While negotiations continue between mortgage servicers and the Multistate Mortgage Foreclosure Group, enforcement action has been taken by the Office of the Comptroller (OCC), the Office of Thrift Supervision (OTS), and the Federal Reserve Board (FRB) against 14 U.S. bank and two third-party mortgage servicers.
Amid allegations of unsafe and unsound practices in the processing of foreclosures, enforcement action has been taken against bank servicers: Ally Financial, Aurora Bank, Bank of America, Citibank, Citigroup, EverBank, HSBC, JP Morgan Chase, MetLife Bank, OneWest Bank, PNC, Sovereign Bank, SunTrust Bank, U.S. Bank, and Wells Fargo and third-party servicers: Lender Processing Services Inc. (LPS), and MERSCORP also known as Mortgage Electronic Registration Systems Inc. (MERS).
"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations," said acting Comptroller of the Currency John Walsh. "These reforms will not only fix the problems we found in foreclosure processing, but will also correct failures in governance and the loan modification process and address financial harm to borrowers. Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward."
As part of the enforcement action by the OCC, OTS and FRB, servicers must significantly improve residential mortgage loan servicing and foreclosure processing. This includes borrower communication and "dual-tracking," which will prohibit foreclosure during the loan modification process.
Mortgage servicers are also required to promptly correct deficiencies in residential mortgage loan servicing that were identified by examiners in reviews conducted during the fourth quarter of 2010.
Each mortgage servicer must, among other things, submit plans acceptable to the FRB that:
►Strengthen coordination of communications with borrowers by providing them with the name of the person who is their primary point of contact at the servicer;
►Ensure that foreclosures are not pursued once a mortgage modification has been approved, unless repayments under the modified loan are not made;
►Establish robust controls and oversight over the activities of third-party vendors that provide residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
►Provide remediation to borrowers who have suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in their review of the foreclosure process; and
►Strengthen their programs to ensure compliance with state and federal laws regarding mortgage servicing and the processing of foreclosures.
"This settlement provides that if you're negotiating or in the midst of a trial modification, a lender is prohibited from seizing the property," says Carlos J. Reyes, a foreclosure defense attorney with the Reyes Law Group in Fort Lauderdale. "Defense attorneys now have a basis to go forward to try and save a property in litigation with the additional argument that failing to modify or settle is a breach of the lender settlement with federal regulators."
The enforcement action is based upon an OCC, OTS and FRB review of foreclosure practices that found mortgage servicers "failed to conform to state legal requirements." The review stopped short at robo-signing and other forms of document fraud. It did not investigate the illegal imposition of fees, the failure to comply with loan modification requirements or other alleged servicer abuses. In fact, federal regulators only reviewed a small sample of loan files containing key information on foreclosure practices.
Many believe that the settlement by federal regulators will undermine the investigation of foreclosure fraud by the Multistate Mortgage Foreclosure Group. Initially, there were hopes of a "global settlement" covering state and federal regulators, but the agencies, led by the OCC, broke off and delivered their own enforcement action.
While federal regulators and the various state attorneys general maintain this enforcement action will not affect the AG probe or ongoing negotiations, mortgage servicers can now report they have been punished for alleged violations of law. Although an independent review is determining damages, they may reject any additional settlement since they have already been punished by their regulators.
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