Bank of America Foreclosure Reviews: Why the OCC Overlooked “Independent” Reviewer Promontory’s Keystone Cops Act (Part VB)
Promontory’s Incompetence
Promontory was not even remotely up to handling this foreclosure review assignment, either from a competence or an operational standpoint. And this wasn’t simply due to the scale of the project at Bank of America. The whistleblowers who worked for Promontory on the considerably smaller engagement at PNC, present a picture of complete disorder. Moreover, some contractors went from PNC to Bank of America and they indicated that some pieces of the PNC engagement that had been organized by the contractors (as opposed to Promontory) were in better shape than the work at Bank of America.
One basic problem was that Promontory had no meaningful knowledge of mortgage securitization or servicing; if you look at its areas of expertise, there’s nothing close. That put it in the dangerous position of not knowing what it did not know, and also of being dependent on its client.* While that may not seem to be much of a problem if the name of the game is to find nothing, it turns out the OCC had unwittingly required that servicers like Bank of America make a serious-looking stab at it.
As we documented in detail in our earlier posts, the result was that the work of going through six of the seven substantive tests was performed on Bank of America premises with personnel under the control of Bank of America. Promontory did provide the software with the endlessly-revised questions that the personnel at Bank of America tried to answer, along with various information guides. It visited the staff in biggest center, Tampa Bay, only four times in thirteen months, and its interaction with the people doing the review work was extremely limited. In other words, this was not a Promontory foreclosure review, it was a Promontory-decorated Bank of America foreclosure review.
By contrast, the project at PNC was modest in scale, yet it proved be well beyond the managerial capabilities of Promontory. At a bank with a comparatively small servicing portfolio, Promontory put in place a team composed almost entirely of contractors (140 to 150 when staffed up) only one Promontory employee in a managerial role, the managing director on the project, Michael Joseph.** PNC hired even more contractors to do clerical work to support this team’s efforts.
Anyone who has worked in a real organization can appreciate how insane this arrangement was. One person cannot effectively lead 150 people, particularly on a customized project operating in several locations. The only professional firm activity that routinely has such extreme ration of partners to working oars is foreclosure mills. And there it is more viable, since the work in rocket dockets is routinized.
Predictably, the contractors (who were higher level than our earlier whistleblowers) describe a project in chaos. This contractor explained how no useful work was done for the first three to four months:
Consultant D: – essentially what I witnessed in the 10 to 12 months was the fact that Promontory did not manage the project. Their effort to manage the project with any real due diligence, to me, they just, they fell short from A to Z. For example, from the time I joined the project to the time it ended, I saw the leader of the PNC part of the project two times, and the total time was less than 10 minutes….
So, in any event, to address that question, very minimal management from Promontory. Essentially what we were, we were all contract people. I had seen from the bank’s perspective and the OCC’s perspective that, you know, maybe we weren’t qualified, we didn’t have the right skills, and there was a lot of back-and-forth about that,…What I’m trying to say is that the vast majority of the people I worked with as contractors, even the reviewer level people, were competent enough to get the job done. What I saw was that Promontory – they didn’t come to the table. [Details of the types of review work done by some of the contractors] So there was borrower harm in almost every occurrence.
Yves Smith: Right. Right….
CD: As we started that review, like I said, Promontory played very little role in helping us do that, so we were essentially left to our own, our own devices, and the bank had provided us a bunch of information. PNC was very open in the beginning…But because Promontory didn’t give us any guidance, we felt we were obligated to review all of these transactions, and obviously we were, you know, given the task of finding borrower harm….we would go out and do our own research online to find, you know, the different …
YS: Applicable regulations, yeah, exactly…
CD: And our MO was essentially, “Hey, we’re going to all treat it the same way and we’re going to all include it in borrower harm when we see this and we see that, and that way if at some point in the future when Promontory catches up to us” – because, again, at this time we’re giving Promontory the benefit of the doubt. We’re just too busy. We’re ahead of them. And we said, you know, “If we find out that this shouldn’t be borrower harm, or etcetera, it should be treated this way, then we’ll know that we all treated it consistently in our conclusions.” So that was the way we proceeded. And, you know, I have to tell you we were finding significant borrower harm. So as that unfolded…..
Well, as what I just described unfolded over several weeks, and then our results were then communicated to PNC, and immediately PNC, you know, their arms went up, their eyes got big, and they started to push back. “Wait a minute!” Their first, you know, I guess, exclamation was that, “Hey, you guys aren’t supposed to be looking at all of this stuff,” because again, remind you, Promontory didn’t give us any guidelines…Because we hadn’t been given those guidelines, again, we decided as a team that we would err on the side of the borrower and then we would get explanations and let the bank, you know, have their rebuttal period, etcetera.
YS: Right.
CD: So once they saw what we were doing, you know, they’re like, “Wait a minute. You’re supposed to only be looking at [X], not the actual integrity of [Y].” And we said, “Well, you know, Promontory said we’re here to find borrower harm. They’ve given us no other guidance.” And when that conversation took place, everything stopped.
The detailed work that was done to support the tests at Bank of America, such as matrixes with state and Fannie/Freddie/FHA/VA fee limits and HAMP mod rules, was essential for PNC to do the work properly. It clearly couldn’t afford to reinvent that wheel. So why didn’t Promontory propose paying BofA a modest license fee to use that work? Both sides would have been better off and Promontory would have cultivated a bit of good will. But aforethough was not Promontory’s long suit. This came from Consultant B:
Well, there was – one thing I can tell you, generally speaking, the planning was piss poor. Piss poor. And when you have no planning whatsoever, you have chaos (laughs) until such time as people start to figure it out. And it took them four to five, six months to really get to the point where they were starting to figure out, well how are we going to do this, and about the time we got cranking then the whole question of independence came up and then we were going to have to trash everything we’d done and start all over again and design our own process without any interference from PNC.
Another observation:
After concluding that there were too many individual specialized pieces of a loan
review to achieve consistency across the large number of reviewers, PNC pushed an attempt to break the reviews up into individual subsets that could address particular borrower harm issues, with the intent of bringing them all together at the end. That was the plan, but then they couldn’t figure out how they were going to bring all the subsets together at the end and gave up on that approach. Then, complaints as to “lack of independence” grew louder, and the OCC and Promontory were faced with junking what limited deliverables they had after 10 months of work, and starting all over with review procedures designed and blessed by Promontory alone. While that could have been done, the design stage was going to require a considerable amount of time, energy, and beta testing to get right.
Step back and understand what that section says. After 10 months, there was virtually nothing to show for this effort. Promontory had to junk what little it had done at PNC because the work to date was insufficiently “independent”. And in fact that is what happened. The work done through October 2012 was thrown out.
Not that that mattered to Promontory:
CD: We kept saying, you know, as we approached the end of the project, we kept – our confidence that Promontory was being truthful and was really going to come through with this stuff, was diminishing, obviously, over time. To the last month, in a meeting, I actually was in a meeting where it was called out once again, “When are we going to look at fee limits?” …The last comment to come from Michael Joseph, the lead of Promontory, was, “We’re not going there.”
YS: Mmmm.
CD: So he finally came –
YS: Wow.
CD: He actually said in the meeting, “We’re not going there.”
YS: Wow…
CD: I – you know, so that was, that’s when it solidified it for me, that this was all by design, they never had any intentions of getting the right answers.
Another reviewer stressed that the bending-over-to-the-bank posture came not just from Promontory but also the OCC:
While the general lack of “hands on” oversight and planning by Promontory contributed mightily to the failure of the project, Promontory was compromised from the get go by the OCC’s cultural bias toward keeping their “client” happy. Review process design decisions by Promotory had to be blessed first by the OCC and then by PNC.
Obviously, any “independent” bank review that give the bank the final say is fundamentally corrupt.
Read more at http://www.nakedcapitalism.com/2013/02/bank-of-america-foreclosure-reviews-why-the-occ-overlooked-independent-reviewer-promontorys-keystone-cops-act-part-vb.html#sgqHu2HvBm2odIO1.99
Read more at http://www.nakedcapitalism.com/2013/02/bank-of-america-foreclosure-reviews-why-the-occ-overlooked-independent-reviewer-promontorys-keystone-cops-act-part-vb.html#sgqHu2HvBm2odIO1.99
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