Feds sanction mortgage servicers for foreclosure debacle

by JON PRIOR –Housingwire

The Office of Comptroller of the Currency and the Federal Reserve forced the 10 largest mortgage servicers Wednesday to establish new foreclosure processes after their investigation into misconduct was uncovered last year.

The Fed said sanctions in the form of fines will be included in addition to the corrective actions, but will be announced at a later date.

In 2010, employees at the largest mortgage servicers were found to be mishandling the entire loss mitigation process from modification to foreclosure.

As the problems surfaced, federal regulators and the 50 state attorneys general launched investigations. The AGs are expected to conclude a settlement negotiation in the coming months.

The OCC and the Fed signed consent orders with Bank of America (BAC: 13.25 -1.63%), JPMorgan Chase (JPM: 46.20 -0.94%), Wells Fargo (WFC: 30.74 -2.10%),Citigroup (C: 4.485 -1.43%), Ally Financial (GJM: 24.30 0.00%), HSBC North America Holdings (HBC: 53.62 +0.24%), PNC Financial Services (PNC: 62.69 -0.70%), U.S. Bancorp (USB: 25.94 -1.59%), MetLife(MET: 44.10 -1.50%) and SunTrust Banks (STI: 29.32 -0.95%).

JPMorgan Chase reported Wednesday the crackdowns cost the bank $1.1 billion in expenses through devalued mortgage servicing rights in the first quarter. In a statement sent to HousingWire, Citigroup vowed to work with the regulators.

"These Orders demand both consistency and a higher set of standards across the industry. We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements by the implementation deadlines," Citi said.

As part of the agreement, the servicers will submit plans within 60 days to the Fed that strengthen the communication between borrowers and provide them with single-point of contact. The servicers are required to ensure that foreclosures are not pursued once a mortgage is approved for modification.

These companies, including the servicers, will be required to provide remediation to borrowers who suffered financially as a result of a wrongful foreclosure, and regulators want the companies to ensure compliance with state and federal laws.

Regulators also required the servicers to establish controls and oversight of third-party vendors, that provide services such as documentation processing and local counsel. A recent ruling in Louisiana portrayed the breakdown between the servicer and once of these companies, Lender Processing Services (LPS: 30.57 -1.99%) and the Mortgage Electronic Registration Systems.

Regulators will require LPS through its subsidiaries DocX and LPS Default Solutions and MERS to "address significant weaknesses in, among other things, oversight, management supervision, and corporate governance." LPS has since discontinued the affidavit services of those companies.

The OCC took action against LPS jointly with the Federal Deposit Insurance Corp. and the Office of Thrift Supervision, while the MERS action was completed between those agencies and the Federal Housing Finance Agency.

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