Wells Fargo (NYSE:WFC)
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A new U.S. regulator Tuesday had harsh words for banks and other firms at the center of a mortgage-servicing mess involving shoddy record-keeping and foreclosure abuses, proving that fixing widespread problems will be a top priority in the months ahead.
Consumer Financial Protection Bureau Director Richard Cordray, in a speech Tuesday, announced a package of rules the agency is considering that could soon require mortgage servicing firms, led by Wells Fargo & Co. (WFC), Bank of America Corp. (BAC), J.P. Morgan Chase & Co. (JPM) and Citigroup Inc. (C), to reach out aggressively to delinquent borrowers, warn them about coming interest-rate changes and even apply monthly payments the same day.
Still, the forum was mostly a vehicle for Cordray, who has only been director since January, to step back and explain his deep concerns over the mortgage market and lay out reasons for the agency's "common-sense" proposals to overhaul servicing practices.
Not mincing words, Cordray characterized the mortgage-servicing market as one riddled with problems that enabled firms to take advantage of consumers and exacerbate the housing crisis. He ticked off a list of misdeeds in the market, accusing companies of falling short on customer service, investing too little in personnel, moving too slowly to fix errors and taking "short-cuts" that made things far worse for homeowners in trouble.
"This industry has never had a requirement or a strong incentive to meet the needs of consumers," Cordray said in the speech he delivered at a branch of financial counseling agency Operation Hope. The newly-remodeled office, once a shabby crack-house, sits on an urban block in southeast Washington, D.C., near a McDonald's restaurant and a mens' grooming spot called "Like That Barber Shop."
In front of an audience of about 50 people, some housing counselors and some clients, Cordray said the housing market is still struggling. Millions of mortgages are still delinquent and as many as 10 million borrowers are at risk of defaulting on their mortgages, he said.
The bureau plans to propose the new rules, required by the 2010 Dodd-Frank financial overhaul law, by this summer and finish them by next January following a comment period. The goal is to prevent consumers from getting the runaround from their bank and to get firms to improve their customer service practices, he said, noting that the agency has powerful tools to supervise a wide variety of companies and take action against misconduct.
In addition, the agency is pursuing a trio of rules not explicitly mandated by Dodd-Frank that would require banks and other firms to assist delinquent borrowers and improve record-keeping.
"It is not just consumers who suffer," said Cordray. "Mortgage investors do not benefit from a broken system where servicers do not fulfill their obligations or make reasonable efforts to mitigate losses."
-By Maya Jackson Randall, Dow Jones Newswires; 202-862-6687; firstname.lastname@example.org