By Mike Colpitts
Nearly three years after problems arose plaguing the U.S. in the foreclosure crisis, government regulators have found that federal agencies oversight of foreclosures has been limited, fragmented and needs to be corrected, according to the agency charged with investigating U.S. banks.
In what has become the largest financial swindle in American history, Wall Street traders and banks made millions of mortgages officials admit many homeowners would never be able to repay. Millions of homes sit vacant as a result of the flawed process as communities are negatively impacted with homes that are left to rot without proper maintenance, damaging neighborhoods and the values of surrounding homes.
The U.S. Government Accountability Office recommends that “banking regulators and the Bureau of Consumer Financial Protection (CFPB) develop plans for overseeing mortgage servicers and include foreclosure practices in any servicing standards that are developed.”
Problems were brought to light when homeowners with mortgages complained they were not being dealt with fairly by banks and mortgage servicing companies when they became late on mortgage payments. Federal laws, however, do not specifically address foreclosure processes, but would have to be developed to provide the federal oversight. “State laws primarily govern the foreclosure process and specify what, if any, documentation is required to foreclose on a property,” the report said.
Fourteen banking related companies, including the nation’s largest banks and mortgage servicers were sanctioned last month as a result of a federal inquiry into the problems, although monetary damages have not yet been accessed. “Banking regulators conducted a coordinated review of 14 mortgage servicers and identified pervasive problems with their document preparation and oversight of foreclosure processes,” the GAO report stated.
“Although various federal agencies have authority to oversee most mortgage servicers, past oversight of their foreclosure activities has been limited, in part because banking regulators did not consider these practices as posing a high risk to banks’ safety and soundness, and some servicers have not been under direct federal oversight,” the GAO report found.
Regulators issued enforcement actions against the 14 companies, but will leave it up to others to come up with a plan to provide oversight of the mortgage servicing industry after more than 7-million homeowners have been foreclosed in the worst foreclosure crisis in U.S. history.
Foreclosure documentation problems led servicing companies in 26 states to halt foreclosures last fall after mortgage servicing employees admitted to signing legal documents on at least tens of thousands of homes without having any direct knowledge of the process. The robo-signing scheme is still being investigated by state Attorney Generals in 26 states.
Since then many of the nation’s largest banks, including Bank of America, JP Morgan Chase and Wells Fargo have re-filed paperwork and resumed formal repossessions.