Gov't orders 14 lenders to reimburse homeowners
(AP) – 4.13.11 2:45pm 51 minutes ago
WASHINGTON (AP) — The federal government on Wednesday ordered 16 of the nation's largest mortgage lenders and servicers to reimburse homeowners who were improperly foreclosed upon.
Government regulators also directed the financial firms to hire auditors to determine how many homeowners could have avoided foreclosure in 2009 and 2010.
Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation's four largest banks, were among the financial firms cited in the joint report by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency.
The Fed said it believed financial penalties were "appropriate" and that it planned to levy fines in the future. All three regulators said they would review the foreclosure audits.
In the four years since the housing bust, about 5 million homes have been foreclosed upon. About 2.4 million primary mortgages were in foreclosure at the end of last year. Another 2 million were 90 days or more past due, putting them at serious risk of foreclosure.
Critics, including Democratic lawmakers in Congress, say the order is too lenient on the lenders. House Democrats introduced legislation Wednesday that would require lenders to perform a series of steps, including an appeals process, before starting foreclosures.
"I want to know what abuses (the government agencies) identified, which banks committed them and how their proposed consent agreement is going to fix these problems," said Rep. Elijah Cummings, D-Md., the ranking member of the House Government and Oversight Committee. "Based on what I have read ... I am not encouraged at all."
The other lenders and service providers cited by the agencies include: Ally Financial Inc., Aurora Bank, EverBank, HSBC, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Banks, U.S. Bank, Lender Processing Services and MERSCORP.
Citigroup said in a statement that it had "self-identified" needed changes in 2009 and that it has helped more than 1.1 million homeowners avoid foreclosure.
"We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements," the company said.
Ally Financial, formerly known as GMAC, said it had not found "any instance where a homeowner was foreclosed upon without being in significant default."
Without specifically identifying instances of bad foreclosures, the government agencies noted in its report that the "deficiencies in foreclosure processing observed among these major servicers may have widespread consequences for the housing market and borrowers."
John Taylor, chief executive of the National Community Reinvestment Coalition, a consumer housing watchdog, said the government's action is a year too late. It does little to help those who are just now wrestling with a foreclosure and those who have already been displaced, he said. Rather than moving swiftly to seize people's homes, the banks should have done a better job helping people lower their mortgage payments through modification programs, he said.
"This should have happened a long time ago," he said. "There are so many people who, if they had received a meaningful modification, could have stayed in their homes."
ALSO...with MERS explanation...
April 13, 2011, 2:44 p.m. EDT
Major banks sanctioned over mortgage practices
Action doesn’t contain fines even though evidence of wrongdoing: FDIC
By Ronald D. Orol, MarketWatch
WASHINGTON (MarketWatch) — Without assessing fines, federal banking regulators on Wednesday sanctioned the country’s largest banks over “a pattern of misconduct and negligence” in residential mortgage loan servicing and foreclosure processing.
"These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions,” the Federal Reserve said in a statement.
The action, taken jointly by the Fed, Office of Thrift Supervision and the Office of the Comptroller of the Currency, found banks didn’t hire enough workers, didn’t adequately supervise outside lawyers and other firms, didn’t ensure they had accurate foreclosure documentation and didn’t stop foreclosure proceedings when warranted.
The sanctioned banks are Bank of America, Citigroup Inc., Ally Financial, the HSBC North America unit of HSBC Holdings, J.P. Morgan Chase, MetLife, PNC Financial Services, SunTrust Banks, U.S. Bancorp, Wells Fargo, Everbank, OneWest, Banco Santander’s Sovereign Bank and Aurora Bank, which together represent 68% of the market. [Plus MERS later in story !]
The enforcement action will require servicers to establish a wide variety of compliance programs and obtain an independent firm to conduct reviews of residential foreclosure actions. The banks will have to make sure there is more “effective” communications between borrowers and banks when it comes to foreclosure and mortgage modification proceedings.
Troubled borrowers have complained that the application process for obtaining a modification employing an Obama administration program has been a major headache because, they contend, each time they call their mortgage servicer they are put in touch with a different person who doesn’t have the information, documents, that their previous contact collected.
The action doesn’t require a single point of contact for borrowers, as many consumer groups and lawmakers have been pushing for. Read about efforts at Treasury to provide a single point of contact at bank servicers for borrowers
The penalties from the federal banking regulators don’t include fines, which could come in a related investigation on the part of 50 state attorneys general and the Justice Department. Press reports have suggested banks may have to pay fines that total between $20 billion and $30 billion.
In a statement, the Federal Deposit Insurance Corp. noted that the enforcement orders do not contain fines, adding that “there is evidence that some level of wrongful foreclosures has occurred.”
The FDIC added that the enforcement orders are only a first step in “setting out a framework” for big banks to fix deficiencies. The agency added that “it is important” that servicers identify any harmed homeowners and provide appropriate remedies.
Sanctions go to mortgage database company MERS !
In addition to the actions against the banking organizations, regulators also sanctioned Lender Processing Services, Inc., a U.S. provider of foreclosure related management services, and against MERS, a private company that operates a centralized computer database of mortgages and tracks the servicing rights and the beneficial ownership of the mortgage note. The MERS system has mostly replaced the U.S. public land ownership records.
The bank regulators and the Federal Housing Finance Agency both found “significant weaknesses” in, management supervision and corporate governance at the tracking and registration service company.
The report notes that in some cases, servicers lacked any quality assurance processes and relied instead on “infrequent and limited audits that MERS periodically conducted.”
The fines came as J.P. Morgan Chase on Wednesday wrote down the value of its mortgage-servicing business by $1.1 billion, leaving its Retail Financial Services unit with an unexpected first-quarter loss. The move suggests mortgage servicing won’t be as attractive as it used to be, bad news for other big banks in the business such as Wells Fargo.
J.P. Morgan’s write-down was driven by expectations that the business of servicing mortgages will get more expensive, partly because of new requirements imposed Wednesday by the Federal Reserve and the Office of the Comptroller of the Currency, Doug Braunstein, chief financial officer of the bank, said during a conference call with analysts.
Ronald D. Orol is a MarketWatch reporter, based in Washington.
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