is often told to answer “no,” when the first part of the question would be a “yes.””

A last, flashing neon sign announcing the reviews will protect banks and do no justice is who has been hired to do the reviews. See, here’s the insider that’s willing to talk, and it’s probably why he’s willing to talk:

I have 15 years industry experience in all facets of the mortgage & title industry, and just needed a job at the moment.

But this is who he’s working with and for:

some of the people brought in with me do not know the difference between a truth in lending statement, and a note. It’s a shame, these are your reviewers!!! The supervisors don’t want any trouble…they are mostly temps too, just trying to get a promotion to full time.

Sounds like no bailed-out bank will be held accountable and no homeowner compensated. Nice product you’re selling there “U.S.” Housing Secretary Donovan.

Indeed, Wells Fargo’s Promontory process apparently found no wrong doing in 9,996 cases out of 10,000 examined. The other four were sent to Wells Fargo for further review but came back as no problem. At least, 0 problems out of 10,000 files is what the insider’s supervisors announced to everybody. I don’t know if the supervisors were telling the truth or just trying to message everyone to not find any problems in any files. Either way it tells you the same thing: the reviewers won’t find anything wrong with the files.

Hey Secretary Donovan, want to try that ‘”settlement” with OCC reviews as justice’ pitch again?

Can’t Just Be Stumpf’s Wells Fargo

I don’t think Wells is alone in concocting an elaborate sham to check the ‘atonement’ box on the consent decree/settlement checklist.

First, all the banks subject to the decrees have all cooperated in manufacturing profits in ways that have deeply distorted our social fabric and our nation’s public policies. Second, since the OCC’s willing to let John Stumpf’s Wells Fargo do a thoroughly fraudulent process, surely it’s willing to let the rest of them do it too. I say “Bank-run OCC” quite deliberately. Third, Promontory is engaged to do three reviews; Wells, Bank of America, and PNC. Now, the insider only worked on the Wells Fargo Promontory project, so I can’t be sure the other two set ups are equally rigged. But what are the odds?

As to banker-driven distortion of our national government’s priorities, you can see it clearly if you know where to look. Generally it’s in the serial banker-centric responses to the financial meltdown and the ensuing housing crisis. But a concrete example is how our federal government has handled unsustainable liabilities.

Just More Proof Our Government Represents Bankers, Not Us

The bankers got and still have troubled asset “relief.” Without that help they’d all be bankrupt today. But homeowners are still denied mortgage principal relief on their their homes, even in bankruptcy. Don’t tell me that the moral hazard of troubled asset relief is smaller or less systemically important than the moral hazard of mortgage principal relief, in bankruptcy or out. There’s absolutely no way to justify that disparate treatment on the merits.

Underwater, toxic mortgages aren’t the only Wall Street created, unsustainable liability affecting our nation. Nationwide local governments are locked into extremely expensive Wall Street products called interest rate swaps. These deals turn our tax dollars into windfall profits for the bailed-out bankers. Taxpayers are trapped in the deals by high early termination fees. Worst of all, the reason these deals are so bad for municipalities is the Fed’s free money response to the banker-caused financial meltdown. That is, our government trying to help the bankers is facilitating the profiteering from municipalities. And yet I’ve heard no one in the Obama administration suggest helping municipalities cope with the bankers’ greed. At least Team Obama talks a good game about helping on mortgages.

(Btw, are you anti-union? Well, consider who did the dynamite research documenting the swaps problem: SEIU.)

What the Fraudulent OCC Review Means for “Settlement” Enforcement

But our federal government’s willingness to help banks and not people isn’t confined to disparate treatment of unsustainable liabilities. In the face of a worsening mortgage servicing, foreclosure fraud, and rule of law crisis we get a toothless settlement between the bankers and all meaningful law enforcers. A toothless settlement is no settlement. The bankers’ recidivism on SEC injunctions makes that clear.

Why do I say the settlement is toothless? Yes, as of writing, two weeks after the deal was announced, there’s no settlement text to look at. However, the “Executive Summary” of the deal says this about compliance: “The banks will report on their compliance in the form of agreed-upon metrics and outcome measures.” (Bold mine)

How do you think the banks will do that reporting? Surely they’ll hire firms like Promontory Compliance Solutions LLC; after all, by doing Wells’s OCC reviews, Promontory’s got pole position on doing its settlement compliance too, right? And if Promontory’s rigging the review to ensure Wells Fargo doesn’t pay homeowners a dime in restitution, it’ll be even more thoroughly protective of the bank when theoretically big fines ($1-5 million/each) are at stake.

Who IS Promontory Financial Group?

If Promontory Financial is going to be allowed to conduct officially-condoned compliance theater, let’s take a look at the actors in the production. From the firm’s website’s “Our Firm” page:

“Led by our Founder and CEO, Eugene A. Ludwig, former U.S. Comptroller of the Currency, our professionals have deep and varied expertise gained through decades of experience as senior leaders of regulatory bodies, financial institutions and Fortune 100 corporations.”

Ok, that makes sense: Ludwig’s a former head of the bank-run OCC, so of course his firm was lined up to do OCC reviews. And from his long form bio on the company’s site, we learn: “Before becoming Comptroller, Gene was a partner in the law firm of Covington & Burling, specializing in banking law.”

Do you remember Covington & Burling, and its connection to federal law enforcement, MERS, and implicitly the Justice Deparment’s failure to prosecute the bankers that are Covington & Burling’s clients? Not really? Well check out Covington’s “Financial Institutions” practice, and its White Collar Criminal Defense page. Note Covington’s partnership includes John Dugan, who returned to the firm after his recent years as Comptroller of the Currency, Edward Yingling, recent head of the American Bankers Association, James Garland, recent Deputy Chief of Staff to AG Eric Holder and Steve Fagell, also a recent Deputy Chief of Staff to AG Eric Holder. Though their current bios don’t show it as clearly as they once did, Garland and Fagell were instrumental in structuring the Justice Department’s response to financial meltdown crimes before returning to Covington’s white collar criminal defense practice. Finally, remember that AG Holder is himself a former Covington partner, as is Lanny Breuer, his head of the Criminal Division. Presumably both will return to Covington when they’re done at Justice.

Doing a complete list of the connections between Covington, our government and the bankers the Feds regulate and “prosecutes” takes too much time, and besides, I really want to talk about Promontory. Covington’s in this post purely because Promontory has deep roots at the firm, beyond Founder and CEO Eugene Ludwig’s time as a partner there.

From Promontory’s “Firm Leadership” page, we get:

Alfred H. Moses is Promontory’s Co-Founder, Senior Partner and Chief Strategy Officer.

Alfred was a Partner at the Washington, D.C., law firm of Covington & Burling for much of his career.

Here are other Covington alumni at Promontory: Managing Director Barak Sanford, Managing Director Michael Dawson (who also worked in the Treasury Department), Managing Director Joyce Payne Yette, and Principal and Deputy General Counsel Pat Gage. Paul Tagliabue, currently Of Cousnel at Covington, serves on Promontory’s Advisory Board.

Promontory’s also wired into Capitol Hill and the OCC beyond Ludwig. For example, Managing Director Amy Friend worked for Senator Chris Dodd and the Senate Banking Committee for years, as well as for the OCC. Konrad Alt, who is point person for Promontory on at least one of these reviews, once was counsel to the Senate Banking Committee

To sum up: the law firm most hardwired into the Justice Department under AG Holder, with deep ties to the OCC, is also thoroughly hardwired into Promontory Financial, which is helping Wells Fargo, a Covington client, “comply” with the OCC’s consent decree. And Promontory also employs veterans of our government’s bank regulating and law writing institutions who somehow managed never to work for Covington.

I’m beginning to think that “revolving door” doesn’t describe Covington & Burling’s relationship to the power, at least anything bank or law enforcement related. It’s more like Covington & Burling is the nerve center through which bailed-out bankers shape banker law enforcement and regulatory policy.

What a Real Compliance Firm Looks Like

For an article on internal investigations I wrote for Corporate Secretary Magazine, I had the pleasure of interviewing Toby Thacher. Here’s how his firm presents itself on its webpage:

Thacher Associates, LLC is one of the premier corporate intelligence, investigative and integrity risk-management firms in the United States. …

Although Thacher Associates is not a law firm, most of our senior managers are attorneys with considerable experience as prosecutors. …

Each year corporations, government and regulatory agencies, school districts, and charitable and religious institutions lose billions of dollars due to breaches of fiduciary duties, self-dealing by untrustworthy employees, and unethical actions by unscrupulous or unqualified vendors and contractors. Thacher Associates helps clients protect and enhance their reputation—and their bottom line.

For that article, Thacher told me that his firm is prepared to resign rather than look the other way:

“We were involved in one investigation where we believed there was criminal activity on the part of one of the corporate officers, which needed to be reported to the SEC and prosecutors,’ he recalls. ‘We asked for permission to tell the audit committee, but the client refused. Our only alternative was to resign from the investigation.’”

Here’s the bios of the three Thacher principals. All three prosecuted organized crime; none have practiced white-collar criminal defense. And this page shows they do the kind of work needed for both the OCC reviews and compliance assessment for the mortgage settlement. Can you imagine a Thatcher Associates-type firm implementing a Promontory-type charade? I can’t.

Now, I know about Thacher Associates only because the article I wrote. Surely there are other Thacher-type firms. You can spot them because they won’t be choc-a-bloc full of serial Covington alumni or similar folks from other big DC lobby/law firms. I include Thacher just to show what could be, what would be, if the Attorneys General signing the “settlement” or the OCC were remotely serious about ensuring the bailed-out bankers obey the law or honor their agreements.

So that’s the big tell: as so long as firms like Promontory (or Allonhill, see Michael Olenick) are allowed to do the ‘compliance’ work, the mortgage settlement and the OCC review process are meaningless. And don’t let the fervent marketing efforts of Housing Secretary Donovan convince you otherwise.