The Federal Reserve Board announced last week that it had come to an agreement with GMAC Mortgage in its mortgage foreclosure review.
The pact, under which GMAC will pay $230 million to eligible borrowers, ends a program that benefitted outside consultants to the tune of $2 billion.
Nearly half that amount went to Promontory Financial, a consulting firm staffed by former government regulators.
The Independent Foreclosure Review, overseen by the Fed and the Comptroller of the Currency, was designed to help borrowers who faced foreclosure because of bank error.
Consent orders were filed against 14 lenders, requiring them to hire outside consultants to review the loan files.
However, as Thomas J. Curry, comptroller of the currency, explained in February, the consultants racked up fees while affected borrowers waited for compensation.
Regulators halted the program early this year. It formally closed when the last lender, GMAC, reached a repayment agreement.
A Senate Banking subcommittee last month questioned regulators about a system that yielded billions for consultants and a $1,000 or less for most foreclosed households.
As Sen. Elizabeth Warren said then, “You have made a decision to protect the banks but not to help the families who were illegally foreclosed on.”
The review has cast a spotlight on Promontory Financial, which has been described as “a poster child for the revolving door in financial regulation in Washington.”
The connections between the firm and regulatory agencies is so extensive that it has operated as a a “shadow network” and “a sort of ex-regulator omnibus,” American Banker wrote in April.
The Muckety map above shows some of the major figures at Promontory who previously worked at the Fed, the Comptroller of the Currency, the Federal Deposit Insurance Corporation and/or the Securities and Exchange Commission.
(Roll over connecting lines to see relationships; each box can also be expanded to see more relationships. For more elbow room, see the large version of the map.)
Ben Bernanke, Alice Rivlin and Alan Greenspan appear in the map not because they have direct connections, but because Promontory managing directors worked for them.
Recent hires by Promontory include Mary L. Schapiro, former chair of the SEC and the Commodity Futures Trading Commission. While her move to the firm was high profile, it was a continuation of a trend.
Many managing directors and advisory board members previously worked for Comptroller of the Currency and the Fed, which oversaw the Independent Foreclosure Review.
Promontory acted as consultant in the review for three mortgage servicers: Bank of America, Wells Fargo, and PNC. Its fees exceeded $927 million.