oversight

Foreclosure Review: Opportunities Exist to Further Enhance Borrower Outreach Efforts

Published by the Government Accountability Office on 2012-06-29.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States Government Accountability Office

GAO          Report to Congressional Requesters




June 2012
             FORECLOSURE
             REVIEW

             Opportunities Exist to
             Further Enhance
             Borrower Outreach
             Efforts




GAO-12-776
                                               June 2012

                                               FORECLOSURE REVIEW
                                               Opportunities Exist to Further Enhance Borrower
                                               Outreach Efforts
Highlights of GAO-12-776, a report to
congressional requesters




Why GAO Did This Study                         What GAO Found
In April 2011 consent orders, the Office       Regulators and servicers have gradually increased their efforts to reach eligible
of the Comptroller of the Currency             borrowers and have taken steps to improve communication materials.
(OCC), Federal Reserve, and the                Conducting readability tests or using focus groups are generally considered best
Office of Thrift Supervision directed 14       practices for consumer outreach, but regulators and servicers did not undertake
mortgage servicers to engage third-            these activities. Staff at the Board of Governors of the Federal Reserve System
party consultants to review 2009 and           (Federal Reserve) said that this was, in part, a trade off to expedite the
2010 foreclosure actions for cases of          remediation process. Regulators also did not solicit input from consumer groups
financial injury and provide borrowers         when reviewing the initial communication materials. Readability tests found the
remediation. To complement these
                                               initial outreach letter, request-for-review form, and website to be written above
reviews, the regulators also required
                                               the average reading level of the U.S. population, indicating that they may be too
servicers to establish an outreach
process for borrowers to request a
                                               complex to be widely understood. Regulatory staff noted limitations to such
review of their case. This report              readability tests and told us they discussed using plain language, but that the use
examines (1) the extent to which the           of some complex mortgage and legal terms was necessary for accuracy and
development of the outreach approach           precision. Clear language on the independent foreclosure review website is
and content of the communications              particularly important as current outreach encourages borrowers to submit
materials and website reflected best           requests for review online. Communication materials developed by mortgage
practices, and (2) the extent to which         servicers with input from regulators and consultants included information about
the planning and evaluation of the             the purpose, scope, and process for the foreclosure review and noted that
outreach and advertising approach              borrowers may be eligible for compensation. However, the materials do not
considered the characteristics of the          provide specific information about remediation—an important feature to
target audience. To conduct this work,         encourage responses as suggested by best practices and reflected in notification
GAO reviewed the design and                    examples GAO reviewed. Without informing borrowers what type of remediation
implementation of borrower outreach            they may receive, borrowers may not be motivated to participate.
activities and materials against best
practices and federal guidelines and           The outreach planning and evaluation targeted all eligible borrowers with some
interviewed representatives of                 analysis conducted to tailor the outreach to specific subgroups within the
servicers, consultants, community              population. In approving the outreach plan, regulators considered the extent to
groups, and regulators.                        which the plan promoted national awareness and was appropriate to reach the
                                               demographics of the target audience. The outreach process was largely uniform
What GAO Recommends                            with some targeted outreach to Spanish-speaking and African-American
OCC and the Federal Reserve should             borrowers. GAO has previously found that effective outreach requires analysis of
enhance the language on the                    the audience by shared characteristics, but regulators did not call for servicers to
foreclosure review website, include            analyze eligible borrowers by characteristics, such as limited English proficiency,
specific remediation information in            that may have affected their response. While regulators have identified
outreach, and require servicers to             community groups as effective messengers and encouraged servicers to reach
analyze trends in borrowers who have           out to them, servicers have leveraged these groups to varying degrees.
not responded and, if warranted, take          According to consumer groups, borrowers may have ignored communication
additional steps to reach                      materials because they did not understand who provided the information and
underrepresented groups. In their              believed the materials were fraudulent. Regulators regularly monitored the status
comment letters, the regulators agreed         of the outreach activities and analyzed the effect of advertising on response
to take actions to implement the               rates. GAO has previously found that analyzing past performance when
recommendations, while the Federal             expanding activities is important. Regulators did not analyze characteristics of
Reserve took issue with GAO’s criteria.        respondents and nonrespondents in introducing a second wave of outreach
OCC also took issue with GAO’s                 activities. Without this analysis, regulators may not know if certain groups of
criteria in its technical comments.
                                               borrowers are underrepresented in the review. As a result, whether additional
View GAO-12-776. For more information,         outreach to target these groups or changes to the file review process are needed
contact Lawrance L. Evans, Jr. at (202) 512-   to help ensure that all borrowers have a fair opportunity for review is unclear.
8678 or evansl@gao.gov.

                                                                                        United States Government Accountability Office
Contents


Letter                                                                                    1
               Background                                                                 3
               While the Outreach Efforts Have Improved over Time,
                 Opportunities Exist to Enhance Readability and Content of the
                 Communication Materials                                                  9
               Outreach Was Based on Limited Analysis of Eligible Borrower
                 Subgroups                                                              26
               Conclusions                                                              37
               Recommendations for Executive Action                                     39
               Agency Comments and Our Evaluation                                       40

Appendix I     Objectives, Scope, and Methodology                                       44



Appendix II    Comments from the Office of the Comptroller of the Currency              53



Appendix III   Comments from the Board of Governors of the Federal Reserve
               System                                                                   63



Appendix IV    GAO Contact and Staff Acknowledgments                                    67



Table
               Table 1: Results of Whole Website Readability Analysis                   46


Figures
               Figure 1: Timeline of Key Deadlines in the Foreclosure Review
                        Process                                                           5
               Figure 2: Initial Foreclosure Review Communication Materials               8
               Figure 3: Proportion of the Adult Population with Limited English
                        Proficiency, 2008-2010, and Key Markets Targeted by
                        Servicers with Spanish-Language Advertising                     15
               Figure 4: Remediation Information in Initial Foreclosure Review
                        and Sample Class Action Lawsuit Materials                       22




               Page i                                          GAO-12-776 Foreclosure Review
Figure 5: Estimated Rates of Active Nonprime Loans in the
         Foreclosure Process by Congressional District, as of June
         30, 2009                                                                         29




Abbreviations

FDIC              Federal Deposit Insurance Corporation
FJC               Federal Judicial Center
FOG               Frequency of Gobbledygook
HUD               U.S. Department of Housing and Urban Development
MSA               Metropolitan Statistical Area
NACA              National Association of Consumer Advocates
NFMC              National Foreclosure Mitigation Counseling
OCC               Office of the Comptroller of the Currency
OTS               Office of Thrift Supervision
SCRA              Servicemembers Civil Relief Act
SMOG              Simplified Measure of Gobbledygook




This is a work of the U.S. government and is not subject to copyright protection in the
United States. The published product may be reproduced and distributed in its entirety
without further permission from GAO. However, because this work may contain
copyrighted images or other material, permission from the copyright holder may be
necessary if you wish to reproduce this material separately.




Page ii                                                    GAO-12-776 Foreclosure Review
United States Government Accountability Office
Washington, DC 20548




                                   June 29, 2012

                                   Congressional Requesters

                                   In April 2011, the Office of the Comptroller of the Currency (OCC), the
                                   Board of Governors of the Federal Reserve System (Federal Reserve),
                                   and the Office of Thrift Supervision (OTS) announced consent orders
                                   against 14 residential mortgage servicers for unsafe and unsound
                                   practices in residential mortgage servicing and foreclosure processing. 1
                                   Among other things, these consent orders directed the servicers to
                                   engage third-party consultants to conduct a file review of the servicers’
                                   2009 and 2010 foreclosure actions to evaluate whether borrowers
                                   suffered financial injury through errors, misrepresentations, or other
                                   deficiencies in servicers’ foreclosure practices. 2 Where a borrower
                                   suffered financial injury as a result of such practices, the regulators’
                                   orders require the servicers to provide borrowers with remediation. As an
                                   unprecedented step not found in prior enforcement actions, these consent
                                   orders also require servicers to establish a process to obtain and process
                                   consumer complaints. The regulators required servicers to establish such
                                   a process to complement the file review and enable eligible borrowers to
                                   request a review of their files if they believe they suffered financial injury
                                   as a result of the types of deficiencies in mortgage servicing and
                                   foreclosure processing identified in the regulators’ consent orders. Taken
                                   together, these steps comprise the Independent Foreclosure Review
                                   (foreclosure review). The servicers developed a coordinated outreach
                                   plan to inform eligible borrowers of their opportunity to request a review of
                                   their foreclosure cases. OCC and the Federal Reserve have reported that
                                   approximately 95 percent of the 4.3 million outreach letters sent to eligible
                                   borrowers were successfully delivered, and the response rate was


                                   1
                                    The 14 servicers are Ally Bank/GMAC, Aurora Bank, Bank of America, Citibank,
                                   EverBank, HSBC, JP Morgan Chase, MetLife, OneWest, PNC, Sovereign Bank, SunTrust,
                                   U.S. Bank, and Wells Fargo. The Office of the Comptroller of the Currency (OCC)
                                   assumed oversight responsibility of federal savings associations from the Office of Thrift
                                   Supervision (OTS) in July 2011.
                                   2
                                    Types of financial injury could include, for example, if the mortgage balance amount at
                                   the time of the foreclosure action was more than the borrower actually owed, the
                                   mortgage payment was inaccurately applied, fees were inaccurately applied, the
                                   foreclosure occurred while the borrower was making on-time payments in a loan
                                   modification or was protected by bankruptcy, or the borrower was improperly denied a
                                   loan modification. This list does not include all situations.




                                   Page 1                                                     GAO-12-776 Foreclosure Review
approximately 5.3 percent, as of June 2012. However, consumer groups
and others have raised concerns about the outreach efforts.

In response to your request, we reviewed the design and implementation
of the borrower outreach process to determine how well information about
the foreclosure review is being communicated to eligible borrowers with
different characteristics. Specifically, this report addresses (1) the extent
to which the development of the approach and content of the
communication 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. This work represents the first phase of our review of the
foreclosure review process. In a subsequent report, we will examine other
elements of the foreclosure review process, such as the regulators’
oversight of the file review process, that you requested.

To address these objectives, we reviewed communication materials the
regulators approved against best practices on the content of outreach
notices, federal guidelines on plain language use, and criteria established
in our previous reports related to planning outreach campaigns and
testing communication materials. We also updated previous work on the
geographic concentrations of the population with limited English
proficiency and leveraged work we have done on characteristics of
individuals associated with low financial literacy. We reviewed regulators’
guidance to the servicers on setting up the outreach process and
evaluated that guidance against criteria in a previous report on planning
outreach campaigns. We compared the regulators’ outreach campaign
evaluation processes against criteria established in previous reports
related to monitoring and evaluating communication materials and
advertising activities. We conducted interviews with staff at OCC and the
Federal Reserve and representatives of consumer and community
groups. We also interviewed representatives of five mortgage servicers—
including large and small servicers and at least one supervised by each
regulator—and the third-party consultants these servicers have hired for
the foreclosure review process.

We conducted this performance audit from February 2012 through June
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.


Page 2                                            GAO-12-776 Foreclosure Review
                            Mortgage servicers are the entities that manage payment collections and
Background                  other activities associated with loans. Servicing duties can involve
                            sending borrowers monthly account statements, answering customer-
                            service inquiries, collecting monthly mortgage payments, and maintaining
                            escrow accounts for property taxes and insurance. In the event that a
                            borrower becomes delinquent on loan payments, servicers also initiate
                            and conduct foreclosures. Several federal regulators share responsibility
                            for regulating the banking industry in relation to the origination and
                            servicing of mortgage loans. 3 OCC has authority to oversee nationally
                            chartered banks and federal savings associations. The Federal Reserve
                            oversees insured state-chartered banks that are members of the Federal
                            Reserve System, bank holding companies, and entities that may be
                            owned by federally regulated depository institution holding companies but
                            are not federally insured depository institutions. The Federal Deposit
                            Insurance Corporation (FDIC) oversees insured state-chartered banks
                            that are not members of the Federal Reserve System and state-chartered
                            savings associations. 4 The Bureau of Consumer Financial Protection
                            oversees many of these institutions, as well as all mortgage originators
                            and servicers that are not affiliated with banking organizations, with
                            respect to federal consumer financial law. 5


Regulators Issued Consent   Beginning in September 2010, several servicers announced that they
Orders to Mortgage          were halting or reviewing their foreclosure proceedings throughout the
Servicers                   country after allegations that the documents accompanying judicial
                            foreclosures may have been inappropriately signed or notarized and after
                            completion of self-assessments of their foreclosure processes that federal
                            banking regulators directed them to conduct. In response, the banking



                            3
                            See, e.g., 12 U.S.C. § 1813(q).
                            4
                             In July 2011, OCC assumed oversight responsibility of federal savings associations from
                            OTS. Concurrently, the Federal Deposit Insurance Corporation (FDIC) assumed oversight
                            responsibility of state-chartered savings associations from OTS, and the Board of
                            Governors of the Federal Reserve System (Federal Reserve) assumed oversight
                            responsibility of savings and loan holding companies and lenders owned by a savings and
                            loan holding company from OTS.
                            5
                             Federal consumer financial law includes over a dozen federal consumer protection laws,
                            including the Truth in Lending Act, the Real Estate Settlement Procedures Act, and the
                            Equal Credit Opportunity Act, as well as title X of the Dodd-Frank Wall Street Reform and
                            Consumer Protection Act. Pub. L. No. 111-203, § 1002(12), (14), 124 Stat. 1376, 1957, 12
                            U.S.C. § 5481(12), (14).




                            Page 3                                                    GAO-12-776 Foreclosure Review
regulators—OCC, the Federal Reserve, OTS, and FDIC—conducted a
coordinated on-site review of 14 mortgage servicers to evaluate the
adequacy of controls over servicers’ foreclosure processes and to assess
servicers’ policies and procedures for compliance with applicable federal
and state laws. Regulatory staff told us that as part of these reviews, their
examiners evaluated internal controls and procedures for processing
foreclosures and reviewed samples of individual loan files to better
ensure the integrity of the document preparation process and to confirm
that files contained appropriate documentation. Examiners reviewed more
than 2,800 loan files comprising approximately 200 foreclosure loan files
with a variety of characteristics from each servicer to test the institutions’
controls and governance processes with respect to foreclosures.
Generally, the examinations revealed severe deficiencies in three primary
areas: shortcomings in the preparation of foreclosure documentation;
inadequate policies, staffing, or oversight of foreclosure processes; and
insufficient oversight of third-party service providers, particularly
foreclosure attorneys.

On the basis of their findings from the coordinated review, OCC, the
Federal Reserve, and OTS issued formal consent orders against each of
the 14 servicers under their supervision in April 2011 (see fig. 1). 6
According to bank regulatory staff and these consent orders, each of the
14 servicers is required to enhance its compliance, vendor management,
and training programs and processes. In addition, because examiners
reviewed a relatively small number of foreclosure files, the consent orders
require each servicer to retain an independent firm to conduct a review of
foreclosure actions on primary residences from January 1, 2009, to
December 31, 2010, to identify borrowers who suffered financial injury as
a result of errors, misrepresentations, or other deficiencies in foreclosure
actions, and to recommend remediation for borrowers, as appropriate.
Servicers proposed third-party consultants to conduct the foreclosure
review and submitted engagement letters outlining their foreclosure
review processes to the regulators by July 2011 as required by the
orders. OCC reviewed and approved the engagement letters for banks
under its supervision in late September 2011 and released the
engagement letters in November 2011 on the OCC website. With the




6
One of those orders was jointly issued by the FDIC and the Federal Reserve.




Page 4                                                  GAO-12-776 Foreclosure Review
                                        exception of one institution, the Federal Reserve approved the
                                        engagement letters for servicers under its jurisdiction by February 2012. 7

Figure 1: Timeline of Key Deadlines in the Foreclosure Review Process




The Foreclosure Review                  As required in the consent orders, the foreclosure review process has two
Process                                 components, a file review (look-back review) and a process for eligible
                                        borrowers to request a review of their particular circumstances (borrower
                                        outreach process). For the look-back review, the consent orders require
                                        the third-party consultant to submit an engagement letter outlining their
                                        plan for review subject to the regulators’ approval. Consultants are
                                        required to review various categories of loans, pursuant to regulators’
                                        guidance and approval. These categories may vary by servicer but
                                        include, for example, files in every state where the institution conducted
                                        foreclosures, foreclosures where the borrower had a loan modification in
                                        place, or files that were handled by certain law firms where
                                        documentation errors have previously been found. The consent orders
                                        allow third-party consultants to use statistical techniques to select
                                        samples of files from some categories of loans for review. As required in



                                        7
                                         The Federal Reserve released the engagement letter for the last institution in May 2012.




                                        Page 5                                                    GAO-12-776 Foreclosure Review
the consent orders, the engagement letters describe procedures
consultants will use to increase the size of samples depending on the
results of the initial reviews. Consultants are not allowed to use sampling,
but instead must review 100 percent of files in some high-risk categories,
including certain bankruptcy cases and files involving borrowers protected
by the Servicemembers Civil Relief Act (SCRA). 8 The Federal Reserve is
also requiring 100 percent review of files in several additional high-risk
categories, including foreclosure-related complaints filed before the
borrower outreach process was launched, foreclosure actions where a
complete request for a loan modification was pending at the time of the
foreclosure, and foreclosure actions that occurred when the borrower was
not in default.

The second component of the foreclosure review, the borrower outreach
process, is intended to complement the look-back review and help identify
borrowers who may have suffered financial injury. According to regulatory
documents and staff, the purpose of the outreach is to provide a robust
process so that eligible borrowers who believe they suffered financial
injury within the scope of the consent orders have a fair opportunity to
request an independent review of their circumstances and, potentially, to
obtain remediation. Regulatory staff noted that requiring institutions to
hire a consultant to review files to identify the harmed pool of consumers
as part of an enforcement action is typical. They said that including an
outreach component in addition to a file review is unique and
unprecedented in their experience. They also emphasized that the two
components are intended to work together to provide a full and fair
opportunity to identify as many financially injured borrowers as possible
and the final results could not be fully evaluated until both the look-back
file review and request-for-review process are completed. A Federal
Reserve official testified that the borrower outreach process was critical to
helping ensure that borrowers who suffered financial injury are identified
and appropriately compensated. 9 Acting Comptroller Walsh stated in a


8
 The Servicemembers Civil Relief Act (SCRA) restricts foreclosure of properties owned by
active duty members of the military. Pub. L. No. 108-189, § 303, 50 U.S.C. app. § 533
(2003). This provision applies to loans originated before the servicemember’s active
military service. We have ongoing work on various aspects of federal oversight of SCRA
compliance.
9
 Statement by Scott G. Alvarez, General Counsel, Board of Governors of the Federal
Reserve System, before the Subcommittee on Housing, Transportation, and Community
Development, Committee on Banking, Housing, and Urban Affairs, United States Senate,
Washington, D.C. December 13, 2011.




Page 6                                                   GAO-12-776 Foreclosure Review
speech that the two processes combined are intended to maximize
identification of and remediation for borrowers who have suffered financial
injury as a result of the deficiencies identified in the orders. 10 Consultants
are required to review all eligible requests for review submitted through
the borrower outreach process.

To make eligible borrowers aware of the opportunity to request a
foreclosure review, regulators required servicers to develop an outreach
process. The servicers’ borrower outreach plan includes multiple
methods, including direct mail, print advertising, a toll-free phone number,
a website, online marketing, and engaging a third party for community
outreach. Since the servicers had contact information for all of the eligible
borrowers, direct mail was the primary outreach method chosen. On
behalf of the participating servicers, a third-party administrator began
mailing uniform outreach letters on November 1, 2011, to 4.3 million
borrowers. 11 These outreach letters describe the request-for-review
process and include a request-for-review form for borrowers to complete
and submit if they believe they suffered financial injury as described in the
outreach letter (see fig. 2). The third-party administrator took steps to
update addresses of the eligible borrowers who may have lost their
homes to foreclosure. 12 A single, coordinated website, toll-free phone
number, and national advertising campaign were launched in January
and February 2012, to provide information about the request-for-review
process. The regulators directed the servicers to develop their outreach
plan in consultation with the third-party consultants and approved the
plan. As of March 2012, borrowers may also submit requests for review
via the independent foreclosure review website. 13 The original deadline


10
  Statement by John Walsh, Acting Comptroller of the Currency, before the 2012 National
Interagency Community Reinvestment Conference, Seattle, Washington, March 26, 2012.
11
  The 4.3 million people represents those people whose mortgages securing their primary
residence was serviced by one of the covered servicers and were subject to any stage of
the foreclosure process in 2009 or 2010. It does not suggest a number of people who may
or may not have been financially harmed by errors in that process.
12
  Specifically, all addresses on file were run through a national change of address
database to identify a more current address. Borrower addresses were also processed
through a third-party consumer database using information from sources such as credit
bureaus, public records/registrations, utilities, and phone number databases to determine
the most likely current addresses. Any returned mail from the next contact attempt was
processed using human judgmental decisioning to determine most likely current
addresses. These efforts resulted in an undeliverable rate of 5.3 percent.
13
 The website is: http://www.independentforeclosurereview.com.




Page 7                                                    GAO-12-776 Foreclosure Review
                                        for submitting requests for review was April 30, 2012, but regulators
                                        decided in February to extend the deadline to July 31, 2012. On June 21,
                                        2012, regulators extended the deadline again to September 30, 2012. A
                                        second round of national advertising occurred in April and May 2012, and
                                        a third round is planned before the deadline. Additionally, a second
                                        mailing to eligible borrowers who have not responded is scheduled for
                                        June 2012. The mailing directs borrowers to call the toll-free phone
                                        number or access the independent foreclosure review website for
                                        information or to submit a request-for-review form. In addition to the
                                        servicers’ coordinated efforts, regulators also have posted information
                                        about the foreclosure review on their agencies’ websites and issued press
                                        releases. Further, OCC has distributed public service announcements to
                                        small publications and radio stations, and the Federal Reserve developed
                                        a video to inform borrowers about the review process.

Figure 2: Initial Foreclosure Review Communication Materials




                                        Page 8                                         GAO-12-776 Foreclosure Review
                          As part of the outreach approach, the servicers formed a consortium to
While the Outreach        develop the initial outreach letter and request-for-review form with input
Efforts Have              from third-party consultants and approval from the regulators. The
                          servicers and regulators did not test these communication materials with
Improved over Time,       the borrowers or their community group advisers. Regulators consulted
Opportunities Exist to    with and incorporated feedback from consumer groups on subsequent
Enhance Readability       advertising and mailings to improve the format and clarity of current
                          materials. However, according to representatives of these groups and our
and Content of the        readability tests, the initial materials and the independent foreclosure
Communication             website may be difficult for some borrowers to understand. In addition,
                          the materials did not include specific information about the type of
Materials                 potential remediation borrowers could receive, which could affect
                          borrowers’ motivation to respond and submit a request for review.


Communication Materials   Servicers formed a consortium to develop the initial communication
Could Impede Some         materials, including the outreach letter and request-for-review form mailed
Borrowers’ Ability to     to eligible borrowers. Because the consent orders did not outline the
                          specifics of a borrower outreach process, regulators provided servicers
Respond                   and consultants guidance in July 2011 outlining their expectations for
                          mailing notifications to eligible borrowers and national advertising, among
                          other requirements. Representatives of servicers with whom we spoke
                          told us that after receiving this guidance the servicers decided to form a
                          consortium to develop a coordinated outreach process and uniform
                          communication materials. A representative of one servicer and regulatory
                          staff said that this approach would reduce potential confusion among
                          borrowers that could result if each servicer had developed separate
                          advertisements, websites, and outreach letters. Therefore, the servicers
                          worked together to develop initial drafts of the communication materials,
                          relying primarily on the expertise of their internal marketing departments
                          and class action lawsuit notices as a model for notifying borrowers of the
                          request-for-review process. The third-party consultants reviewed the
                          communication materials and provided their input. After the consultants’
                          review, the regulators also provided comments on the outreach plan and
                          content of the communication materials and ultimately gave their final
                          approval.

                          Although servicers developed the initial communication materials with
                          input from third-party consultants and regulators, the servicers and
                          regulators did not test the materials with the target audience. Our
                          previous reports and federal guidelines about using plain language in
                          public documents have emphasized the importance of testing
                          communication materials, such as conducting focus groups or assessing


                          Page 9                                          GAO-12-776 Foreclosure Review
their readability, before implementing them. For example, in a previous
report we have stated that consumer testing can validate the
effectiveness of messages and information or measure readers’ ability to
comprehend them. 14 We also have found that in order to develop clear
and consistent audience messages, testing and refining language are
important. 15 The Plain Writing Act of 2010 states that starting October 13,
2011, agencies must use plain writing when issuing new or substantially
revised documents, including documents that explain to the public how to
comply with a requirement that the federal government administers or
enforces. 16 The act defines “plain writing” as “writing that is clear, concise,
well-organized, and follows other best practices appropriate to the subject
or field and intended audience.” In addition, federal guidelines developed
to help executive agencies implement the Plain Writing Act of 2010 state
that testing documents, including applications and websites, should be an
integral part of the plain-language planning and writing process,
especially when writing to millions of people. 17 Finally, the Securities and
Exchange Commission’s handbook for companies preparing required
disclosure documents to investors in easy-to-understand language states
that testing documents with a focus group can provide helpful feedback




14
  See GAO, Credit Cards: Increased Complexity in Rates and Fees Heightens Need for
More Effective Disclosures to Consumers, GAO-06-929 (Washington, D.C.: Sept. 12,
2006). In this report we assessed the effectiveness of the disclosures that credit card
issuers are required by federal regulations to provide to cardholders in terms of their
usability or readability, among other things.
15
  See GAO, Digital Television Transition: Increased Federal Planning and Risk
Management Could Further Facilitate the DTV Transition, GAO-08-43 (Washington, D.C.:
Nov. 19, 2007). For this report we convened an expert panel to identify a list of key
practices for planning a consumer education campaign. While this list was created with
the digital television transition campaign in mind, the panel focused on communication
campaigns that are intended to elicit a one-time action or behavior change. The goal in
creating this list was that it could be used to provide a framework for evaluating other
consumer education outreach programs as well.
16
  The Plain Writing Act of 2010. Pub. L. No. 111-274 (2010), 5 U.S.C. § 301 Note.
Guidance to agencies on implementing this act from the Office of Management and
Budget states that plain writing can be essential to the successful achievement of
administrative goals and that documents explaining to the public how to comply with a
requirement that the federal government enforces are covered under the act.
17
  Federal Plain Language Guidelines, March 2011, Revision 1, May 2011. These
guidelines state that testing is recommended for documents such as websites, brochures,
applications, mobile websites, videos, social media, and public affairs messages.




Page 10                                                   GAO-12-776 Foreclosure Review
on how well the document communicates information and identify any
confusing language. 18

Representatives of one servicer and a consultant we interviewed said the
consortium considered testing the communication materials with
borrowers or conducting focus groups, but that the time frames were too
short to take these steps and incorporate any changes by the November
2011 deadline by which regulators expected the outreach campaign to be
launched. The servicer representative noted that because regulators
provided guidance in July 2011 and initially expected an August 2011
launch, the servicers had only 60 days to develop the coordinated
communication materials. 19 According to this representative, conducting
tests with focus groups could take 6 to 8 weeks. Federal Reserve staff
said they wanted to get the outreach process started quickly so that
financially injured borrowers could receive remediation as soon as
possible. According to these staff, no formal readability tests or focus
groups with the target audience were conducted, partly due to their
interest in expediting the remediation process. However, they consulted
with staff in the agency’s Division of Consumer and Community Affairs for
feedback on improving the communication materials to help ensure
consumers could understand them. OCC staff also confirmed that no
formal testing of the communication materials was conducted, but OCC
also provided the materials to its Public Affairs and Community Affairs
groups, which reviewed the materials for readability, and incorporated
changes.

Readability tests of the outreach letter and request-for-review form mailed
to eligible borrowers and the website language indicate that these
materials were written at a level above the reading proficiency of many
borrowers. Federal plain language guidelines note that technical terms
may be necessary, but that agencies should define them and avoid legal
and technical jargon, where possible. At the same time, the guidelines
state that agencies should take into account their audience’s current level
of knowledge when preparing documents and that the documents should
be easy to understand. An assessment of the reading level of the U.S.



18
  U.S. Securities and Exchange Commission, A Plain English Handbook: How to Create
Clear SEC Disclosure Documents (Washington, D.C.: August 1998).
19
  According to regulatory staff, the August 2011 deadline was extended when it became
apparent that the coordinated approach would require additional time.




Page 11                                                 GAO-12-776 Foreclosure Review
population indicated that nearly half of the adult population is estimated to
read at or below the eighth-grade level. 20 We have previously reported
that to help ensure that the complex information public companies are
required to disclose is written in plain language and is understandable,
the Securities and Exchange Commission recommends that materials be
written at a sixth- to eighth-grade level. 21 However, one consumer group
conducted a readability test of the language in the communication
materials mailed to eligible borrowers and found that they were written at
a second-year college reading level. 22 Because the scheduled second
wave of mailings and advertising direct borrowers to the independent
foreclosure review website to obtain more information about the review
and submit a request-for-review form, we conducted readability tests of
the language used in the online request-for-review form. We used three
tests that score how hard a piece of writing is to read based on
quantitative measures, such as average number of syllables in words or
numbers of words in sentences. One of these tests used the same
method the consumer group used to evaluate the outreach letter and
request-for-review form. These tests indicate that the website is written at
an average of an eleventh-grade reading level, which is lower than the
test results of the outreach letter and paper request-for-review form, but
still above the average reading level of the U.S. population. 23 Certain
sections of the website required higher or lower reading levels to be
understandable. For example, the legal section of the online submission



20
  1992 National Adult Literacy Survey. The 2003 National Assessment of Adult Literacy
(renamed from 1992) found that reading comprehension levels did not significantly change
between 1992 and 2003 and that there was little change in adults’ ability to read and
understand sentences and paragraphs. No further assessments have been conducted
since 2003.
21
  See GAO-06-929. The Securities and Exchange Commission regulates the issuance of
securities to the public, including the information that companies provide to their investors
and has developed a handbook for issuers on how to create clear disclosure documents.
22
  Statement by Alys Cohen, National Consumer Law Center, before the Subcommittee on
Housing, Transportation, and Community Development, Committee on Banking, Housing,
and Urban Affairs, United States Senate, Washington, D.C.: December 13, 2011.
According to this statement, the Flesch-Kincaid grade level test in Microsoft Word’s
grammar-check tool scored the cover letter at a 14.2 grade level and the request-for-
review form at a 13.5 grade level. We did not validate these results.
23
  The three readability scoring tests conducted were the Flesch-Kincaid Formula, Gunning
Frequency of Gobbledygook (FOG) Readability Test, and McLaughlin Simplified Measure
of Gobbledygook (SMOG) Formula. See appendix I for more information about these tests
and the results.




Page 12                                                      GAO-12-776 Foreclosure Review
form where borrowers acknowledge that they are requesting a review of
their foreclosure and certify that the information is truthful were written at
a fifteenth-grade level, the equivalent of 3 years of college education.
However, one test indicated that the language used on the part of the
form where borrowers input their contact information required only an
eighth-grade reading level. As a whole, these tests are one indicator that
portions of the foreclosure review communication materials may be too
complex to ensure effective communication of all the relevant information.

The readability tests have some limitations and regulatory staff told us
that they considered plain language guidelines when evaluating the
materials. We note that the readability ratings only reflect the length of
sentences and the length in syllables of individual words in the sentences
and do not reflect the complexity of ideas in a document or how clearly
the information has been conveyed. As the content in these materials
refer to mortgages, some complex terms and phrases, such as
foreclosure and loan modification, may be unavoidable. Regulatory staff
told us that they were aware of the plain language guidelines and
discussed using plain language so that the materials were likely to be
understood. For example, they noted that they did not include
unnecessary legal and technical language, but said it was difficult to
convey complex mortgage and legal terms in simple language that would
still clearly and precisely present the intended message. Federal Reserve
and OCC staff noted that to the extent the Plain Writing Act applies to the
servicers’ borrower outreach communication materials, they believed they
had met the act’s requirements.

In addition to stating that agencies should take the audience’s current
level of knowledge into account, federal guidelines on using plain
language also state that agencies should use language the audience
knows and feels comfortable with when creating documents, including
websites. Representatives of consumer groups we interviewed expressed
concern about the initial lack of materials available in languages other
than English. According to 2008-2010 Census Bureau American
Community Survey data, about 12.7 million adults in the United States—
5.5 percent of the total U.S. adult population—reported speaking English




Page 13                                           GAO-12-776 Foreclosure Review
not well or not at all. 24 In addition, as shown in figure 3, populations with
limited English proficiency tend to be more concentrated in certain parts
of the country. To the extent that these concentrations are also in areas
with high numbers of foreclosures that servicers did not target with
Spanish-language advertising, limited English proficiency could affect
borrowers’ ability to complete their request-for-review form. We have
previously reported that a lack of proficiency in English can affect financial
literacy—the ability to make informed judgments and take effective
actions on the current and future use and management of money. 25 This
report also stated that limited English proficiency can be a significant
barrier to completing applications (such as the request-for-review form),
asking questions about additional fees on credit card statements or
correcting erroneous billing statements, and accessing educational
materials such as print advertising or websites that are not available in
languages other than English. Further, this report noted that having
limited proficiency in English exacerbates the challenges of
understanding complex information in financial documents. This report
also acknowledged that factors other than language often serve as
barriers to financial literacy for people with limited English proficiency,
including a lack of familiarity with the U.S. financial system, cultural
differences, mistrust of financial institutions, and income and education
levels. Federal Reserve staff said that they required the servicers to
handle the borrower outreach communication with non-English speaking
borrowers in accordance with the servicers’ existing policies and
procedures pertaining to such borrowers, which must comply with existing
laws and regulations. However, because the initial communication
materials were not available in languages other than English, borrowers
with limited English proficiency may not have had the same opportunity
as proficient English speakers to request a foreclosure review.




24
  In the Census Bureau data, English speaking ability is self-reported by adults ages 18
and over who have indicated that they speak a language other than English at home. The
survey, which is provided in multiple languages, allows respondents to choose between
speaking English “very well,” “well,” “not well,” or “not at all.” Other sources may use
different definitions for limited English proficiency.
25
  See GAO, Consumer Finance: Factors Affecting the Financial Literacy of Individuals
with Limited English Proficiency, GAO-10-518 (Washington, D.C.: May 21, 2010).




Page 14                                                  GAO-12-776 Foreclosure Review
Figure 3: Proportion of the Adult Population with Limited English Proficiency, 2008-2010, and Key Markets Targeted by
Servicers with Spanish-Language Advertising




                                         Note: This map does not reflect OCC’s public service advertisement efforts. According to OCC staff,
                                         to supplement the servicers’ outreach efforts, OCC released a series of English and Spanish public
                                         service announcements, including a print article released to local newspapers and publications and
                                         two 30-second radio spots to small radio stations throughout the country and media outlets serving
                                         audiences who speak languages other than English and Spanish.




                                         Page 15                                                          GAO-12-776 Foreclosure Review
Regulators did not initially solicit input from consumer and community
groups when evaluating the language used in the communication
materials but have since taken steps to address these groups’ concerns.
Representatives of several consumer and community groups we
interviewed said that they have direct experience working with distressed
borrowers or in developing national outreach campaigns. Regulators
acknowledged that they initially did not obtain input from these groups
when evaluating the early communication materials, but they have since
held several meetings with selected groups to obtain their feedback on
the outreach process and requested feedback from them on the current
advertisements and mailings, as well as certain prior communications.
For example, Federal Reserve and OCC staff noted that both regulators
incorporated feedback from these groups to enhance readability, include
more Spanish translations, and improve how borrowers might respond to
second print advertisement and the content and the exterior of the second
mailing. Regulators also made changes to increase accessibility for non-
English speaking borrowers that are consistent with the feedback from
consumer groups, such as requiring servicers to add frequently asked
questions and a guide to filling out the request-for-review form in Spanish
to the independent foreclosure review website. In addition, regulatory staff
said they required servicers to include references to available assistance
in other languages at the call center on the independent foreclosure
review website and in communication materials. 26

The regulators also have taken their own initiative to enhance the
communication materials. For example, they have posted on their
agencies’ websites an archived version of the two webinars they hosted
to educate community groups that assist borrowers with housing issues
about the foreclosure review process as well as English and Spanish
transcripts of the webinar. The agencies also consulted with the U.S.
Department of Justice in December 2011 on the measures taken by the
agencies to ensure that the independent foreclosure review is accessible
to non-English speakers. 27 In addition, the Federal Reserve released a


26
  Regulatory staff also noted that they required servicers to make Spanish-speaking
representatives available at the toll-free call center, which also has translation services
available in over 200 languages and operators to translate documents for borrowers over
the phone.
27
  The agencies consulted with attorneys at the Department of Justice responsible for
administering Executive Order 13166, Improving Access to Services for Persons with
Limited English Proficiency.




Page 16                                                     GAO-12-776 Foreclosure Review
YouTube video that provides information about the foreclosure review in
Spanish and English. Further, OCC produced public service
announcements and distributed them to more than 700 Spanish-language
newspapers and 500 Spanish-language radio stations. Consumer group
representatives involved in discussions about outreach with the regulators
told us the recent improvements were positive, but said that they would
like to see documents and information on the website offered in additional
languages, language further simplified, and legal terms explained. For
example, the webinar materials provide tips on how to answer request-
for-review form questions that define terms, clarify questions, and indicate
what additional documentation to reference; however, this information is
not available on the independent foreclosure review website where
borrowers are encouraged to submit their request-for-review forms.

Although regulators have ensured that some Spanish language materials
are available, these materials may still be difficult for Spanish-speaking
borrowers to understand. We have previously reported that in some
cases even translations of materials may not be fully comprehensible if
they are not written using colloquial or culturally appropriate language. 28
In addition, a 2004 report by the National Council of La Raza noted that
literal translations of financial education materials from English to Spanish
are often difficult for the reader to understand. 29 Federal Reserve staff
acknowledged that some terms do not translate well, and said they
consulted with two consumer groups with Spanish translation capability
as well as native Spanish speaking staff in the Division of Consumer and
Community Affairs for advice on terms to use. Our analysis of the
Spanish guide to the request-for-review form available on the
independent foreclosure review website indicated that the Spanish
translation in the guide uses language similar in complexity to that of the
English form, which we found requires a reading level higher than the
national average. In addition, the English outreach letter is not translated,
and some of the key information, such as the purpose of the review or the
deadline for submitting the form, is not included in the cover of the
Spanish guide, although regulatory staff noted that the deadline is
included in bold text on the second page of the guide. Further, some of
the terms and phrases that have been translated literally may be difficult


28
 See GAO-10-518.
29
  Brenda Muñiz, Financial Education in Latino Communities: An Analysis of Programs,
Products, and Results/Effects, National Council of La Raza (Washington, D.C.: 2004).




Page 17                                                  GAO-12-776 Foreclosure Review
                             to understand. For example, the term eligible is used in the English and
                             Spanish documents, but this term has a different meaning in each
                             language. In Spanish, “eligible” means “available” (that is, an option one
                             is allowed to choose), rather than “qualified to participate or be chosen”
                             as it indicates in English. Further, the Spanish word “administrador” is
                             used to refer to both the mortgage servicer and the third-party
                             administrator collecting request-for-review forms on the servicers’ behalf,
                             which could be confusing given the different roles of these two entities
                             and that the review process is intended to be independent of the servicer.
                             Regulatory staff said that to distinguish between the two functions, the
                             term is capitalized when referring to the third-party administrator. Further,
                             because Spanish readers must refer to the guide and the English form
                             simultaneously, they could make mistakes in recording information on the
                             English form. According to regulator guidance to consultants, if borrowers
                             do not select any specific areas of financial injury but sign the request-for-
                             review form and provide current contact information, consultants will
                             review the case for all types of financial injury. However, if borrowers
                             select areas of financial injury on their request-for-review forms,
                             consultants will review those areas specifically, so mistakes in filling out
                             the form could affect which aspects of borrowers’ foreclosure cases the
                             consultants review.


Limited Remediation          The content of the foreclosure review communication materials includes
Information May Affect the   general information about the nature and terms of the request-for-review
Response Rate                process. The communication materials follow regulators’ guidance on the
                             content of the materials issued to borrowers, which includes why the
                             borrower is being contacted, how eligibility will be determined, how
                             borrower information needed will be collected to conduct the foreclosure
                             review, how borrowers may contact their servicer, and when to expect a
                             response. For example, to describe the nature of the foreclosure review
                             process, the letter states that the purpose is to identify customers who
                             may have been financially injured due to errors, misrepresentations, or
                             other deficiencies during the foreclosure process. To identify the
                             borrowers affected, the outreach letter states the eligible population of
                             customers is borrowers whose primary residence was in foreclosure
                             between January 1, 2009, and December 31, 2010. Additionally, the
                             outreach letter outlines the steps of the review process and states that
                             borrowers will receive a letter with the findings of the review. The
                             information in the outreach letter is similar to what is typically included in




                             Page 18                                            GAO-12-776 Foreclosure Review
a class action lawsuit notification. Regulatory staff and servicers informed
us that they generally modeled the communication materials on class
action lawsuit notifications. 30 For example, sample communication
materials for class action lawsuits designed by the Federal Judicial
Center (FJC) include specific information about the nature and terms of a
class action, including what the lawsuit is about, who is eligible, and
participants’ legal rights and options. 31

In addition to information about the nature and terms of the review, best
practices and consumer groups also suggest including specific
information about remediation in communication materials to help
motivate eligible participants to respond. For example, outreach models
for class action lawsuits and industry examples include specific
information about the amount or type of remediation participants can
expect to receive. While these models contain features that may not be
applicable to each aspect of the foreclosure review, they do provide
insights into the types of information that might incentivize individuals to
participate and therefore improve response rates.

•    Federal Judicial Center—Sample class action communication
     materials, including notices and flyers, provide specific financial
     remediation information, such as stating a minimum, maximum, and
     average amount of compensation, by category of participant, that a
     class member may receive from a settlement (fig. 4). Another
     example provides the amount of compensation a class member may
     receive depending on the number of claim forms received. To develop
     these models, the FJC conducted “plain language” testing with
     nonlawyers, focus groups of ordinary citizens from diverse
     backgrounds, and survey testing for reading comprehension.
     According to these tests, participants’ motivation to read and
     comprehend class action notices can significantly improve as a result


30
   Our choice in selecting outreach examples used in class action lawsuits is based on the
regulators informing us that this is their chosen model of outreach. After reviewing
outreach examples on class action lawsuits, we found that they contained several
illustrative principles that may improve the servicers’ outreach and the borrowers’
response rates overall.
31
  The Federal Judicial Center (FJC) is the education and research agency for the federal
courts. Congress created the FJC in 1967 to promote improvements in judicial
administration in the courts of the United States. These models were developed by FJC at
the request of the Subcommittee on Class Actions of the U.S. judicial branch’s Advisory
Committee.




Page 19                                                    GAO-12-776 Foreclosure Review
      of changing the language, organizational structure, format, and
      presentation of the notice.

•     National Association of Consumer Advocates—Foreclosure class
      action guidelines this group developed recommend, among other
      things, that participants should be informed of the total amount of
      relief to be granted, stated in dollars, and the nature and form of the
      individual relief each class member could obtain. 32 These guidelines
      also note that participants should be informed of the full range of
      recoveries that they could obtain, either at trial or through the
      settlement.

•     National Mortgage Settlement—A settlement between 49 state
      attorneys general, the federal government, and the five leading
      mortgage servicers for improper foreclosure practices will result in
      approximately $25 billion in monetary sanctions and relief. Summary
      documentation provided on the National Mortgage Settlement website
      specifically states the total amount of the settlement and the
      approximate amount eligible borrowers can expect to receive. 33 For
      example, of the approximately $25 billion total, this documentation
      states that about $1.5 billion of the settlement funds will be allocated
      to compensation for borrowers who were not properly offered loss
      mitigation or who were otherwise improperly foreclosed on. It also
      provides the specific amount that those borrowers will be eligible to
      receive—a uniform payment of approximately $2,000 per borrower,
      depending on the level of response. In addition, the summary
      documentation states that servicers are required to provide specific
      amounts of assistance to servicemembers whose foreclosure violated
      SCRA.

•     Groups Experienced with Counseling, Representing, or Educating
      Distressed Borrowers—Consumer and community groups, including
      housing counselors, have advocated for including specific information
      about remediation that can help motivate participants to respond.
      Representatives of consumer groups we interviewed said that



32
  The National Association of Consumer Advocates is a nonprofit association of attorneys
and consumer advocates committed to representing customers’ interests. Its members are
private and public sector attorneys, legal services attorneys, law professors and law
students whose primary focus is the protection and representation of consumers.
33
    National Mortgage Settlement website is: http://www.nationalmortgagesettlement.com/.




Page 20                                                   GAO-12-776 Foreclosure Review
     providing this information to borrowers and their advocates would
     allow them to make informed choices about submitting a request for
     review. They noted that even identifying the types of remediation
     available by category, such as moving expenses or costs due to
     delay, could be helpful. Consumer groups also informed us that such
     motivation is important because borrowers may be reluctant to submit
     their request-for-review form due to mistrust in government and the
     fatigue of repeated attempts to resolve a mortgage-related issue with
     a servicer. They said that borrowers who already have been through a
     taxing loan modification process and have little confidence in the
     system may be reluctant to go through this process again without a
     clear outcome. In a previous report, we discuss borrowers’ frustration,
     as reported by housing counselors, with delays in loss mitigation
     processes and borrower fatigue as a result of lost documentation,
     long trial modification periods, wrongful denials, difficulty contacting
     their servicer, and questions about the loan modification program or
     application. 34




34
  See GAO, Troubled Asset Relief Program: Results of Housing Counselors Survey on
Borrowers’ Experiences with the Home Affordable Modification Program, GAO-11-367R
(Washington, D.C.: May 26, 2011).




Page 21                                               GAO-12-776 Foreclosure Review
Figure 4: Remediation Information in Initial Foreclosure Review and Sample Class Action Lawsuit Materials




                                         Page 22                                              GAO-12-776 Foreclosure Review
Regulatory staff noted that settlements in class action lawsuits are
different from the foreclosure review, and therefore may not be a fair
comparison. For example, they noted that settlements typically involve a
predetermined total amount of remediation that is to be divided up, often
proportionally, and then paid to the participating class members, all of
whom are assumed to have suffered the injury common to the class. On
the contrary, as part of the foreclosure review, servicers are not required
to provide a predetermined total amount of remediation to financially
injured borrowers identified in the foreclosure review. Rather, Federal
Reserve officials clarified that the servicers are required to pay whatever
total amount is appropriate to remediate the financial injury. In addition,
OCC staff noted that, unlike a class action lawsuit settlement where the
class of injured borrowers is identified and the range of remediation is
known at the outset, the 4.3 million borrowers includes borrowers who
may or may not have suffered financial injury within the scope of the
regulators’ consent orders. Further, regulatory staff noted that the
National Mortgage Settlement, much like the class action settlements
referenced above, involves a predetermined total amount of monetary
sanctions and consumer relief, unlike the remediation that servicers must
provide financially injured borrowers identified during the foreclosure
review. 35 Federal Reserve officials stated that although the regulators
have not yet made detailed information about the amounts and types of
remediation that may be provided to financially injured borrowers publicly
available, the August 29, 2011, guidance from the regulators to the third-
party consultants identifying types of injuries that may warrant
remediation have been made publicly available, including in the testimony
of an OCC official. 36 Further, OCC staff noted that the request-for-review


35
   The remediation that Federal Reserve-regulated servicers are required to provide
financially injured borrowers identified during the foreclosure review is in addition to the
monetary sanctions that the Federal Reserve has assessed against certain of the
institutions subject to consent orders and any associated consumer relief under the
national mortgage settlement. Federal Reserve staff told us that some of the same
institutions in the foreclosure review are also subject to the national mortgage settlement
and the Federal Reserve has allowed the institutions it supervises to satisfy the Federal
Reserve's monetary sanctions by providing consumer relief under the national mortgage
settlement. According to an OCC press release, OCC announced agreements in principle
with the servicers it supervises to hold in abeyance imposition of penalties provided the
servicers make payments and take other actions under the national mortgage settlement
with a value equal to at least the penalty amounts that each servicer acknowledges that
OCC could impose.
36
  Remarks by John Walsh, Acting Comptroller of the Currency before the 2012 National
Interagency Community Reinvestment Conference, Seattle, March 26, 2012.




Page 23                                                     GAO-12-776 Foreclosure Review
form, independent foreclosure review website, and agency websites
include information that describes the types of financial injury that would
be covered. At the time of our review, the regulators had not yet
announced guidance regarding the amount of financial remediation that
would be provided. However, OCC and Federal Reserve officials told us
that public release of a financial remediation framework that contains
detailed information regarding dollar amounts that may be associated with
particular injury types was forthcoming. 37

Although the foreclosure review communication materials describe the
types of financial injury and note that remediation may be awarded, they
do not identify remediation by type of financial injury or provide a range of
financial compensation that may be available to borrowers. For example,
print advertising materials, the outreach letter, and request-for-review
form, as well as a second mailing that was sent in June 2012 to eligible
borrowers, only notifies them that they could receive possible
compensation or other remedy if foreclosure errors caused financial
injury. The foreclosure review website and accompanying frequently
asked questions provides similar information and note that if the review
does find financial injury, compensation or other remedy that the borrower
may receive will be determined by their specific situation. Similarly, most
regulator testimonies and public statements do not identify a range of
financial remediation that may be available for borrowers. For example, a
Federal Reserve official testified that where financial injury is found, the
servicers must compensate the injured borrowers pursuant to a
remediation plan that is acceptable to the Federal Reserve. 38 In addition,
the Federal Reserve’s video discussing the foreclosure review, accessible
via the Internet, states that the “borrower’s file will be reviewed by an
individual consultant who will determine if you were financially harmed by
your mortgage servicer.” 39 An OCC official testified that there are no caps
or limits to the amount of compensation that will be paid out or
remediation that will be implemented by the servicers. 40 This testimony


37
 Regulators released the remediation framework on June 21, 2012.
38
 Testimony by Suzanne G. Killian, Federal Reserve Board, Committee on Oversight and
Government Reform, U.S. House of Representatives, on March 19, 2012.
39
  Federal Reserve video: http://www.federalreserve.gov/consumerinfo/independent-
foreclosure-review.htm
40
 Testimony by Morris Morgan, Office of the Comptroller of the Currency before the
Oversight and Government Reform, U.S. House of Representatives, on March 19, 2012.




Page 24                                                 GAO-12-776 Foreclosure Review
also mentions, as discussed earlier, that financial remediation guidance is
being considered that will clarify expectations as to the amount and type
of compensation recommended for certain categories of injury to help
ensure consistent recommendations across the servicers for borrowers
who suffered similar types of injury. Regulator-sponsored webinars for
community groups stated similarly that the financial remediation
framework will address borrowers’ questions about the kinds and
amounts of remediation that will be offered for different types of injuries.

Specific information about potential remediation could be difficult to
present in a simple manner given the 22 potential types of injury agencies
identified and various unique borrower circumstances that could affect the
type and amount of remediation borrowers will receive. 41 Federal Reserve
staff explained that providing borrowers specific information about
remediation also is difficult because, as noted earlier, regulators have not
set a predetermined total amount of remediation, and the foreclosure
review is not yet complete so consultants have not yet identified all
financially injured borrowers. Regulators are developing financial
remediation guidance that is intended to serve as a baseline standard yet
provide flexibility to the consultants to address the borrower’s direct
financial injury. As of May 2012, regulatory staff said that they were still in
the process of preparing such guidance, which the regulators intend to
publish when it is finalized. 42 As a result, representatives of some
servicers we interviewed told us they could not include remediation
information in the communication materials. Federal Reserve staff and
one servicer also expressed concern that providing this information might
confuse borrowers or raise false expectations for what compensation they
might receive. However, a recent OCC speech provides some specific
information about the potential range of remediation categories, which
consumer groups said could help increase borrowers’ motivation to
submit a request for review. 43 For example, the remarks state that
remediation for financial injuries may include, but is not limited to, lump-
sum payments, rescinded foreclosures, reimbursements of lost equity,
repayment of out-of-pocket expenses resulting from the error plus


41
  Regulatory staff point out that these 22 examples of financial injury are demonstrative
and more types of financial injury could exist.
42
 Regulators released the remediation framework on June 21, 2012.
43
  Remarks by John Walsh, Acting Comptroller of the Currency, before the 2012 National
Interagency Community Reinvestment Conference, Seattle, March 26, 2012.




Page 25                                                    GAO-12-776 Foreclosure Review
                            interest, correction of erroneous amounts owed in applicable records, and
                            correcting credit reports. Similar information on a potential range of
                            remediation categories is not discussed in any of the regulators’ other
                            communication materials that we reviewed. Given the potential difficulties
                            on reaching and motivating this population, without financial remediation
                            information available, borrowers might not be motivated to respond.


                            The initial coordinated servicer outreach plan approved by regulators
Outreach Was Based          provided for a uniform outreach process with additional targeted outreach
on Limited Analysis of      to African-American and Spanish-speaking borrowers. In developing the
                            outreach activities, servicers did not analyze the target audience for
Eligible Borrower           characteristics—such as those associated with low financial literacy—that
Subgroups                   may have limited some borrowers’ ability to respond to outreach activities.
                            To address concerns that borrowers may not respond to outreach from
                            servicers, a third-party entity serves as the contact point for borrower
                            mailing and questions. While OCC and the Federal Reserve have
                            acknowledged community groups as effective messengers to reach the
                            target audience and have encouraged servicers to coordinate with these
                            groups, servicers have leveraged outreach through community groups to
                            varying degrees. Regulators regularly monitored the status of the
                            outreach activities, but did not compare respondents to nonrespondents
                            to determine whether certain groups of borrowers were underrepresented
                            in the response to the initial outreach activities. Without this analysis, the
                            extent to which the outreach process has effectively complemented the
                            file-review process to identify borrowers who may have suffered financial
                            injury is unclear.


Initial Outreach Was        Regulators approved a uniform process to reach eligible borrowers, with
Largely Uniform with        additional targeted outreach limited to African-American and Spanish-
Limited Targeted Outreach   speaking borrowers. According to Federal Reserve staff, the 14 servicers
                            covered by the consent order service more than two-thirds of U.S.
                            mortgages. According to the outreach plan developed by servicers and
                            approved by OCC and the Federal Reserve, the target audience of 4.3
                            million eligible borrowers—that is, borrowers whose loans on their primary
                            residences had been in some stage of foreclosure in 2009 or 2010—is
                            concentrated in those states that experienced higher foreclosure rates,
                            but broadly represents the U.S. population as a whole covering all ages
                            and income levels. Therefore, servicers determined that the best way to
                            reach their target audience of all eligible borrowers was to use direct
                            mail—the same outreach letter and request-for-review form were mailed
                            to all eligible borrowers—and to place advertisements in four national


                            Page 26                                           GAO-12-776 Foreclosure Review
publications. 44 According to regulatory staff, after conducting some
analysis, the servicers selected these publications for their large
circulation both nationally and in states with heavy foreclosure volume, as
well as for their broad appeal among both men and women and across
different ages and income levels. In addition to print advertisements,
servicers provided online paid search advertising to assist borrowers
using the Internet to find the independent foreclosure review website and
OCC ran English-language public-service radio and newspaper
advertisements in small radio stations and newspapers in 38 states.
According to regulator guidance on the outreach process, the process
was intended to be robust and to ensure that all borrowers had a fair
opportunity to file a request-for-review form.

As part of the initial implementation of coordinated outreach activities,
regulators reviewed the outreach plan with 19 consumer groups familiar
with the target audience of all eligible borrowers and in part based on
their feedback, incorporated outreach activities to reach certain
populations. These additional activities generally occurred concurrently—
that is, in January and February 2012—with the national advertisements
and outreach. For example, to target the Hispanic population, Spanish-
language print advertisements were placed in 26 publications in
communities servicers had identified as having large Hispanic populations
that were in states recognized nationally as having high concentrations of
loans in default and foreclosure. 45 OCC also placed Spanish-language
public-service advertisements in print publications and over the radio in at
least six states. In addition, to reach borrowers with limited English
proficiency the toll-free customer assistance phone number included
translation services in over 240 languages with some in-language
notification about this service included in outreach materials. 46 Finally,
OCC and the Federal Reserve directed servicers to increase outreach to
African-American borrowers and servicers purchased advertisements in




44
 Servicers placed advertisements in Parade Magazine, USA Weekend, People
Magazine, and TV Guide.
45
  According to Federal Reserve staff, the regulator had already planned to conduct some
outreach in Spanish prior to meeting with community groups.
46
  Since mid-March, in-language notification on outreach materials, including
advertisements and the second mailing, was provided in six languages—Chinese, Hmong,
Korean, Russian, Tagalog, and Vietnamese.




Page 27                                                  GAO-12-776 Foreclosure Review
one additional national print publication that primarily targets the African-
American community. 47

Our prior work has found that effectively reaching targeted audiences
through outreach activities requires analysis of the target audience,
including dividing the audience into smaller groups of people who have
relevant needs, preferences, and characteristics. 48 For example, one way
to divide the foreclosure review target audience into smaller groups would
be to analyze the geographic location of the target audience by
Metropolitan Statistical Area (MSA) or zip code, rather than by state.
These divisions could enable more refined outreach—such as
concentrated advertising in local publications and on local radio stations,
or holding community outreach events in addition to direct mail and
national advertising—in those areas with high concentrations of the target
audience. As illustrated in figure 5, our prior work analyzing foreclosure
trends among nonprime loans found that as of June 2009—near the
beginning of the review period—concentrations of loans in the foreclosure
process varied by congressional district, even in those states with high
default and foreclosure rates such as California and Florida, indicating
that targeted outreach in these areas could be more likely to reach
eligible borrowers. 49 Other outreach campaigns have used this type of
analysis to target their outreach activities, including a congressionally
appropriated national loan modification scam alert campaign conducted
by NeighborWorks America, a government-chartered, nonprofit
corporation. 50 This organization conducted a zip-code-level analysis of
minority homeowners and mortgage performance to identify areas within
hardest hit states for targeted outreach—for example, areas of California
south of San Francisco.




47
 Servicers purchased advertisements in Jet magazine.
48
 See GAO-08-43.
49
 See GAO, Loan Performance and Negative Home Equity in the Nonprime Mortgage
Market, GAO-10-146R (Washington, D.C.: Dec. 16, 2009).
50
  In March 2009, Congress appropriated $6 million to NeighborWorks America to develop
a national public education campaign about loan modification scams.




Page 28                                                GAO-12-776 Foreclosure Review
Figure 5: Estimated Rates of Active Nonprime Loans in the Foreclosure Process by
Congressional District, as of June 30, 2009




Notes: Nonprime loans include subprime and Alt-A loans. Loans were originated between 2000 and
2007. For additional discussion of the methodology for this analysis see appendix I and
GAO-10-146R.


Similarly, the target audience could be analyzed and divided according to
other characteristics that could also affect the likelihood of response. As
previously discussed, we have reported that borrowers with
characteristics generally associated with low financial literacy—such as
low income, low education levels, or limited English proficiency—have
increased difficulty making informed financial decisions and taking
effective actions. 51 Research has found that borrowers with some of these
characteristics—such as low-income—were more likely to be in default



51
  See GAO, Credit Reporting Literacy: Consumers Understood the Basics but Could
Benefit from Targeted Educational Efforts, GAO-05-223 (Washington, D.C.: Mar. 16,
2005) and GAO-10-518. In addition, research on financial literacy and mortgage
delinquency found that subprime borrowers with low financial literacy were four times
more likely to go into foreclosure than borrowers with high financial literacy. See
Kristopher Gerardi, Lorenz Goette, and Stephan Meier, “Financial Literacy and Subprime
Mortgage Delinquency: Evidence from a Survey Matched to Administrative Data,” Federal
Reserve Bank of Atlanta, Working Paper 2010-10 (April 2010).




Page 29                                                       GAO-12-776 Foreclosure Review
and foreclosure during the recent crisis. For example, in a speech, a
Federal Reserve official reported that as of the first quarter of 2011—just
after the eligible period for this review—13 percent of mortgages
originated to borrowers in low- and moderate-income neighborhoods
were 90 days or more overdue, compared with 6 percent of mortgages
originated to borrowers in high-income neighborhoods. 52 Servicers
collected borrower-level data at loan origination that would assist in
analyzing these characteristics. Where borrower-specific data on other
characteristics may not be available—such as data on English-language
proficiency or the primary language spoken in the home—analysis of
Census data could provide additional information. Ensuring effective
outreach to meet the needs of groups of borrowers with different
characteristics necessitates first identifying the relevant groups and then
planning appropriate outreach activities to effectively reach them, such as
by working with local community groups or partnering with local elected
officials familiar with these borrowers. Although the regulators and
servicers enhanced outreach with Spanish-language materials and
included in-language notification about free translation services available
at the toll-free customer assistance phone number in outreach materials,
no additional coordinated outreach was conducted in other languages,
such as some Asian languages. However, based on our analysis of the
Census Bureau’s 2008-2010 American Community Survey, we found that
U.S. residents with limited English proficiency in languages other than
Spanish may be concentrated in areas with high rates of foreclosure. For
example, approximately 40 percent of adult speakers of some Asian
languages (Chinese, Korean, and Vietnamese) who reported limited
English proficiency were in California, a state that experienced high rates
of default and foreclosure in 2009 and 2010. 53 Similar to the targeting
done by servicers to reach Spanish-language borrowers, conducting
targeted in-language outreach in areas with high rates of default and
foreclosure and concentrated populations of limited English proficiency
speakers of a specific language could help reach additional borrowers. In
addition, providing targeted, outreach to groups of borrowers with


52
  See Janet L. Yellen, Housing Market Developments and Their Effects on Low- and
Moderate-Income Neighborhoods, Remarks at the 2011 Federal Reserve Bank of
Cleveland Policy Summit (Cleveland, Ohio: June 9, 2011).
53
  As discussed earlier, in the Census Bureau data, English speaking ability is self-
reported by adults ages 18 and over who have indicated that they speak a language other
than English at home. Our results are reported with 95 percent confidence intervals. See
appendix I for additional discussion of our methodology.




Page 30                                                  GAO-12-776 Foreclosure Review
different characteristics could strengthen efforts to reach groups that are
less likely to respond to outreach efforts.

In approving the initial coordinated outreach plan, regulators considered
the extent to which the plan provided appropriate outreach to the target
audience but conducted limited analysis to understand that audience.
According to OCC and Federal Reserve staff, to evaluate and approve
the coordinated servicer outreach plan, regulators considered factors
such as the extent to which the plan (1) was consistent with industry
practices, particularly related to class action lawsuits; (2) was developed
based on consultation with marketing experts; (3) was designed to
provide significant coverage in areas with high concentrations of
foreclosure; (4) was appropriate to reach the demographics of the target
audience; and (5) promoted national awareness. Federal Reserve staff
noted that the Federal Reserve Board had limited experience with
outreach plans and therefore consulted with their staff with the most
relevant experience when reviewing the plans. OCC and Federal Reserve
staff said they considered servicers to be familiar with the target audience
based on their experience servicing loans and recognized that servicer
marketing staff helped develop the outreach plan. In addition, servicers
said they were knowledgeable about the general geographic
concentration of these borrowers based on their previous analysis of
default and foreclosure trends. Finally, servicers consulted with several
marketing firms to help identify the most appropriate methods to reach
their target audience—such as, direct mail—and to assist in purchasing
advertisements. However, because the target audience was considered
to broadly represent the U.S. population as a whole, analysis of the target
audience was limited and did not include analysis of data on loan and
borrower characteristics, such as income-level or age to identify
subgroups of the target audience. Internal control standards require
agencies to identify risks that could impede the success of their efforts
and to take steps to mitigate those risks. 54 Without an analysis of
subgroups of the target audience, including geographic location and
certain borrower economic and demographic characteristics, the
regulators may not have had the necessary information to help ensure
servicers’ outreach efforts were designed to maximize their ability to




54
 See GAO, Standards for Internal Control in the Federal Government,
GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).




Page 31                                                GAO-12-776 Foreclosure Review
                          target certain groups and support a fair opportunity to request a
                          foreclosure review.


Servicers Used Credible   Representatives from servicers we interviewed told us that identifying a
Messengers in Their       credible messenger to provide information to the borrower through the
Coordinated Outreach to   outreach process was a challenge. Although servicers were responsible
                          for the outreach activities and were often familiar to the borrower from
Varying Degrees           servicing the loan, the servicers were not necessarily the best choice to
                          deliver information about the foreclosure review, because some
                          borrowers had challenging experiences working with them during the
                          foreclosure process. As a result, the servicers used a third-party
                          administrator to send direct mail and they directed borrowers’ requests for
                          additional information to a non-specific entity, entitled Independent
                          Foreclosure Review. Neither the regulators nor the servicers conducted
                          focus groups or consultations with the target audience to identify credible
                          messengers. For example, the government-chartered, nonprofit
                          corporation that led the national loan modification scam alert campaign
                          discussed earlier conducted both one-on-one in-depth interviews and
                          focus groups with delinquent borrowers to identify sources trusted by the
                          target audience, as well as, to identify optimum media outlets and
                          communication channels to reach that audience. We have previously
                          reported that effective planning of outreach activities, including activities
                          designed to elicit a one-time action, require analysis of credible
                          messengers to reach the target audience. 55 Consumer groups raised
                          concerns that if servicers did not use familiar and trusted messengers that
                          borrowers would find credible, borrowers would discard the direct mailing
                          or ignore the advertisements because they did not understand who
                          provided the information or believed they were fraudulent. As a result, the
                          outreach process may have missed opportunities to reach some of the
                          target audience and contributed to low response rates. Consumer groups
                          provided feedback to the regulators suggesting that they include the OCC
                          and Federal Reserve seals on the initial print advertisement, but
                          regulators did not incorporate this suggestion. According to Federal
                          Reserve staff, regulators did not include official seals on the outreach
                          materials due to legal restrictions and potential use of official seals in
                          connection with fraudulent schemes. However, in response to subsequent
                          concerns raised about the credibility of the outreach materials, specific



                          55
                           See GAO-08-43.




                          Page 32                                           GAO-12-776 Foreclosure Review
references to OCC and the Federal Reserve, including the regulators’
Internet addresses, were added to the independent foreclosure review
website, and a reference to Federal Banking Regulators was added to the
outside of the second mailing.

Although OCC and the Federal Reserve have acknowledged community
groups as effective messengers to reach the target audience and have
encouraged servicers to coordinate with these groups, regulator guidance
to servicers on working with community groups did not specify servicer
roles and responsibilities for this outreach. OCC has recognized that
using community groups as part of the outreach process enhances its
ability to reach some of the target audience, including low- and moderate-
income borrowers, minority borrowers, and individuals with limited English
proficiency. Similarly, a Federal Reserve official stated that working with
community groups as part of the outreach effort increases program
awareness and promotes borrower participation. The Federal Reserve
also has encouraged servicers to work with community groups to conduct
additional foreclosure review outreach activities by providing them credit
against their penalties for any amount of funding provided to nonprofit
housing counseling organizations. Because of the experience of these
groups, particularly housing counselors, in working directly with
distressed borrowers, regulators conducted outreach sessions for
community groups and have encouraged these groups to conduct their
own outreach activities. These sessions included two webinars to provide
these groups with information on the process and to train them to assist
borrowers to complete the request-for-review form. 56 According to
community group representatives, some groups have initiated their own
outreach about the foreclosure review process, but these efforts have




56
  In addition to the webinars, regulators facilitated two discussions about the foreclosure
review process with community group representatives at an annual conference sponsored
by NeighborWorks America, a government-chartered nonprofit corporation, and OCC staff
met with community group representatives participating in NeighborWorks America’s Loan
Modification Scam Alert Campaign.




Page 33                                                    GAO-12-776 Foreclosure Review
been limited by the availability of funding. 57 In addition, in their guidance
to servicers on the outreach process, regulators instructed servicers to
conduct outreach to community groups to enable them to educate their
constituents about the borrower request-for-review process. This
guidance did not describe the specific roles and responsibilities of the
servicers in conducting this type of outreach or in supporting the efforts of
community groups to reach their constituents. According to regulatory
staff, providing specific guidance to servicers to directly fund community
groups to conduct outreach was different than other required activities,
such as funding direct mail and advertising, and thus was not considered
appropriate as a requirement for servicers.

Servicers have leveraged outreach through community groups to varying
degrees. As part of the coordinated outreach activities, the 14 servicers
contracted with an association of financial services companies, including
mortgage lenders and servicers, to hold two national conference calls
with community groups to share information about the foreclosure review
process. In addition, 3 of the 14 servicers have provided funding to
approximately 15 community groups that have in turn provided support to
over 100 member organizations to conduct borrower outreach. 58 These
activities were designed to increase awareness about the foreclosure
review process and to assist borrowers in completing the request-for-
review form. According to representatives with one of the servicers
undertaking these efforts, the decision to use these groups was in part
motivated by a desire to identify and use messengers who might more
effectively reach certain borrower groups that otherwise may not respond
to the outreach efforts. These additional activities were conducted in
English, Spanish, and other languages—including some Asian
languages—and included letters and emails to former clients who were


57
  The U.S. Department of Housing and Urban Development (HUD) annually awards
competitive grants to approved housing counseling agencies to help them carry out their
counseling efforts, including marketing and outreach. However, for fiscal year 2012,
HUD’s housing counseling program appropriation was approximately half the fiscal year
2010 level, and funding was eliminated for fiscal year 2011. In addition, the federal
government has provided targeted support for foreclosure mitigation counseling, including
through the National Foreclosure Mitigation Counseling (NFMC) program. However,
according to the Administrator of the NFMC program, foreclosure review-related activities
are not eligible for NFMC funding.
58
  According to Federal Reserve staff, two additional servicers have held discussions with
community groups to raise awareness about the foreclosure review, but these efforts did
not involve providing funding to these groups.




Page 34                                                   GAO-12-776 Foreclosure Review
                             eligible for the program and toll-free customer assistance phone numbers
                             to help borrowers complete the request-for-review form. Further,
                             according to OCC staff, third-party consultants also held several meetings
                             with representatives of community groups to share information about the
                             foreclosure review process and facilitated a visit to an audit site to see
                             reviews being conducted.


Regulators Monitored         OCC and the Federal Reserve regularly monitored borrower response to
Status of Initial Outreach   outreach activities, as well as the quality of borrower services provided by
but Did Not Analyze          the third-party administrator. Regulators received daily and weekly reports
                             from the third-party administrator on the use of the toll-free customer
Characteristics of           assistance phone number and website, as well as data on the number of
Nonrespondents               request-for-review forms received and the types of requests. In addition,
                             they received data on the quality of the assistance provided through the
                             customer assistance phone number and website. Analysis was also
                             conducted on the effect of the national print campaign on calls to the
                             customer assistance phone number, visits to the website, and request
                             form submissions. Finally, OCC and the Federal Reserve have monitored
                             the percentage of mail successfully delivered.

                             Regulators did not establish measurable goals to use in assessing the
                             effectiveness of the outreach process. For example, there was no target
                             response rate for the number of requests for review to be received as a
                             result of the outreach activities. According to an OCC official, the unique
                             nature of the outreach campaign and foreclosure review process makes it
                             difficult to set specific targets for the number of requests for review.
                             Similarly, Federal Reserve staff explained that because the number of
                             borrowers that were harmed is unknown, it was difficult to project how
                             many borrowers would request reviews. Recognizing that the volume was
                             unknown, servicers directed the third-party administrator responsible for
                             receiving the request-for-review forms and responding to borrower
                             questions on the toll-free customer assistance number to develop
                             contingency plans to allow the administrator to continue to respond if the
                             volume of responses exceeded their daily or weekly projections. Initial
                             projections that were used for planning purposes of the total number of
                             requests for review varied, with some third-party consultants estimating
                             response rates of between 10 percent and 20 percent in the engagement
                             letters between the servicers and their consultants. In contrast, another
                             third-party consultant and some servicers anticipated response rates of
                             around 5 percent. In the absence of measurable goals to assess the
                             performance of outreach activities, determining if the actions taken are
                             sufficient or if additional steps are needed is difficult.


                             Page 35                                          GAO-12-776 Foreclosure Review
In addition, monitoring has not included analyzing or requesting servicers
or third-party consultants to analyze trends among respondents and
nonrespondents to determine whether all groups of borrowers are
represented in the review process and that no particular group is
underrepresented. Beginning in late April 2012, servicers conducted
additional outreach activities to reach borrowers who had not yet
responded and better ensure that borrowers were aware of the extension
of the request-for-review deadline. These outreach activities were
modeled on the original activities and included a second mailing to
eligible borrowers whose initial outreach letter was delivered successfully
but had not yet responded and print advertisements in the same national
and Spanish-language publications. 59 Regulator staff said that feedback
from consumer groups was used to enhance the content of the mailing
and advertisements and information in additional languages was included
in the materials. According to OCC and Federal Reserve staff, in planning
these additional outreach activities, no analysis was conducted of the
borrowers who had not responded to the initial outreach efforts as
compared to those who had. For example, analysis by servicer,
geographic location, or certain social or demographic characteristics
collected at loan origination—such as those associated with low financial
literacy—could have been used to determine if additional outreach
activities were needed to better reach these groups. According to a
representative from one servicer, the servicer had done some analysis of
respondents compared to nonrespondents early in the process in January
2012, but had not updated this analysis or used the results to direct their
outreach efforts. Our prior work has found that evaluating performance,
particularly when there is a change in activities, helps ensure that
processes continue to improve and evolve. 60 In the absence of this type
of analysis, regulators may not have had the information needed to
determine whether additional outreach efforts were appropriate to help
ensure that all groups were effectively reached by the national campaign
and had a fair opportunity to request a review. Additional targeted
outreach activities, such as further outreach through community groups,
distribution of flyers, phone calls to eligible borrowers, or community



59
  In May 2012, the Federal Reserve also placed a video on YouTube and the Federal
Reserve website explaining how borrowers can submit a request-for-review form. The
video is available in both English and Spanish.
60
  See GAO, Internal Control Management and Evaluation Tool, GAO-01-1008G
(Washington, D.C.: August 2001).




Page 36                                                 GAO-12-776 Foreclosure Review
              meetings, may be warranted. In addition, whether the campaign has
              effectively complemented the look-back file reviews to help ensure that
              the two processes combined maximize identification of borrowers who
              have suffered financial injury is unclear. The look-back file review
              generally relies on sampling—and in some cases 100 percent review—to
              provide a high degree of certainty that borrowers who have been
              financially injured are identified and obtain remediation. 61 However, if the
              outreach process has been less successful in reaching certain subgroups
              of eligible borrowers that the look-back review has not taken into
              consideration, changes to the sampling to ensure that all borrowers have
              an equal opportunity for review may be warranted.


              While the regulators have taken a number of steps to improve the
Conclusions   servicers’ outreach associated with the independent foreclosure review
              over time by improving the format of communication materials,
              incorporating feedback from consumer and community groups, and
              increasing outreach to particular populations, among other things,
              opportunities for further improvement remain. An effective outreach
              process is designed to reach all segments of its audience, regardless of
              such factors as reading level and language spoken, among others.
              Neither the servicers nor the regulators conducted readability testing or
              focus groups with the target audience of eligible borrowers, and
              regulators initially did not solicit input from consumer or community
              groups familiar with these borrowers. Readability tests of the outreach
              letter, request-for-review form, and website indicate that a high school or
              even a college reading level may be required to understand them;
              however, the use of some complex terms may be unavoidable. In
              addition, although some information is now available on the website in
              Spanish, the initial communication materials were not available in
              languages other than English. Our previous reports and federal plain
              language guidelines indicate that whether agencies are preparing


              61
                 As discussed previously, generally third-party consultants are using statistical
              techniques to select samples of files from various categories of loans for the look-back
              review. For some high-risk categories consultants are required to review 100 percent of
              files. These high-risk categories include cases involving borrowers protected by SCRA
              and certain bankruptcy cases. In addition, the Federal Reserve is also requiring 100
              percent review of cases in several additional high-risk categories, including foreclosure-
              related complaints filed before the outreach program was launched, foreclosure actions
              where a complete request for a loan modification was pending at the time of the
              foreclosure, and foreclosure actions that occurred when the borrower was not in default.




              Page 37                                                     GAO-12-776 Foreclosure Review
documents or requiring private sector companies to prepare them, testing
communication materials is a sound practice to help ensure that the
audience can understand them and use them to take action. Moreover,
complexity in the communication materials may prevent people from
becoming sufficiently aware of the foreclosure review, and the prospect of
confusing or complex forms may discourage people from participating. In
addition, borrowers with low financial literacy, including those with limited
English proficiency, may have difficulty accessing and understanding the
materials, potentially affecting the likelihood of them requesting a review.
Because communication materials were not tested and were written at a
high reading level, some eligible borrowers might have had difficulty
understanding them. To the extent the accessibility of the communication
materials affects certain groups’ likelihood of responding, they may not
have had a fair opportunity to request a foreclosure review as the
regulators intended the outreach process to provide. With the second
wave of advertising and the additional mailing directing eligible borrowers
to the independent foreclosure review website, ensuring that the online
request-for-review form is understandable is especially important.

In addition, although the communication materials provide information
about the purpose, scope, and process for the foreclosure review, and
types of financial injuries covered, as well as disclosing that borrowers
could be eligible for compensation, they do not include specific
information about the potential types or amounts of remediation
borrowers may receive. Specifically identifying that the types of
remediation may consist of such items as lump-sum payments, rescinding
foreclosures, repayment of out-of-pocket expenses, or correcting credit
reports could help motivate borrowers to respond. Industry best practices
and examples for notifying borrowers about class action lawsuits, which
regulatory staff and servicer representatives used as a model in
developing the materials, include specific information about the types and
amounts of remediation for which participants could be eligible. Without
specific information about remediation in communication materials, some
borrowers may not be motivated to submit a request-for-review form.

Finally, the planning, and in particular, evaluation of the borrower
outreach process were based on limited analysis of eligible borrowers.
Although servicers conducted some targeted outreach to African-
American and Spanish-speaking borrower, in part due to feedback from
consumer groups, the outreach process was largely uniform. Our prior
work has found that analyzing the target audience by various
characteristics and identifying messengers the audience will consider
credible helps ensure that the outreach is effective. However, in


Page 38                                           GAO-12-776 Foreclosure Review
                      approving the outreach plan regulators did not require servicers to
                      conduct such analysis and although the regulators have encouraged
                      servicers to work with community groups that have experience as trusted
                      advisers to distressed borrowers, servicers have done so to varying
                      degrees. We have also found that evaluating the effectiveness of past
                      activities is important before expanding them, such as by conducting
                      additional advertising or mailings to eligible borrowers. Regulators have
                      monitored the status of outreach activities, but have not analyzed the
                      differences in characteristics between respondents and nonrespondents
                      in planning the additional outreach efforts. This analysis could help
                      identify whether any groups of borrowers, particularly those borrowers
                      with characteristics that could make them less likely to respond to the
                      request for review, are underrepresented. The results of such analysis
                      also could provide regulators, third-party consultants, and servicers with
                      the information to target additional outreach to any underrepresented
                      groups or to make changes to the file-review sampling process to ensure
                      that all borrowers are fairly represented. We acknowledge that because
                      the borrower outreach and look-back review are complementary, the
                      outcomes of the foreclosure review cannot fully be evaluated until the
                      look-back review is completed. However, until analysis of the
                      characteristics of respondents compared to nonrespondents is
                      conducted, the potential that certain subgroups of eligible borrowers do
                      not have a fair opportunity to request a foreclosure review remains.


                      OCC and the Federal Reserve have taken steps to improve the outreach
Recommendations for   from the initial roll-out. To further increase the possibility that all
Executive Action      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 take the following actions:

                      •   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.

                      •   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.




                      Page 39                                         GAO-12-776 Foreclosure Review
                     •   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.

                     We requested comments on a draft of this report from OCC and the
Agency Comments      Federal Reserve. We received written comments from OCC and the
and Our Evaluation   Federal Reserve that are presented in appendixes II and III, respectively.
                     Both agencies emphasized that the outreach process that we focused on
                     in this report is one part of a larger effort to identify financially harmed
                     borrowers for remediation. The Comptroller of the Currency noted in his
                     written comments that OCC shares the goals reflected in the report and is
                     in the process of addressing each of the recommendations. The
                     Comptroller’s letter also provides a more detailed list of initiatives OCC
                     has undertaken related to the borrower outreach process, which is
                     consistent with the actions we summarized in the draft report. The
                     Director of the Division of Consumer and Community Affairs of the Board
                     of Governors of the Federal Reserve System also noted that the Federal
                     Reserve has begun implementing each of the recommendations. First,
                     the letter states that the agencies plan to post a plain language guide to
                     completing the request-for-review form to the agencies’ and independent
                     foreclosure review websites. Second, the letter states that once a
                     framework describing the range of potential remediation is finalized the
                     regulators will issue press releases, post the framework on the regulators’
                     and independent foreclosure review websites and in frequently asked
                     questions, and hold briefings with consumer and community groups.
                     Third, the letter states that the Federal Reserve is conducting analysis to
                     identify any gaps in respondents by geography and certain borrower
                     characteristics, which will be publicly released to promote targeted
                     outreach.

                     The Director’s letter noted the limitations of readability formulas in
                     assessing how well the foreclosure review communication materials could
                     be understood. We had also acknowledged these limitations in the draft
                     report and noted that they are just one indicator of the readability of the
                     materials. However, the results of these formulas when combined with



                     Page 40                                          GAO-12-776 Foreclosure Review
other evidence, such as feedback from consumer and community groups
who have had direct interaction with distressed borrowers, suggested that
more could be done to clarify the communication materials. The plain
language guide for borrowers completing the request-for-review form that
the Federal Reserve is in the process of completing is an important step
in addressing readability.

The Director’s letter also stated that the comparison between the
foreclosure review communication materials and class action lawsuit
settlement materials was “imprecise and not appropriate.” In the draft
report, we acknowledged the differences between these two activities and
the difficulty in providing specific information on remediation in the case of
the foreclosure review. Because the borrower outreach process and
materials were generally modeled after class action lawsuit activities, we
considered it applicable criteria and presented the comparison as an
illustrative example of the type of information that has been found to be
helpful in motivating participation. The steps the regulators are taking to
publicly release information on the types and amounts of remediation that
financially harmed borrowers might receive as a result of the foreclosure
review is another important step toward promoting participation.

We received technical comments from each regulator, which we
incorporated where appropriate. In OCC’s letter, the Comptroller of the
Currency stated that the agency provided us with specific report line edits
that reflected both substantive comments as well as technical or editorial
suggestions. The substantive comments emphasized that the outreach
component of the foreclosure review was an additional step not typically
taken in enforcement actions and provided more information on the
actions the agencies and servicers took to reach out to potentially harmed
borrowers. In addition, OCC staff raised concerns about the context for
our criteria on plain language in the technical comments. The draft report
acknowledged the unprecedented nature of the review, and we made
changes to the draft report to reflect the other comments, as appropriate.


As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until 30 days from the
report date. At that time, we will send copies to interested congressional
committees, the Board of Governors of the Federal Reserve System,
Office of the Comptroller of the Currency, and other interested parties. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov.



Page 41                                           GAO-12-776 Foreclosure Review
If you or your staff have any questions about this report, please contact
me at (202) 512-8678 or evansl@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. Key contributors to this report are listed in appendix
IV.

Sincerely yours,




Lawrance L. Evans, Jr.
Acting Director, Financial Markets
and Community Investment




Page 42                                          GAO-12-776 Foreclosure Review
List of Requesters

The Honorable Robert Menendez
Chairman
Subcommittee on Housing, Transportation, and Community Development
Committee on Banking, Housing, and Urban Affairs
United States Senate

The Honorable Luis V. Gutierrez
Ranking Member
Subcommittee on Insurance, Housing, and Community Opportunity
Committee on Financial Services
House of Representatives

The Honorable Maxine Waters
Ranking Member
Subcommittee on Capital Markets and Government-Sponsored
Enterprises
Committee on Financial Services
House of Representatives

The Honorable Brad Miller
House of Representatives




Page 43                                    GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
                          Appendix I: Objectives, Scope, and
                          Methodology



Methodology

                          This report focuses on the design and implementation of the borrower
                          outreach process to determine how well information about the foreclosure
                          review is communicated to eligible borrowers with different
                          characteristics. Specifically, this report addresses (1) the extent to which
                          the development of the approach and content of the communication
                          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.


Development and Content   To determine the extent to which the development of the approach and
of Communication          content of the communication materials and foreclosure review website
Materials                 reflected best practices, we (1) reviewed regulator documents,
                          engagement letters, and outreach materials; (2) conducted readability
                          testing of the online outreach letter and request-for-review form; (3)
                          analyzed data on the extent of limited English proficiency in the United
                          States and the effects of limited English proficiency on financial literacy;
                          and (4) assessed the extent to which the remediation content in the
                          communication materials reflects best practices. To do this, we reviewed
                          key documents, including regulator guidance on outreach activities, the
                          outreach plan, engagement letters between servicers and third-party
                          consultants, and outreach materials, such as the outreach letter, request-
                          for-review form, foreclosure review website, online request-for-review
                          form, frequently asked question guide accompanying the foreclosure
                          review website, print advertising materials, the reminder postcard, and
                          community group webinar materials. We compared these documents with
                          best practices we had previously established and guidelines established
                          by federal agencies related to testing materials with the target audience
                          prior to use and ensuring that materials are clearly written and take into
                          account the audiences’ current level of knowledge. We considered these
                          outreach practices applicable to the outreach campaign for the
                          foreclosure review as they were developed to elicit a one-time action—
                          similar to filing a request-for-review form—from the target audience. In
                          our prior work analyzing the planning, implementation, and evaluation of
                          outreach campaigns, we developed standards by conducting an expert
                          panel of 14 senior management-level experts in strategic communications
                          who identified key planning, implementation, and measurement
                          components for consumer education and outreach. 1 The experts were



                          1
                          See GAO-08-43.




                          Page 44                                          GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
Methodology




selected for their experience overseeing a strategic communications or
social marketing campaign or other relevant experience and represented
private, public, and academic institutions. In addition, we considered our
prior work analyzing suggested improvements to the content and format
of communication materials. Specifically, for our prior work on credit card
disclosures, we conducted interviews, reviewed documents, and analyzed
more than 280 comment letters requested by the Federal Reserve in
2005 from issuers, consumer groups, and others as part of the Federal
Reserve’s preparation to implement new credit card disclosure
requirements. 2 Further, we considered the Office of Management and
Budget’s Final Guidance on Implementing the Plain Writing Act of 2010
and accompanying Federal Plain Language Guidelines. We also
considered the Securities and Exchange Commission’s A Plain English
Handbook: How to Create Clear SEC Disclosure Documents. Finally, to
describe the reading level of the U.S. population, we reviewed findings
from the 1992 National Adult Literacy Survey on adult reading
comprehension levels and the subsequent 2003 National Assessment of
Adult Literacy (renamed from 1992). No further assessments have been
conducted since 2003.

To evaluate the readability of the English language materials on the
website, particularly the outreach letter and request-for-review form, we
used computer-facilitated formulas to predict the grade level required to
understand the materials. Readability formulas measure the elements of
writing that can be subjected to mathematical calculation, such as the
average number of syllables in words or number of words in sentences in
the text, but do not reflect the complexity of ideas in a document or how
clearly the information has been conveyed. We edited the text to help
ensure that the tests returned accurate results and applied the following
industry-standard formulas to the documents: Flesch-Kincaid Formula,
Gunning Frequency of Gobbledygook Readability Test (FOG), and
McLaughlin Simplified Measure of Gobbledygook Formula (SMOG). 3
Using these formulas, we measured the grade levels at which the website
was written, both for each page of the website separately and for the
website as a whole (see table 1). We did not verify the accuracy of the



2
 See GAO-06-929.
3
 Edits we made to the text included deleting trailing periods, carriage returns, and bullet
points or numbered lists. We also removed addresses, phone numbers, and Internet
addresses and added periods after heading phrases.




Page 45                                                      GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
Methodology




formulas implemented by these tests, but we used multiple tests to
collaborate the results. Despite limitations, we determined that these tests
were sufficiently reliable for our purposes. To analyze the quality of the
translation and the readability of the Spanish-language outreach materials
on the independent foreclosure review website—specifically, the Spanish-
language guide for the request-for-review form—a trained translator (1)
compared the translation of the Spanish- and English-language materials
to assess the extent to which they provided the same information, (2)
analyzed the Spanish-language materials for readability, and (3) reviewed
the placement and content of the in-language Spanish statements in the
English-language materials. The translator’s conclusions were then
reviewed by a native Spanish speaker with professional experience
translating and writing official documents. We determined that this review
was sufficiently reliable for our purposes.

Table 1: Results of Whole Website Readability Analysis

                                                                                Predicted grade level required
 Test                                                                                      to understand text
 Flesch-Kincaid grade level                                                                                                11
 FOG                                                                                                                       10
 SMOG                                                                                                                      13
 Average                                                                                                                   11
Source: GAO analysis of Independent Foreclosure Review website using Flesch-Kincaid Formula, FOG, and SMOG readability tests.

Note: We calculated the statistics for the website as a whole, but excluded text on page 3 of the
website that requests basic contact information because it was not in sentence form.


To describe the potential pool of eligible borrowers with limited English
proficiency, we analyzed data on the extent of limited English proficiency
and considered the effects of limited English proficiency on financial
literacy. To describe the U.S. population of individuals with limited English
proficiency, we updated analysis we conducted for a prior report on
financial literacy. 4 We obtained and analyzed data from the United States
Census Bureau’s 2008-2010 American Community Survey. As noted in
our prior report, the Census Bureau does not define the term limited
English proficiency. As such, we replicated the measures of the limited
English proficient population we used in our prior report based on
questions in the American Community Survey that asked “Does this



4
 See GAO-10-518.




Page 46                                                                           GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
Methodology




person speak a language other than English at home?” “What is the
language?” “How well does this person speak English?” For our
purposes, we included in the limited English proficiency estimate
individuals over the age of 18 who self-reported that they speak English
“not well” or “not at all.” Because the American Community Survey data
are a probability sample based on random selections, this sample is only
one of a large number of samples that might have been selected. Since
each sample could have provided different estimates, we express our
confidence in the precision of our particular sample’s results as a 95
percent confidence interval. This is the interval that would contain the
actual population value for 95 percent of the samples that could have
been drawn. In this report, All Public User Microdata Area-level
percentage estimates derived from the 2008-2010 American Community
Survey have 95 percent confidence levels of plus or minus 4.5
percentage points or less, unless otherwise noted. We determined that
these data were sufficiently reliable for our purposes. To describe the
potential effects on financial literacy from limited English proficiency, we
reviewed our prior work and relied on those findings. The work conducted
for the prior report included (1) reviewing relevant literature related to
financial literacy among immigrants and people with limited English
proficiency; (2) conducting interviews with and gathering relevant studies
and educational materials from federal agencies, organizations that
provided financial literacy and education, and organizations that serve or
advocate for populations with limited English proficiency; and (3)
conducting a series of 10 focus groups to discuss the barriers that
individuals with limited English proficiency may face in improving financial
literacy and conducting their financial affairs. 5

To determine how well the content of the communication materials and
foreclosure review website reflect industry best practices related to
publication of remediation amounts, we assessed the materials against
examples of information included in class action lawsuit notifications. 6 We
chose class action lawsuit examples and determined them to be
applicable to the foreclosure review because that is the model regulatory
staff and servicers told us they used in developing the communication
materials. For example, we reviewed the communication materials


5
See GAO-10-518.
6
 Regulatory staff informed us that they chose a class action model of outreach for the
independent foreclosure review as outreach from class action lawsuits were most similar.




Page 47                                                   GAO-12-776 Foreclosure Review
                             Appendix I: Objectives, Scope, and
                             Methodology




                             against class action communication materials for homeowners,
                             construction workers, and product liability suits developed by the FJC.
                             The FJC developed illustrative notices of proposed class action
                             certification and settlement by studying empirical research and
                             commentary on the plain language drafting of legal documents, testing
                             notices with nonlawyers for comprehension, evaluating them for
                             readability, testing their effectiveness before focus groups composed of
                             ordinary citizens from diverse backgrounds, and conducting a survey. We
                             also reviewed guidelines available from the National Association of
                             Consumer Advocates (NACA) on the form and content of notices for class
                             action settlements. These guidelines address issues such as the scope of
                             class member releases, attorneys’ fees, and notice of settlement. NACA
                             maintains the comprehensive Standards and Guidelines for Litigating and
                             Settling Consumer Class Actions 176 F.R.D. 375, first published in 1998,
                             and fully updated in 2006, to help ensure that class actions do not lead to
                             restrictions on challenging abusive business practices. The guidelines
                             were intended to be used by consumer class action attorneys as a
                             standard for how to properly proceed, manage, and settle a class action
                             case. They were also intended to be used by courts as a guidepost to
                             judge the merits of cases before them. The standards and revised
                             standards were drafted by a committee of consumer attorneys. After initial
                             drafts were completed, the draft guidelines were submitted for comment
                             to all sectors of the legal community, including professors, think tanks,
                             and the defense bar. After these comments were received and
                             considered, a final draft was published. Further, we reviewed summary
                             documentation from the National Mortgage Settlement between the state
                             attorneys general, and the Departments of Justice, the Treasury, and
                             HUD against the five largest mortgage servicers for errors in foreclosure
                             practices to provide the context of a current example of a large-scale
                             settlement involving similar stakeholders and issues similar to those of
                             the foreclosure review.


Planning and Evaluation of   To determine the extent to which the planning and evaluation of the
the Outreach and             outreach and advertising approach considered the characteristics of the
Advertising Approach         target audience, we analyzed key documents discussed above as well as
                             the indicators and analysis prepared by the third-party administrator to
                             monitor implementation of outreach activities and meeting agendas
                             between regulators and servicers. We compared these documents to best
                             practices for outreach campaigns on analyzing the target audience,




                             Page 48                                         GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
Methodology




identifying credible messengers, and evaluating outreach activities
identified in our prior work. 7 As discussed earlier, we considered these
practices applicable to the outreach campaign for the foreclosure review
because they are specific to campaigns designed to elicit a one-time
action. In addition, we considered practices we identified in our previous
work on evaluation strategies for information dissemination activities.
These strategies were developed based on analysis of case studies of
how five federal agencies evaluated their media campaigns or
instructional programs. 8 Finally, we considered our internal control
standards on managing risk and other control activities. 9

To identify additional characteristics to consider in an analysis of the
target audience of eligible borrowers, we reviewed our prior work on
foreclosure trends by congressional district as well as work on financial
literacy. For our analysis of foreclosure trends, we analyzed data from
LoanPerformance’s Asset-backed Securities database for nonprime loans
originated from 2000 through 2007. 10 The database contains loan-level
data on the majority of nonagency securitized mortgages in subprime and
Alt-A pools. For example, for the period 2001 through July 2007, the
LoanPerformance database contains information covering, in dollar
terms, an estimated 87 percent of securitized subprime loans and 98
percent of securitized Alt-A loans. For the purposes of the analysis
conducted for our prior report, we defined a subprime loan as a loan in a
subprime pool and an Alt-A loan as a loan in an Alt-A pool. We focused
our analysis for that report on first-lien purchase and refinance mortgages
for one-to-four-family residential units. In preparing our previous report we
tested the reliability of these data by reviewing documentation on the
process the data providers use to collect and ensure the reliability and
integrity of their data, and by conducting reasonableness checks on data
elements to identify any missing, erroneous, or outlying data. We also
interviewed LoanPerformance representatives to discuss the
interpretation of various data fields. We concluded that the data were



7
See GAO-08-43.
8
 See GAO, Program Evaluation: Strategies for Assessing How Information Dissemination
Contributes to Agency Goals, GAO-02-923 (Washington, D.C.: Sept. 30, 2002).
9
See GAO/AIMD-00-21.3.1 and GAO-01-1008G.
10
  See GAO-10-146R. LoanPerformance is a unit of First American CoreLogic,
Incorporated.




Page 49                                                GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
Methodology




sufficiently reliable for our purposes. Nonprime loans do not represent the
entire universe of loans—for example, they do not include prime loans.
However, we determined that these data were applicable as an illustrative
example of how analysis conducted below the state level could reveal
significant concentrations of certain groups.

For our analysis of characteristics associated with low financial literacy,
we considered our prior work on financial literacy and trends among
certain demographics with lower financial literacy. This work included a
survey, conducted by a private research firm under contract to GAO, from
late July to early October 2004, to determine the extent of consumers’
knowledge of credit reporting issues. 11 The telephone survey was
conducted with 1,578 randomly sampled noninstitutionalized U.S. adults
aged 18 and over and the results of this survey generally have confidence
intervals of plus or minus 6 percentage points. We noted in our previous
report that the practical difficulties of conducting a sample survey may
introduce errors into estimates made from them. These errors include
sampling, coverage, measurement, nonresponse, and processing errors.
We made efforts in our prior work to minimize each of these. In addition,
we generated an average or mean score for the survey as a whole. We
then analyzed responses for all the survey questions and scores based
on groups of questions for the national sample and cross-tabulated them
across different demographic groups and across consumers with different
credit-related experiences. Differences across demographic groups and
across consumers with different credit-related experiences were tested
for statistical significance at the 95-percent confidence level. In addition to
cross-tabulations, we used a regression analysis of demographics and
other factors that we thought would be associated with consumers’
knowledge of credit reporting issues. We concluded that these data were
sufficiently reliable for our purposes. We confirmed these results during
an October 2011 forum convened by GAO on key issues related to
financial literacy, including identification of special populations that need
sustained financial literacy efforts. 12 Forum participants included
representatives from federal, state, and local government agencies;
academic experts; nonprofit practitioners; and representatives from the
private sector. We also reviewed our prior work on the financial literacy



11
 For additional discussion of the results and methodology, see GAO-05-223.
12
 For a discussion of the results of the forum, see GAO-12-299SP.




Page 50                                                 GAO-12-776 Foreclosure Review
                             Appendix I: Objectives, Scope, and
                             Methodology




                             challenges faced by speakers of limited English (discussed earlier). 13 In
                             addition, we reviewed a government-chartered, nonprofit corporation’s
                             methodology to identify and reach out to their target audience for an
                             outreach campaign targeted to similar borrowers in foreclosure or at risk
                             of foreclosure. Finally, four of the eight consumer groups whom we had
                             previously interviewed for this work responded to our request to identify
                             characteristics they considered important to understanding the target
                             audience of eligible borrowers.


Interviews with Regulatory   To determine how well the development of the approach and content of
Staff and Stakeholders       the communication materials and website reflected best practices and the
                             extent to which the planning and evaluation of the outreach and
                             advertising approach considered the characteristics of the target
                             audience, we conducted interviews with the following regulator staff and
                             key stakeholders:

                             •     Staff from OCC and the Federal Reserve.

                             •     Representatives of five mortgage servicers and three third-party
                                   consultants responsible for providing third-party reviews of these
                                   servicers’ foreclosure activities. To identify a representative mix of
                                   servicers and third-party consultants to interview, we considered
                                   servicers overseen by both regulators and those that are considered
                                   some of the larger servicers.

                             •     Representatives from the third-party administrator hired by servicers
                                   to administer the outreach process, including sending out mailings,
                                   receiving borrowers’ request-for-review forms, and operating the toll-
                                   free customer assistance phone number and website.

                             •     Representatives of 11 consumer groups, community groups, and a
                                   mortgage servicing industry association. To identify these groups, we
                                   considered organizations identified by OCC and the Federal Reserve
                                   as stakeholders, groups receiving funding from servicers to conduct
                                   community outreach, organizations that provided testimony on the
                                   foreclosure review process, and organizations we had identified
                                   during the course of other work on foreclosures, including the



                             13
                                 See GAO-10-518.




                             Page 51                                            GAO-12-776 Foreclosure Review
Appendix I: Objectives, Scope, and
Methodology




     Department of the Treasury’s Home Affordable Modification
     Program. 14
In addition, we reviewed speeches, testimony, and responses to official
Questions for the Record on the outreach process provided by OCC and
Federal Reserve officials, representatives of third-party consultants, and a
representative from a consumer group and a mortgage servicing industry
association.

We conducted this performance audit from February 2012 through June
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
that the evidence obtained provides a reasonable basis for our findings
and conclusions based on our audit objectives.




14
 See GAO-11-367R.




Page 52                                          GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of
              Appendix II: Comments from the Office of the
              Comptroller of the Currency



the Comptroller of the Currency




              Page 53                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 54                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 55                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 56                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 57                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 58                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 59                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 60                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 61                                        GAO-12-776 Foreclosure Review
Appendix II: Comments from the Office of the
Comptroller of the Currency




Page 62                                        GAO-12-776 Foreclosure Review
Appendix III: Comments from the Board of
              Appendix III: Comments from the Board of
              Governors of the Federal Reserve System



Governors of the Federal Reserve System




              Page 63                                    GAO-12-776 Foreclosure Review
Appendix III: Comments from the Board of
Governors of the Federal Reserve System




Page 64                                    GAO-12-776 Foreclosure Review
Appendix III: Comments from the Board of
Governors of the Federal Reserve System




Page 65                                    GAO-12-776 Foreclosure Review
Appendix III: Comments from the Board of
Governors of the Federal Reserve System




Page 66                                    GAO-12-776 Foreclosure Review
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  Lawrance L. Evans, Jr. (202) 512-8678 or evansl@gao.gov
GAO Contact
                  In addition to the contact named above, Karen Tremba (Assistant
Staff             Director), Jonathan Kucskar, Grant Mallie, Patricia MacWilliams, Marc
Acknowledgments   Molino, Jill Naamane, Carl Ramirez, Robert Rieke, Jennifer Schwartz,
                  Andrew Stavisky, and James Vitarello made key contributions to this
                  report.




(250661)
                  Page 67                                        GAO-12-776 Foreclosure Review
GAO’s Mission         The Government Accountability Office, the audit, evaluation, and
                      investigative arm of Congress, exists to support Congress in meeting its
                      constitutional responsibilities and to help improve the performance and
                      accountability of the federal government for the American people. GAO
                      examines the use of public funds; evaluates federal programs and
                      policies; and provides analyses, recommendations, and other assistance
                      to help Congress make informed oversight, policy, and funding decisions.
                      GAO’s commitment to good government is reflected in its core values of
                      accountability, integrity, and reliability.

                      The fastest and easiest way to obtain copies of GAO documents at no
Obtaining Copies of   cost is through GAO’s website (www.gao.gov). Each weekday afternoon,
GAO Reports and       GAO posts on its website newly released reports, testimony, and
                      correspondence. To have GAO e-mail you a list of newly posted products,
Testimony             go to www.gao.gov and select “E-mail Updates.”

Order by Phone        The price of each GAO publication reflects GAO’s actual cost of
                      production and distribution and depends on the number of pages in the
                      publication and whether the publication is printed in color or black and
                      white. Pricing and ordering information is posted on GAO’s website,
                      http://www.gao.gov/ordering.htm.
                      Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
                      TDD (202) 512-2537.
                      Orders may be paid for using American Express, Discover Card,
                      MasterCard, Visa, check, or money order. Call for additional information.
                      Connect with GAO on Facebook, Flickr, Twitter, and YouTube.
Connect with GAO      Subscribe to our RSS Feeds or E-mail Updates. Listen to our Podcasts.
                      Visit GAO on the web at www.gao.gov.
                      Contact:
To Report Fraud,
Waste, and Abuse in   Website: www.gao.gov/fraudnet/fraudnet.htm
                      E-mail: fraudnet@gao.gov
Federal Programs      Automated answering system: (800) 424-5454 or (202) 512-7470

                      Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-
Congressional         4400, U.S. Government Accountability Office, 441 G Street NW, Room
Relations             7125, Washington, DC 20548

                      Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
Public Affairs        U.S. Government Accountability Office, 441 G Street NW, Room 7149
                      Washington, DC 20548




                        Please Print on Recycled Paper.