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Servicers Hit With Federal Orders

OCC announces consent orders with 8 servicers

April 13, 2011

By staff

Federal banking regulators have taken formal enforcement actions against the nation's biggest mortgage servicers. The servicers are required to improve their foreclosure and modification processes, hire outside firms to verify if any borrowers unjustly faced foreclosure and compensate victims.

An announcement from the Federal Deposit Insurance Corp. indicated that the nation's 14 largest mortgage servicers faced enforcement actions over their servicing practices.

Eight national bank-servicers have each voluntarily entered into consent orders with the Office of the Comptroller of the Currency, a government statement Wednesday said. In addition, two third-party service providers faced the consent orders.

The orders require the servicers to immediately correct deficiencies that were identified in fourth-quarter regulatory reviews. Those deficiencies included borrower communications problems and issues that arise when foreclosures and modifications are simultaneously pursued. The reviews were summarized in the Interagency Review of Foreclosure Policies and Practices produced by the OCC, the Federal Reserve Board and the Office of Thrift Supervision.

"Examinations of these eight national bank servicers identified significant weaknesses in mortgage servicing and foreclosure governance that resulted in unsafe and unsound practices," the OCC statement said. "The scope and degree of these practices differed among the servicers."

Under the order, s
ervicers are required to suspend the foreclosure process once a loan modification is approved. They are also required to establish a single point of contact for borrowers as they move through the foreclosure process and the modification process.

The orders also require that the servicers hire independent firms to review their foreclosure actions between Jan. 1, 2009, and Dec. 31, 2010, to determine whether foreclosures were compliant with federal and state laws, if they happened when loans were current and whether any errors, misrepresentations or other deficiencies led the borrower to suffer financial injury.

"In addition, the actions require servicers to establish robust oversight and controls pertaining to their third-party vendors, including outside legal counsel, that provide default management or foreclosure services," the OCC stated. "Each servicer must also submit a plan to remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies identified in the independent consultant's findings."

The regulatory actions are the result of "unsafe and unsound practices" related to servicing and foreclosure processing. They were coordinated among federal banking regulators.

Acting Comptroller of the Currency John Walsh said in the statement that the enforcement actions "fix" foreclosure processing problems and correct failures in governance and the loan modification process as well as compensate borrowers for financial harm suffered by borrowers.

Walsh said that the resulting mortgage servicing process should be "fair and orderly."

The Federal Reserve Board announced consent orders against 10 bank-servicers, some of the same ones identified by the OCC.

In apparent support of the orders, the Mortgage Bankers Association issued statement indicating that its members "welcome progress on these difficult and critical issues" and highlighted that the top priority should be "getting the housing market back on the road to recovery."

Citigroup Inc. issued a statement touting its foreclosure prevention efforts and indicating its intention to meet the new requirements by the implementation deadline.

"In 2009, we self-identified needed changes in our foreclosure processes and proactively undertook corrective actions to enhance our policies and controls and the effectiveness of our processes," Citi stated. "These included: consolidating operations into one central unit; significantly reinforcing the size and training of our staff; and, tightening control processes, including limiting the ability to sign-off on initiation of the foreclosure processes to internal Citi personnel only."

A statement from the Department of Housing and Urban Development indicated that senior officials from several federal agencies and state attorneys generals' offices are still meeting with the servicers to continue settlement negotiations related to the foreclosure processing matter.

"The bottom line is that banks must follow the laws," HUD Secretary Shaun Donovan stated. "Any bank that hasn't done so should be held accountable and should take prompt action to correct its mistakes."

Servicer Servicing Portfolio Consent Order
Ally Financial Inc. $355.7 billion Ally-Fed consent order
Aurora Bank $86.0 billion Aurora-OTS consent order
Bank of America, N.A. $2,056.8 billion Bank of America-OCC consent order
Citibank $599.9 billion Citibank-OCC consent order
EverBank na EverBank-OTS consent order
HSBC $63.3 billion HSBC-OCC consent order
JPMorgan Chase $1,190.6 billion JPMorgan-OCC consent order
Lender Processing Services and subsidiaries DocX LLC and LPD Default Solutions Inc. na LPS-OCC consent order
MERSCORP and wholly owned subsidiary Mortgage Electronic Registration Systems Inc. na MERS-OCC consent order
MetLife Bank $115.9 billion MetLife-OCC consent order
OneWest Bank $150.0 billion OneWest-OTS consent order
PNC $174.6 billion PNC-OCC consent order
Sovereign Bank na Sovereign-OTS consent order
SunTrust Banks Inc. $167.2 billion SunTrust-Fed consent order
U.S. Bank $223.5 billion U.S. Bank-OCC consent order
Wells Fargo $1,809 billion Wells Fargo-OCC consent order

read Interagency Review of Foreclosure Policies and Practices

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