By Kevin Chiu
The federal government has announced formal enforcement sanctions against 14 banking organizations addressing a serious “pattern of misconduct and negligence” in the robo signing scandal. The deficiencies, announced jointly by the Federal Reserve, Comptroller of the Currency and the Office of Thrift Supervision requires banks and mortgage servicing companies to make corrections in their home loan foreclosure procedures.
A federal review uncovered unsafe and unsound practices, violations of law and foreclosure processes geared toward speed and quantity, instead of quality and accuracy, the Federal Reserve said in a statement.
The sanctions were announced after a review of foreclosure policies and procedures by regulators at 14 nationwide mortgage servicers. The orders require swift changes to be made to remedy widespread deficiencies identified during the review, according to the Office of Thrift Supervision (OTS).
The Federal Reserve has lodged actions against 10 banks, including banking giants Bank of America, Citigroup Inc., Ally Financial, formerly GMAC Mortgage, HSBC, JP Morgan Chase & Co., Met Life, PNC Financial, Sun Trust Banks, U.S. Bancorp and Wells Fargo Bank.
The 10 handle 65 percent of U.S. mortgage servicing on nearly $6.8 trillion in mortgages. All actions require the parent holding companies to improve oversight procedures on foreclosure processing conducted by bank and nonbank subsidiaries.
The Office of Thrift Supervision took separate enforcement actions against four OTS-regulated mortgage loan servicers for critical weaknesses in processing home foreclosures: Aurora Bank, Ever Bank, One West Bank and Sovereign Bank. The orders do not seek financial restitution or fine any of the banks or bank holding companies. Federal officials expect fines to be imposed at a future date.
Mortgage servicers work as intermediaries between borrowers and lenders, collecting mortgage payments and administering funds, which grow more complicated when borrowers default on loans and homes go into foreclosure.
About 54 million first-lien mortgages were outstanding in the U.S. at year-end 2010, including 2.4 million in foreclosure and another 2 million that were seriously delinquent (90 or more days past due) and at risk of foreclosure.
During the review by federal bank and thrift regulators, examiners evaluated the accuracy of foreclosure documentation, foreclosure procedures, staffing resources to handle the surging volume of foreclosures and the outsourcing of foreclosure work to vendors.
The enforcement orders require each of the servicers to hire an independent firm to conduct a comprehensive review, overseen by the OTS of foreclosure actions pending at any time in 2009 and 2010 to identify borrowers financially harmed by foreclosure errors, misrepresentations or other deficiencies, and to provide appropriate remediation and reimbursement for homeowners damaged by wrongful actions.
The federal actions order the banking organizations that have servicing entities regulated by the Federal Reserve (Ally Financial, SunTrust, and HSBC) to promptly correct deficiencies in residential mortgage loan servicing.