Major U.S. banks and thrifts filed foreclosures with improper documentation and lacked sufficient staff to properly handle distressed borrowers, federal bank regulators said Wednesday as they ordered lenders to overhaul their foreclosure processes.
The orders for 14 institutions issued by the Office of the Comptroller of the Currency, Federal Reserve and Office of Thrift Supervision followed a probe of the mortgage servicing abuses that erupted into view last fall. The orders did not include fines for the industry, though the Federal Reserve said it “plans to announce monetary penalties.”
“These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions,” the Fed said in a statement. Regulators also required two outsourcing companies to change their practices.
Still, Democratic lawmakers and some state attorneys general have advocated a tougher response, including a much larger effort to write down the value of loans for troubled homeowners. But Republicans at the state and federal level reject that approach, calling it an overly broad response to the foreclosure-document problems.
Acting Comptroller of the Currency John Walsh said in a statement that the agreements “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.”
Earlier in the day, J.P. Morgan Chase & Co. Chief Executive Jamie Dimon said he expects banks to eventually pay fines, adding that resolving the issue “will be good for everybody.” As a result of the orders, J.P. Morgan expects banks’ costs for mortgage servicing will result in $1.1 billion in additional staffing and legal costs.
The orders were issued to the nation’s four largest banks–Bank of America Corp., Wells Fargo & Co., J.P. Morgan and Citigroup Inc.
Citi said in a statement that the company is “committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements by the implementation deadlines.” Wells Fargo called the orders an “unprecedented measure and a tough message to take, but it will make mortgage servicing practices better across the board.” Bank of America did not immediately comment.
Also receiving orders were Ally Financial Inc., HSBC Holdings PLC , MetLife Inc., PNC Financial Services Group Inc., SunTrust Banks Inc., U.S. Bancorp, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.
MetLife said in a statement that it “either has implemented, or is in the process of implementing, many of these standards.”
The orders found that the banks filed foreclosure documents in courts around the country that included assertions that bank employees could not personally verify. Banks also filed documents that weren’t properly notarized, did not ensure that mortgage documents were transferred properly, failed to have adequate staff for the foreclosure process and didn’t properly oversee outside firms that handled foreclosures, the regulators found.
The orders, however, are likely to come under fire for leaving too much discretion in the hands of banks. They require each to hire an independent consultant to evaluate whether they improperly foreclosed on any homeowners and require each company to establish their own process to consider whether to compensate borrowers who have been harmed.
Regulators did not reach a definitive conclusion on whether borrowers had improperly lost their homes, according to a person familiar with the matter.
Last week, a group of consumer advocates objected to that idea in a letter to the bank regulators, arguing that doing so would “permit the perpetrators of these recognized illegalities to create their own process for fixing the problems in the future.”
Rep. Elijah Cummings (D., Md.) the top Democrat on the House Oversight and Government Reform Committee, had called on the Comptroller’s office to postpone the orders, writing in a letter Tuesday that the then-pending action was “insufficient to curb the serious and chronic misconduct allegedly engaged in against homeowners and mortgage investors.”
The bank regulators also announced actions against two outsourcing companies Lender Processing Services Inc. and Mortgage Electronic Registration Systems, or MERS. The Fed said those actions “ address significant compliance failures and unsafe and unsound practices” at both companies.
Reston, Va.-based MERS said in a statement that it is “already actively implementing changes that tighten corporate governance, improve internal controls and address quality assurance issues” identified in the review.
MERS runs a database that allows banks to package loans into securities that can be sold without being recorded in local county courthouses, reducing costs for banks. Critics of the company have raised concerns over whether notes were properly assigned or tracked within the electronic system.