The Office of the Comptroller of the Currency missed signs of the robo-signing scandal because its examiners underestimated the risk and lacked enough guidance to find it, according to the Treasury Department Inspector General.
In March, the five largest mortgage servicers settled with federal regulators and the state attorneys for $25 billion in fees and consumer relief for documentation problems and wide-scale foreclosure abuses. The deal closed 18 months of negotiations began when the scandal broke in 2010.
The 14 largest servicers entered into consent orders with the OCC and the Federal Reserve in 2011 and are reviewing filings taken over the past two years to reimburse any harmed borrowers.
The foreclosure process is still not rebooted in many areas of the country.
"OCC examination procedures during the period 2008 through 2010 were not sufficient in scope or application to identify significant weaknesses in national banks' foreclosure documentation and processing functions," the Treasury IG said in a report Friday. "During this time OCC did not consider foreclosure documentation and processing to be an area of significant risk and, as a result, did not focus examination resources on this function."
Agency examiners told the IG they relied on internal audits done by the banks themselves, which never focused on how foreclosures were processed.
According to a Department of Housing and Urban Development Inspector General report, Bank of America (BAC) improperly signed up to 20,000 foreclosure affidavits per day without required notarizations.
Instead, the OCC was looking at loss mitigation techniques and modifications processes. Its consumer warning procedures and examiner handbook were never updated to catch the problems, according to the Treasury IG.
Examiners were found to hold federal law safety and soundness expertise, not state law, which largely governs how foreclosures are conducted across the country.
In response to the report, the new Comptroller of the Currency Thomas Curry said in a letter that some changes were underway.
"OCC management told us that they believed the underestimation of risk in this area to be more an error in judgment than of documentation," according to the IG report.