Federal bank regulators announced new rules Wednesday for 14
of the nation's largest mortgage servicers, saying the changes will
curb past and future foreclosure abuses.
Spawned by a federal investigation that identified "significant
weaknesses" in mortgage servicer practices, regulators said the changes
they're imposing represent major reforms in an industry that touches
virtually every U.S. homeowner with a mortgage.
In the government's most forceful response yet to the nation's
four-year foreclosure crisis, the regulators ordered the mortgage servicers
to hire outside firms to review every foreclosure action they had pending
from Jan. 1, 2009, through Dec. 31, 2010, identify borrowers harmed by the
servicers' deficiencies and compensate them. They also face unspecified
financial penalties that are still to come, regulators said.
The banks and other companies covered by the orders collect the
monthly payments from homeowners representing about two-thirds of the residential
mortgage market.
The banking regulators' actions are "intended to fix what is broken" and
identify and compensate borrowers who were victims of improper foreclosure processes,
says John Walsh, acting Comptroller of the Currency, whose office investigated the
servicers along with the Federal Reserve and the Office of Thrift Supervision.
Consumer advocates say the changes are too little, too late, create no
meaningful protections for consumers and are far less aggressive than those
being pursued by the 50 state attorneys general, whose investigation of mortgage
servicers is continuing.
The regulators "let the banks play a 'Get out of jail free' card," says
Adam Levitin, professor of law at Georgetown University.
The regulators said the mortgage servicers -- including Bank of America,
Citibank, JPMorgan Chase and Wells Fargo -- had significant weaknesses in their
mortgage servicing and foreclosure processes.
The problems violated state and federal laws, the regulators say. Even
more critically, they raised costs or limited the options of borrowers trying to
keep their homes, slowed the housing market's recovery by prolonging the foreclosure
crisis and placed excessive burdens on the court system, the regulators said.
To correct those deficiencies, the mortgage servicers agreed to make
changes that will include:
Giving distressed homeowners a single point of contact when dealing
with their mortgage servicer.
Not foreclosing if modified mortgages are not delinquent.
Increasing supervision of third-party vendors, including foreclosure
law firms that handle work for them.
Creating a process to let borrowers submit requests for remediation if
they think they've been treated unfairly.
Outcry Over 'Robo-signers'
The new rules hit an industry that, before the foreclosure crisis, largely
operated in anonymity and quiet purpose, managing millions of U.S. mortgages for an
increasingly large percentage of the U.S. population.
The wraps came off last fall with revelations that some servicers hired
law firms or employees who improperly prepared foreclosure documents in tens of
thousands of cases, apparently to keep up with the mushrooming backlog of foreclosures.
More than 1 million U.S. homeowners lost their homes last year, amid the worst U.S.
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News Column
Major Banks Told To Review Foreclosures
April 14, 2011
By Julie Schmit and Paul Davidson
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