Fixing the foreclosure process more than a year out
Examining the extent of mishandled foreclosures at the largest mortgage servicers and fixing a broken system will take more than a year, according to Acting Comptroller of the Currency John Walsh.
Last fall, servicers were found to be signing foreclosure affidavits en masse and without a legal review of the loan files in a scandal that became known as robo-signing. Federal regulators and state attorneys general found oversight and procedural problems across the entire industry and forced 14 of the largest banks — firms that serviced 68% of the mortgages in the U.S. — to sign consent orders. The actions also included two firms that handled documents in foreclosure cases: Lender Processing Services ($32.99 0.11%) and Mortgage Electronic Registration Systems.
They agreed to hire third parties to examine nearly 4.5 million foreclosure files for any potential financial harm and to establish new policies to properly evaluate borrowers for a slew of other options before proceeding with a foreclosure.
"Unfortunately, such a complex process will take another year and more to complete," Walsh said before the Institute for International Finance Friday. "I wish it could be completed more quickly, but it’s important that it be done correctly and in a way that assures fair treatment for homeowners who underwent foreclosure proceedings."
Some progress has already been made. Walsh said regulators will release details of the independent foreclosure reviews for each servicer "shortly." Top AGs involved in the separate investigation reportedly met with banks again Friday to make more progress on an agreement.
But contacting borrowers who may have been potentially harmed in the robo-signing debacle, those that went through foreclosure during 2009 and 2010, will be a challenge for Walsh and the other regulators.
Walsh reiterated that living up to the consent orders would be "complex and expensive" for the banks involved, including Bank of America ($13.24 0.03%), Wells Fargo ($40.24 0.23%), JPMorgan Chase ($53.66 0.31%), Citigroup ($50.52 -0.01%) and others.
The OCC, the Federal Reserve, the newly formed Consumer Financial Protection Bureau, the Department of Housing and Urban Development, the Federal Housing Finance Agency and other rulemakers are at work crafting a new set of servicing standards, which could range from single-point-of-contact requirements to new fee structures.
"The challenges before us are substantial, but so are the steps we have taken in our enforcement orders," Walsh said. "I believe that we are on track to settle outstanding issues in a way that respects the needs of all who have truly suffered from flaws in the system and restores confidence in the system."
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