CORRECT: For Banks, US Mortgage Overhaul Requires Hiring, Spending

New U.S. rules for mortgage processing mandated by regulators Wednesday will require banks to make a considerable, and expensive, effort to beef up their mortgage operations.

Banks and other mortgage companies got tangled up in a number of issues involving delinquent borrowers, including botched paperwork and questionable affidavits. Regulators told 14 lenders to overhaul their mortgage practices in consent orders.

The industry will have to implement more changes, create thousands of jobs and reassign executives to ensure compliance with the orders. Monetary penalties may follow, the regulators warned.

J.P. Morgan Chase & Co. (JPM) assigned Christine Larsen, the chief operating officer of its trust and securities processing division, one of the bank's most successful businesses, to lead the implementation, and will create between 2,000 and 3,000 positions to deal with tighter practices and procedures in servicing mortgages to financially stressed borrowers.

Chief Operating Officer Frank Bisignano and retail banking chief Charles Scharf said in a memo to staff, "We're confident that we can address the problems identified in the Consent Orders and be a stronger company better able to serve customers when we're finished."

J.P. Morgan will create "two separate operating groups in our Servicing and Default businesses," and Craig Delany, J.P. Morgan's head of global fixed income financing, will now focus on home lending capital markets, risk and finance, a separate memo from Bisignano said.

The COO told staff, "There is no higher priority" than compliance with the regulatory action, and "effective immediately, we will cut back on all meetings, offsites or travel unrelated to the OCC and Fed orders or client business."

Ally Financial Inc., the auto lender formerly known as GMAC, reassigned its general auditor, Mark Weintraub, to the task of complying with the consent order. "Weintraub will have day-to-day responsibility for ensuring that all areas of the company are meeting the requirements of the Order on a timely basis," Ally said in a statement.

Other banks were less specific about their immediate measures, but many agreed that the consent orders require substantial changes to their mortgage servicing operations; in such operations, banks collect payments on mortgages, do foreclosures or offer loan modifications to prevent borrowers from losing their home.

Regulators said they expected the orders to require extensive change. "These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations," acting Comptroller of the Currency John Walsh said in a press release.

The consent orders were issued by the Office of the Comptroller of the Currency and the Federal Reserve, which oversee big banks, and the Office of Thrift Supervision, which oversees thrifts.

Several banks were quick to point out that regulators didn't demand they undo foreclosures already completed or in progress.

HSBC North America had voluntarily halted all foreclosures in January but, after strengthening oversight and enhancing foreclosure policies, in recent days started to foreclose again on a selected basis, a spokesman said. "We will continue to work very closely with regulators to improve procedures," he said.

Wells Fargo & Co. (WFC) said the regulatory action was "intended to send a strong message to the national banks that changes are needed." A spokeswoman said the San Francisco bank has already introduced measures such as a second review when delinquent borrowers' requests for modification are declined. She said the bank hired about 10,000 staff between early 2009 and the end of 2010 to help financially stressed customers keep their homes.

Citigroup Inc. (C) said it identified "needed changes in our foreclosure processes" as early as 2009, "and proactively undertook corrective actions," including organizational changes, hiring and improving staff training, and a requirement that only Citi's own staff can sign foreclosure documents.

Measures at PNC Financial Services Group Inc. (PNC), a large bank but a small servicer of mortgages, included management changes in mortgage servicing. The bank said Wednesday it "takes this issue very seriously."

Bank of America Corp. (BAC) had no comment on the regulatory action.

Some bankers sought to portray the new requirements in a positive light. The order "is a step forward to create industry-wide standards that are needed," a spokeswoman for Wells Fargo said.

Banks are still negotiating with state attorneys general and other government agencies to rectify shortcomings in servicing mortgages.

J.P. Morgan Chase CEO James Dimon said, "I think a good global settlement will be good for everybody, and most important for the United States citizens and the housing market."

Bank shares fell Wednesday afternoon. Wells Fargo closed down 2.3% at $30.68, Citigroup was down 1.1% at $4.50 and Bank of America fell 1.5% to $13.27.

-By Matthias Rieker, Dow Jones Newswires; 212-416-2471; matthias.rieker@dowjones.com

--Aparajita Saha-Bubna contributed to this article.

PNC Financial Services (NYSE:PNC)
Historical Stock Chart
From Jun 2024 to Jul 2024