Some of the country's biggest banks were on pace to find a higher rate of past foreclosure mistakes than regulators disclosed in January when they halted a review in favor of a $9.3 billion settlement for homeowners.
The figures show wide discrepancies in how banks performed in the review and raise questions among some observers about how the process was conducted, according to people who have reviewed figures provided to a federal bank regulator.
The banks were ordered in 2011 to hire consultants to review foreclosures in search of possible errors that could result in compensation for borrowers.
Some 6.5% of files reviewed unveiled errors requiring compensation, officials at the Office of the Comptroller of the Currency said in January. They later revised the error rate to 4.2% after requesting new data, raising the total number reviewed to roughly 100,000 files.
But a breakdown of the information provided to the regulator shows that more than 11% of files examined for Wells Fargo & Co. and 9% of those for Bank of America Corp. had errors that would have required compensation for homeowners, said people who have reviewed the figures. A narrower sample of files—representing cases selected by outside consultants—showed error ratios of 21% for Wells Fargo and 16% for Bank of America, the people said.
The OCC findings appear skewed by the outsize contribution of one bank, J.P. Morgan Chase & Co., which reported an error rate far below rivals that oversaw a much larger universe of loans.
J.P Morgan was responsible for more than half of the completed files counted in the OCC review and reported compensation-worthy errors in just 0.6% of cases, according to people familiar with the figures.
J.P. Morgan is a smaller manager of mortgages than Bank of America and Wells Fargo. It had fewer borrowers who were eligible for the foreclosure review than Bank of America and roughly the same as Wells.
Some lawmakers and consumer advocates are now skeptical about whether the settlement is adequate. Had the reviews continued, banks "would be paying out billions of dollars more for their wrongful acts," said Bruce Marks, chief executive of the Neighborhood Assistance Corp. of America, which worked with homeowners to submit cases for review.
It was "advantageous for the banks to settle," said N'lyxia Cordova, a contractor hired to work on the reviews for Washington, D.C.-based consulting firm Promontory Financial, which handled the Bank of America and Wells Fargo reviews.
An OCC spokesman declined to comment on banks' results.
Regulators ordered up the reviews following disclosures that banks approved foreclosures without looking at the underlying documents. The most common mistakes involved botched loan modifications, people involved in the process said.
At the start of the process, some state officials were privately critical of the bank regulators' approach, saying it was unrealistic to examine every case and compensate borrowers accordingly, people familiar with the matter said.
Under settlements announced in January and made public Thursday, 13 banks agreed instead to pay $3.6 billion in cash to nearly 4.2 million homeowners who were in foreclosure in 2009 and 2010.
The pacts also included $5.7 billion in noncash relief, including loan assistance to homeowners.
Ms. Cordova, who trained contract workers on a review of Wells Fargo files in Orange, Calif., said the rate of errors on files she saw was rising when banks and regulators halted the exams. Certain batches produced error rates as high as 45% to 80% in late 2012, she added.
Regulators and banks defend the settlement, citing a low number of errors that turned up in a time-consuming and expensive process. Payments to consultants reached $2 billion last year.
If the reviews had proceeded, the amount paid to consultants would have wound up being "some multiple of the money" paid to borrowers, Federal Reserve Chairman Ben Bernanke told lawmakers this week.
Wells Fargo Home Mortgage executive Mary Coffin said the rate of errors on file with the OCC "does not provide conclusive information about actual financial harm." A settlement "will bring payment to more customers in an expedited manner."
Bank of America and Wells Fargo, whose cases combined to amount to more than half of the total, weren't the only banks to report rates of error higher than the overall percentage made public by the OCC. Pittsburgh-based PNC Financial Services Group posted injury rates above 20%, according to the information submitted to the OCC.
In addition to J.P. Morgan, at least three other banks with smaller mortgage operations also reported error rates below 3.5%, according to people familiar with the figures submitted to the OCC.
Different consulting firms handled the reviews for the various banks, which also may have contributed to the discrepancies. The Bank of America, Wells Fargo and PNC files were reviewed by Promontory Financial, while Deloitte Consulting reviewed J.P. Morgan's past foreclosures.
Two Deloitte employees who performed the review for J.P. Morgan in a Brooklyn office building said workers were encouraged by supervisors to examine pools of loans they knew would be less time-consuming or error-prone as they tried to hit loan quotas.
One of these employees said that at an event last year known in the Brooklyn office as "March Madness," Deloitte officials encouraged reviewers to avoid problematic loans originated by EMC Mortgage, a troubled mortgage lender J.P. Morgan acquired in 2008.
A Deloitte spokesman said that "because of confidentiality constraints, we are not at liberty to discuss details of the engagement. We fully stand behind the quality of our work." Deloitte had a team solely devoted to reviewing EMC loans and the consultant did not impose any quotas, said another person familiar with the review.
There were other enticements for reviewers to work quickly.
Promontory's workers were offered incentives that encouraged speed, such as gift cards of as much as $500 for completing certain number of files quickly, said one reviewer.
"We stand by the quality and thoroughness of our work," a Promontory spokesperson said.
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