Joe Smith, the court appointed monitor for the $25 billion mortgage servicing settlement, can learn something from the recent experience of the federal banking regulators.
Smith's first priority is to get the monitoring process up and running, including selecting the primary accounting and consulting firm that will help him monitor compliance with the settlement agreements.
"My goal," Smith told me recently, "has to be to conduct the monitoring function through persons and firms that are independent of the banks."
The Federal Reserve and the Office of the Comptroller of the Currency could have built a best-of-breed project team inside their agencies to conduct the foreclosure reviews mandated by consent orders last April against twelve mortgage servicers. Instead, they delegated that job to each bank. As a result, the banks chose friendly firms and some of those choices are less than arm's-length away from the problems and abuses they're reviewing.
My columns, as well as other reports, identified potential independence conflicts with consultants such as Deloitte. Deloitte's consulting practice is performing the foreclosure file reviews at JPMorgan Chase. JPM's problem foreclosures were inherited mostly from Bear Stearns' EMC Mortgage and from Washington Mutual, Deloitte's former audit clients. The OCC and Fed promised they'd vet banks' consultant selections to minimize conflicts of interest. Instead, Deloitte can minimize the problems found at JPMorgan and, therefore, minimize the liability the firm already faces from litigation by Bear Stearns and Washington Mutual shareholders.