Foreclosure Review:
Opportunities Exist to Further Enhance Borrower Outreach Efforts
GAO-12-776, Jun 29, 2012
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What GAO Found
Regulators and servicers have gradually increased their efforts to reach eligible borrowers and have taken steps to improve communication materials. Conducting readability tests or using focus groups are generally considered best practices for consumer outreach, but regulators and servicers did not undertake these activities. Staff at the Board of Governors of the Federal Reserve System (Federal Reserve) said that this was, in part, a trade off to expedite the remediation process. Regulators also did not solicit input from consumer groups when reviewing the initial communication materials. Readability tests found the initial outreach letter, request-for-review form, and website to be written above the average reading level of the U.S. population, indicating that they may be too complex to be widely understood. Regulatory staff noted limitations to such readability tests and told us they discussed using plain language, but that the use of some complex mortgage and legal terms was necessary for accuracy and precision. Clear language on the independent foreclosure review website is particularly important as current outreach encourages borrowers to submit requests for review online. Communication materials developed by mortgage servicers with input from regulators and consultants included information about the purpose, scope, and process for the foreclosure review and noted that borrowers may be eligible for compensation. However, the materials do not provide specific information about remediation—an important feature to encourage responses as suggested by best practices and reflected in notification examples GAO reviewed. Without informing borrowers what type of remediation they may receive, borrowers may not be motivated to participate.
The outreach planning and evaluation targeted all eligible borrowers with some analysis conducted to tailor the outreach to specific subgroups within the population. In approving the outreach plan, regulators considered the extent to which the plan promoted national awareness and was appropriate to reach the demographics of the target audience. The outreach process was largely uniform with some targeted outreach to Spanish-speaking and African-American borrowers. GAO has previously found that effective outreach requires analysis of the audience by shared characteristics, but regulators did not call for servicers to analyze eligible borrowers by characteristics, such as limited English proficiency, that may have affected their response. While regulators have identified community groups as effective messengers and encouraged servicers to reach out to them, servicers have leveraged these groups to varying degrees. According to consumer groups, borrowers may have ignored communication materials because they did not understand who provided the information and believed the materials were fraudulent. Regulators regularly monitored the status of the outreach activities and analyzed the effect of advertising on response rates. GAO has previously found that analyzing past performance when expanding activities is important. Regulators did not analyze characteristics of respondents and nonrespondents in introducing a second wave of outreach activities. Without this analysis, regulators may not know if certain groups of borrowers are underrepresented in the review. As a result, whether additional outreach to target these groups or changes to the file review process are need.
Why GAO Did This Study
In April 2011 consent orders, the Office of the Comptroller of the Currency (OCC), Federal Reserve, and the Office of Thrift Supervision directed 14 mortgage servicers to engage third-party consultants to review 2009 and 2010 foreclosure actions for cases of financial injury and provide borrowers remediation. To complement these reviews, the regulators also required servicers to establish an outreach process for borrowers to request a review of their case. This report examines (1) the extent to which the development of the outreach approach and content of the communications materials and website reflected best practices, and (2) the extent to which the planning and evaluation of the outreach and advertising approach considered the characteristics of the target audience. To conduct this work, GAO reviewed the design and implementation of borrower outreach activities and materials against best practices and federal guidelines and interviewed representatives of servicers, consultants, community groups, and regulators.
What GAO Recommends
OCC and the Federal Reserve should enhance the language on the foreclosure review website, include specific remediation information in outreach, and require servicers to analyze trends in borrowers who have not responded and, if warranted, take additional steps to reach underrepresented groups. In their comment letters, the regulators agreed to take actions to implement the recommendations, while the Federal Reserve took issue with GAO’s criteria. OCC also took issue with GAO’s criteria in its technical comments.
For more information, contact Lawrance L. Evans, Jr. at (202) 512-8678 or evansl@gao.gov.
Status Legend:
- Review Pending
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should require that servicers include a range of potential remediation amounts or categories in communication materials and other outreach, such as direct mailings to borrowers, public service announcements, the independent foreclosure review website, regulators' websites, and officials' testimonies and speeches.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Open
Comments: In June 2012 OCC and the Federal Reserve publicly released a framework of remediation amounts and categories. The agencies issued a joint press release announcing the release of the framework. The framework is posted on the Independent Foreclosure Review website and the agency websites. However, as of July 2012, the agencies have not included potential remediation amounts in other communication materials or outreach.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should require servicers to identify trends in borrowers who have and have not responded by factors such as MSA, zip code, servicer, and borrower characteristics and report to the regulators on weaknesses found. If warranted, regulators should require that servicers, in consultation with their third-party consultants, conduct more targeted outreach to better reach underrepresented groups, such as considering more credible messengers to reach these groups. If such action cannot be taken prior to the deadline for requests for review, regulators should consider expanding the look-back review to better ensure coverage for underrepresented groups.
Agency Affected: Federal Reserve System: Board of Governors
Status: Open
Comments: The Director of the Consumer and Community Affairs Division of the Board of Governor of the Federal Reserve System noted in a comment letter to the report that the Federal Reserve has begun implementing this recommendation by conducting analysis to identify any gaps in respondents by geography and certain borrower characteristics, which will be publicly released to promote targeted outreach. As of July 2012 this analysis has not yet been completed or released.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should require that servicers include a range of potential remediation amounts or categories in communication materials and other outreach, such as direct mailings to borrowers, public service announcements, the independent foreclosure review website, regulators’ websites, and officials’ testimonies and speeches.
Agency Affected: Federal Reserve System: Board of Governors
Status: Open
Comments: In June 2012 OCC and the Federal Reserve publicly released a framework of remediation amounts and categories. The agencies issued a joint press release announcing the release of the framework. The framework is posted on the Independent Foreclosure Review website and the agency websites. However, as of July 2012, the agencies have not included potential remediation amounts in other communication materials or outreach.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should require servicers to identify trends in borrowers who have and have not responded by factors such as MSA, zip code, servicer, and borrower characteristics and report to the regulators on weaknesses found. If warranted, regulators should require that servicers, in consultation with their third-party consultants, conduct more targeted outreach to better reach underrepresented groups, such as considering more credible messengers to reach these groups. If such action cannot be taken prior to the deadline for requests for review, regulators should consider expanding the look-back review to better ensure coverage for underrepresented groups.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Open
Comments: According to the agency's comment letter to the report, OCC is in the process of addressing this recommendation. As of July 2012 the recommendation has not yet been fully implemented.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should require that servicers include a range of potential remediation amounts or categories in communication materials and other outreach, such as direct mailings to borrowers, public service announcements, the independent foreclosure review website, regulators’ websites, and officials’ testimonies and speeches.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Open
Comments: In June 2012 OCC and the Federal Reserve publicly released a framework of remediation amounts and categories. The agencies issued a joint press release announcing the release of the framework. The framework is posted on the Independent Foreclosure Review website and the agency websites. However, as of July 2012, the agencies have not included potential remedation amounts in other communication materials or outreach.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should enhance the readability of the request-for-review form on the independent foreclosure review website so that it is more understandable for borrowers, such as by including a plain language guide to the questions.
Agency Affected: Federal Reserve System: Board of Governors
Status: Closed - Implemented
Comments: In July 2012 a request for review help sheet was added to the Independent Foreclosure Review website that provide tips in plain language, explanation of key terms, and additional instructions to help borrowers fill out the request-for-review form.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should enhance the readability of the request-for-review form on the independent foreclosure review website so that it is more understandable for borrowers, such as by including a plain language guide to the questions.
Agency Affected: Department of the Treasury: Office of the Comptroller of the Currency
Status: Closed - Implemented
Comments: In July 2012 a review for request help sheet was added to the Independence Foreclosure Review website that provides additional tips in plain language, explanation of key terms, and additional instructions to help borrowers fill out the request-for-review form.
Recommendation: OCC and the Federal Reserve have taken steps to improve the outreach from the initial roll-out. To further increase the possibility that all borrowers have a fair opportunity to request a foreclosure review, the Comptroller of the Currency and the Chairman of the Board of Governors of the Federal Reserve System should require that servicers include a range of potential remediation amounts or categories in communication materials and other outreach, such as direct mailings to borrowers, public service announcements, the independent foreclosure review website, regulators' websites, and officials' testimonies and speeches.
Agency Affected: Federal Reserve System: Board of Governors
Status: Open
Comments: In June 2012 OCC and the Federal Reserve publicly released a framework of remediation amounts and categories. The agencies issued a joint press release announcing the release of the framework. The framework is posted on the Independent Foreclosure Review website and the agency websites. However, as of July 2012, the agencies have not included potential remediation amounts in other communication materials or outreach.