The Federal Deposit Insurance Corp. took a look into the foreclosure operations at the largest mortgage servicers and found significant breakdowns at almost every stage of the process. However, these issues are largely isolated to the servicers that hold the largest share of the mortgage finance business. “To date, FDIC reviews of state nonmember banks have not identified instances of ‘robo-signing’ or other serious deficiencies in mortgage servicing operations,” said the FDIC in an email alert Wednesday. “Nevertheless, any bank involved in residential mortgage servicing can benefit from understanding the issues identified in the interagency review.” The FDIC looked into the 14 mortgage servicers that signed consent orders with their regulators in April. The settlements include requirements to fix holes in the process, provide more loss-mitigation efforts and even left the door open for fines. These large companies came under investigation from the agencies and the 50 state attorneys general when news surfaced of faulty documentation processes that are still being corrected. “Foreclosure governance processes of the servicers were underdeveloped and insufficient to manage and control operational, compliance, legal, and reputational risk associated with an increasing volume of foreclosures,” the FDIC said in its report. Agents interviewed servicer employees and reviewed roughly 2,800 foreclosure files in both judicial and nonjudicial states. The findings match the scope of the problem the Office of the Comptroller of the Currency and the Federal Reserve found in their investigation. According to the study, the thin policies and procedures at these companies buckled under the record levels of delinquent loans. Monitoring, quality control and audit reviews failed to detect few of the corners cut. The reputational and legal risks of those practices were rarely communicated to the board of directors or senior management, according to the FDIC. Similar breakdowns occurred at third-party vendors hired by these servicers to handle documentation services. The Mortgage Electronic Registration Systems did not invest enough resources, staff or training to properly handle the caseloads, and Lender Processing Services (LPS) failed to establish enough internal controls or risk management to catch documentation issues, according to the FDIC. Both MERS and LPS are entangled in a variety of lawsuits and face sanctions across the country for allegedly mishandling mortgage documents during foreclosure. “In addition LPS executed and recorded numerous affidavits, assignments of mortgages, and other mortgage-related documents that contained inaccurate information or were not properly notarized or based on personal knowledge,” the FDIC said. The FDIC reviewed practices at some of the smaller state nonmember banks under its umbrella. These companies collectively service less than 4% of mortgages in the U.S. The study did not find the same problems at the larger firms – not enough to warrant formal enforcement actions, the FDIC said. “Community banks fared far better than larger institutions in terms of delinquency rates on residential mortgage loans and have undertaken far fewer foreclosures,” the FDIC said. “Nevertheless, community banks should be aware of the lessons learned from the horizontal review when assessing their servicing practices.” Write to Jon Prior. Follow him on Twitter @JonAPrior.