Federal regulators have been accused of letting Bank of America (BofA) be heavily involved in a so-called independent review of foreclosure cases that’s supposed to correct the bank’s mistakes.

The Office of the Comptroller of the Currency (OCC), which regulates financial institutions like BofA, began last year to evaluate millions of foreclosures by multiple banks from 2009 and 2010. The Independent Foreclosure Review was intended to keep the banks out of the decision-making process over whether homeowners should be compensated for institutional errors or illegal practices by only allowing them to provide information to an independent regulator. But the banks were allowed to choose their own regulator. Bank of America hired Promontory Financial Group, a company with which it had previously done business. No doubt Promontory would like to continue its business relationship with BofA…thus a potential conflict of interest.

When the homeowner files a complaint relating to a Bank of America foreclosure, BofA provides its version of the case to Promontory, which rejects to homeowner appeal or suggests a compensation amount. BofA is allowed to challenge the figure and Promontory may adjust it accordingly.

However, if the homeowner’s request is rejected or the homeowner objects to the amount of compensation, the homeowner is not allowed to challenge the figure. The homeowner’s only avenue for an appeal is to sue Bank of America. Given the resources available to the average foreclosed homeowner compared to the resources available to BofA, this is an unlikely avenue of appeal and one whose outcome is heavily skewed in favor of the bank.

According to an investigation by ProPublica, which gained access to internal bank memos and emails and talked to bank staffers, “The ultimate decision as to whether and how much a homeowner will be compensated is not made by Bank of America, the evidence shows, but is based largely on work that the bank itself performs. One current employee called that crucial judgment ‘only a matter of double checking’ the bank’s work.”

BofA “strongly” objected to ProPublica’s conclusions, and the OCC insisted the review was independent.

ProPublica shared its findings with Senator Robert Menendez (D-New Jersey), who chaired a congressional hearing on bank foreclosures. He told ProPublica that the memos “raise serious questions” about whether “consultants would be analyzing homeowner foreclosures completely independently of the Wall Street banks….If banks are trying to skew the results in their favor, regulators should stop that immediately.”

The Independent Foreclosure Review program sent out letters to 4.4 million homeowners giving them the opportunity to request a formal review. So far fewer than 250,000 homeowners have responded. In June the Government Accountability Office (GAO) issued a report that criticized the letters for being difficult to understand.

Americans who feel they have been treated wrongly by Bank of America during the foreclosure or loan modification process have until December 31 to request a review. The appropriate forms can found here.

-David Wallechinsky, Noel Brinkerhoff

To Learn More:

Is BofA’s Foreclosure Review Really Independent? You Be the Judge (by Paul Kiel, ProPublica)

Bank of America Smacked with Foreclosure Fraud Lawsuits (by Matt Bewig, AllGov)

Bank of America Forecloses on Houses without Mortgages (by Noel Brinkerhoff and David Wallechinsky, AllGov)