Bank Regulators Order 14 Lenders To Overhaul Foreclosure Practices
April 13 2011 - 1:29PM
Dow Jones News
Major U.S. banks and thrifts filed foreclosures with improper
documentation and lacked sufficient staff to properly handle
distressed borrowers, federal bank regulators said Wednesday as
they ordered lenders to overhaul their foreclosure processes.
The orders for 14 institutions issued by the Office of the
Comptroller of the Currency, Federal Reserve and Office of Thrift
Supervision followed a probe of the mortgage servicing abuses that
erupted into view last fall. They orders did not include fines for
the industry, though the Federal Reserve said it "plans to announce
monetary penalties."
"These deficiencies represent significant and pervasive
compliance failures and unsafe and unsound practices at these
institutions," the Fed said in a statement.
Still, Democratic lawmakers and some state attorneys general
have advocated a tougher response, including a much larger effort
to write down the value of loans for troubled homeowners. But
Republicans at the state and federal level reject that approach,
calling it an overly broad response to the foreclosure-document
problems.
Acting Comptroller of the Currency John Walsh said in a
statement that the agreements "will not only fix the problems we
found in foreclosure processing, but will also correct failures in
governance and the loan modification process and address financial
harm to borrowers."
Earlier in the day, J.P. Morgan Chase & Co. (JPM) Chief
Executive Jamie Dimon said he expects banks to eventually pay
fines, adding that resolving the issue "will good for everybody."
As a result of the orders, J.P. Morgan expects bank's costs for
mortgage servicing will result in $1.1 billion in additional
staffing and legal costs.
The orders were issued to the nation's four largest banks--Bank
of America Corp. (BAC), Wells Fargo & Co. (WFC) J.P. Morgan and
Citigroup Inc. (C).
Also receiving orders were Ally Financial Inc., HSBC Holdings
PLC (HBC, HSBA.LN, 0005.HK), MetLife Inc. (MET), PNC Financial
Services Group Inc. (PNC), SunTrust Banks Inc. (STI), U.S. Bancorp
(USB), Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.
The orders found that the banks filed foreclosure documents in
courts around the country that included assertions that bank
employees could not personally verify. Banks also filed documents
that weren't properly notarized, did not ensure that mortgage
documents were transferred properly, failed to have adequate staff
for the foreclosure process and didn't properly oversee outside
firms that handled foreclosures, the regulators found.
The orders, however, are likely to come under fire for leaving
too much discretion in the hands of banks. They require each to
hire an independent consultant to evaluate whether they improperly
foreclosed on any homeowners and require each company to establish
their own process to consider whether to compensate borrowers who
have been harmed.
Regulators did not reach a definitive conclusion on whether
borrowers had improperly lost their homes, according to a person
familiar with the matter.
Last week, a group of consumer advocates objected to that idea
in a letter to the bank regulators, arguing that doing so would
"permit the perpetrators of these recognized illegalities to create
their own process for fixing the problems in the future."
Rep. Elijah Cummings (D., Md.) the top Democrat on the House
Oversight and Government Reform Committee, had called on the
Comptroller's office to postpone the orders, writing in a letter
Tuesday that the then-pending action was "insufficient to curb the
serious and chronic misconduct allegedly engaged in against
homeowners and mortgage investors."
The bank regulators also announced actions against two
outsourcing companies Lender Processing Services, Inc. and Mortgage
Electronic Registration Systems, or MERS. The Fed said those
actions " address significant compliance failures and unsafe and
unsound practices" at both companies.
-By Alan Zibel, Dow Jones Newswires; 202-862-9263;
alan.zibel@dowjones.com
--Matthias Rieker contributed to this article.
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