OTS pins some higher REO volume on mortgage servicers

The Office of Thrift Supervision updated its guidelines alerting examiners to the possibility that a higher level of repossessed homes could stem from poor servicer performance as much as lax underwriting standards. Servicers came under fire in September when banks began halting REO sales and foreclosures. Allegations arose of employees signing affidavits en masse and without a proper review of documentation. Regulators, including the OTS, and all 50 state attorneys general launched investigations into processes at the biggest servicing shops. The OTS is the primary regulator of federal and many state-chartered thrift institutions, including savings banks and savings and loan associations. In an update issued this week, the OTS directed examiners to go over the savings associations’ own internal reviews and evaluate internal controls. It also called for an interview with management concerning the effectiveness of loan workouts and the amount of problem mortgages. But an interesting change is what the OTS believes may lead to higher REO volumes at these institutions, blaming poor servicing as well as poor underwriting. “Increases in these portfolios may indicate deteriorating economic conditions, lax adherence to loan underwriting standards, or deficient loan administration,” according to the update. Next summer, the Office of the Comptroller of the Currency will absorb the OTS. Write to Jon Prior.