by Broderick Perkins
(4/20/2011) - Federal bank regulators have settled with some of the nations' largest mortgage servicers over questionable foreclosure practices, including, in some cases, scuttling their own efforts to keep homes out of foreclosure.
The settlement, without the companies admitting to any wrong doing, as usual, requires servicers to correct problems in foreclosure processing, loan modification programs and corporate governance, among other orders.
Servicers must also identify and compensate borrowers who suffered financial harm during foreclosures over the two year period between January 1, 2009, and December 31, 2010, due to "deficiencies in residential mortgage loan servicing and foreclosure practices."
The eight mortgage servicers (lenders) are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. Two service providers were also named; Lender Processing Services (LPS) and its subsidiaries DocX, LLC, and LPD Default Solutions, Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS).
The Office of the Comptroller of the Currency (OCC) based its enforcement actions on the findings of an interagency investigation detailed in "Interagency Review of Foreclosure Policies and Practices", produced by the OCC, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision.
The latest scathing report about mortgage lending, servicing and foreclosure practices, the interagency review identifies "significant weaknesses in mortgage servicing and foreclosure governance that resulted in unsafe and unsound practices."
Among the problems investigated, were:
The practice of dual tracking -- or continuing with a foreclosure while a borrower was in the process of a loan modification.
Using robo-signing to finalize foreclosures. Robo-signing is the practice of employees, dubbed "robo-signers," who vouched for the accuracy of foreclosure documents without reading them.
Losing and misplacing documents, not keeping records of contact with homeowners, and asking homeowners to repeatedly submit the same documents.
The report lambastes the servicers for what amounts to shoddy foreclosure business practices virtually mirroring unregulated business practices that brought the economy to its knees.
Problems included underdeveloped foreclosure governance processes (for oversight, auditing and quality control); inadequate and under trained staffing; insufficient affidavit and notarization practices (including claiming documents were executed under oath when no oath was taken).
Lies and damn lies.
The report does say that most borrowers in its investigative sample pool were seriously delinquent, but "a limited number of mortgages should not have proceeded to foreclosure."
Despite the limited number of foreclosures that shouldn't have been, the report says the foreclosure process is a failure.
"The failures and deficiencies identified...must be remedied swiftly and comprehensively," because the problems found "present significant risk to the safety and soundness of mortgage activities."
Among other provisions, the settlement's enforcement rules say:
Servicers must not pursue foreclosures once a mortgage has been approved for modification.
Services must establish a single point of contact for borrowers throughout the loan modification and foreclosure processes.
Servicers must establish robust oversight and control for third-party vendors, including outside legal counsel providing default management or foreclosure services.
"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations. Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward," said acting Comptroller of the Currency John Walsh.
One can only hope.
Luckily states' attorneys general are still pursuing legal action against mortgage servicers.
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