The Federal Reserve (Fed), in an interagency action with the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS), has announced enforcement actions taken against 10 banking organizations, including eight national banks and two servicing entities. The actions are a culmination of an investigation, and subsequent report, into the residential mortgage loan servicing and foreclosure processing practices that identified deficiencies from a pattern of misconduct and negligence.
"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations," said acting Comptroller of the Currency John Walsh. "These reforms 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. Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward."
Under the individual consent orders applied to each organization, each entity is required to make significant changes to their loan servicing and foreclosure processing practices. Included in the orders is the requirement to submit plans to the Federal Reserve that:
- strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact;
- ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made;
- establish robust controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
- provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and
- strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.
Although monetary penalties were not included in these actions, the Fed noted that such penalties are appropriate and will be placed upon these organizations in addition to the requirements for corrective action. Additionally, the Fed stated that these actions are intended to complement actions considered by state regulatory and law enforcement agencies and does not preclude them from taking their own enforcement actions.
The FDIC noted in a statement that the steps taken are the first step toward resolving the issues and practices identified, with more actions to come. "The findings of the interagency review clearly show that the largest mortgage servicers had significant deficiencies in numerous aspects of their foreclosure processing. These deficiencies included the filing of inaccurate affidavits and other documentation in foreclosure proceedings (so-called "robo-signing"), inadequate oversight of attorneys and other third parties involved in the foreclosure process, inadequate staffing and training of employees, and the failure to effectively coordinate the loan modification and foreclosure process to ensure effective communications to borrowers seeking to avoid foreclosures. The interagency review was limited to the management of foreclosure practices and procedures, and was not, by its nature, a full scope review of the loan modification or other loss-mitigation efforts of these servicers."
According to the Fed, the organizations subject to the enforcement actions collectively account for 65 percent of the servicing industry with approximately $6.8 trillion in mortgage balances. The companies subject to the actions are:
- Bank of America Corp
- Citigroup Inc and CitiFinancial Credit Co
- Ally Financial, Inc, ResCap, GMAC Mortgage, and Ally Bank
- HSCB North America Holdings, Inc and HSBC Finance Corp
- JPMorgan Chase & Co. and EMC Mtge
- MetLife, Inc
- PNC Financial Svs. Group, Inc
- SunTrust Banks, Inc, SunTrust Banks and SunTrust Mortgage
- U.S. Bancorp
- Wells Fargo & Co
- LPS
- MERS
