Bair pushes for foreclosure claims review panel
Federal Deposit Insurance Corp. Chairman Sheila Bair wants a foreclosure claims commission set up, similar to the one established during the oil spill crisis in the Gulf of Mexico last year, to help homeowners victimized by improper foreclosures.
Bair spoke at the Mortgage Bankers Association summit in Washington Wednesday on the future of mortgage servicing, a day after regulators announced new work to develop a national servicing standard.
In October, lenders suspended foreclosures when employees were found to be filing affidavits without a proper review of documentation as required by law. A recent ruling by the Massachusetts Supreme Court that voided foreclosures by U.S. Bancorp ($35.41 0.19%) and Wells Fargo ($40.24 0.23%) when the two lenders could not adequately prove they held the mortgage title. Earlier this week, JPMorgan Chase ($53.66 0.31%) admitted it wrongfully foreclosed on more than a dozen military families after overcharging them for the loan.
Lenders and servicers have restarted foreclosures from the robo-signing scandal and have begun refiling thousands of affidavits. Chase said it would mail out $2 million in refunds to those families.
But Bair wants to consider more in compensation and in new regulation.
"The mortgage servicing industry is fundamentally flawed and in desperate need of reform. It does not provide significant incentives to provide borrowers enough loss mitigation needs," Bair said.
She added that some servicers have become too big to succeed. Since 2000, the five largest servicers grew their market share from 32% to more than 60% today, Bair said, adding that these companies were either incapable of or reluctant to commit the resources necessary to implement effective loss mitigation practices.
As the 50 state attorneys general continue their investigation into the servicing industry, Iowa AG Tom Miller has said a fund to compensate borrowers victimized by robo-signers is on the table, but not necessarily pending.
Bair did not elaborate on who would fund the commission, whether it be a privately funded by the servicers themselves, just as BP PLC ($43.52 -0.21%) set aside $20 billion to compensate victims of the oil spill, or if the government would play some role.
Traditionally, origination and servicing shops were one in the same. But Bair said with the advent of securitization, the two were split. When the system worked well, there were plenty of benefits as servicers cut expenses.
Federal Housing Administration Commissioner David Stevens, while speaking just after Bair, said in a more conversational tone that executives at some servicing companies would often brag to him during his time at Freddie Mac that they had cut expenses down to almost nothing. That was before the foreclosure crisis. Now that foreclosures and delinquent loans are at record levels, Stevens said, those companies do not have the capital to invest in the staff and training to conduct proper loss mitigation procedures.
"Those people today find themselves out of business," Stevens said.
Both Bair and Stevens hinted that a national servicing standard is definitely coming, though not anytime soon. Still, Bair said regulators can work now to solve the problem in a "critical time."
"It is time for government and industry to reach an agreement," Bair said. "We cannot afford to wait for Congress to take action on this issue. Regulators and AGs need to work together now to create strong servicing standards for the future. Otherwise, we will have missed a historic opportunity."
Write to Jon Prior.
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