Federal Reserve Gov. Sarah Bloom Raskin blames the stalled housing recovery and economic malaise on the “shoddy” practices of mortgage servicers and believes building a new enforcement structure to oversee industry practices is necessary to move the mortgage finance system forward.
When it comes to what the final regulatory structure or overseer will look like, Raskin is not conclusive, but said it will have to be consistent and transparent in its oversight role. She highlighted the Fed’s decision to issue cease and desist orders and fine 14 mortgage servicers for misconduct in loan servicing and unreliable foreclosure practices.
The need for a new regulatory framework is underpinned by the lack of enforcement during the housing boom, Raskin told the Association of American Law Schools. Today, as a result of weak oversight, the courts are inundated with housing-related issues.
“While the courts sort out — one by one — the mortgage servicing cases, the Federal Reserve, together with other federal and state regulators, must create, implement, and complete an enforcement response,” she said.
Raskin portrays the problems plaguing the mortgage market as the byproduct of businesses becoming complacent in following best practices and established laws.
“Throughout the successive waves in foreclosures that have occurred since 2007, problems in mortgage servicing have emerged and persisted,” Raskin said. “These problems have included critical weaknesses in mortgage servicers’ foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party law firms and other vendors. Collectively, these problems have hampered the ability of the courts and the markets to work through the foreclosure inventory in an efficient manner.”
Raskin said the judicial dilemma over moving efficiently through an influx of foreclosure issues highlights the need for public enforcement of mortgage servicing laws and a review of current laws on the books.
“It is also worth noting the obvious, which is that Congress enacted some of the laws that are allegedly being violated–they are public laws. Their efficacy must be evaluated and re-evaluated by the public. This means that enforcement of laws must occur in a manner that permits an appropriate public evaluation,” she said.
Raskin considers the fallout in mortgage servicing industry attributable to businesses assuming the position that their internal processes are just standard industry practices.
“Appropriately tailored enforcement against these mortgage servicing practices is necessary as one way to rebuild an important sector of the housing market. Accordingly, current deficiencies must be corrected,” Raskin said. “What’s more, financial institutions need to understand that they are responsible for assessing the effects their actions will have on consumers and the country as a whole, and factor those considerations into their business decisions.”
Write to Kerri Panchuk.
