Loan Servicer Sanctions Levied. Penalties Pending

by devteam April 16th, 2011 | Share

The Federal Reserve, Office of Comptroller of the Currency (OCC), FDIC,rnand Office of Thrift Supervision (OTC) have issued formal enforcement actions</aagainst 14 banking and two loan servicing related organizations which they found had demonstratedrna "pattern of misconduct and negligence related to deficient practices inrnresidential mortgage loan servicing and foreclosure processing."  The Fed said that these deficiencies representrnsignificant and pervasive compliance failures and unsafe and unsound practices.</p

The bankingrnorganizations cited are: Bank of America Corporation; Citigroup Inc.;rnAlly Financial Inc.; HSBC North America Holdings, Inc.; JPMorgan Chase &rnCo.; MetLife, Inc.; The PNC Financial Services Group, Inc.; SunTrust Banks,rnInc.; U.S. Bancorp; and Wells Fargo & Company, Aurora Bank, EverBank,rn OneWest Bank and Sovereign Bank.  All 14 were named by FDIC, eight by OCC, tenrnby the Federal Reserve and four by OTC.   rn</p

Three of the organizations, SunTrust, HSBC and Ally Financial, werernsingled out by the Federal Reserve and ordered to promptly correct many deficienciesrnin loan servicing and foreclosures that were identified by examiners over thernlast few months.  </p

Action is also being taken against Lender Processing Services (LPS) andrnMortgage Electronic Registration Systems addressing what the Fed calledrnsignificant compliance failures and unsafe and unsound practices at therncompanies and their subsidiaries.  LPSrnwill be required to address deficient practices related primarily to therndocument execution services it provides to servicers through two subsidiaries,rnDocX and LPS Default Solutions.  MERS isrnrequired to address significant weaknesses in oversight, managementrnsupervision, and corporate governance.  </p

The action followed an interagency review of the banks by their respectivernregulators and FDIC which issued the following statement.  </p

“The findings of the interagency review clearly show that the largestrnmortgage servicers had significant deficiencies in numerous aspects of theirrnforeclosure processing. These deficiencies included the filing of inaccuraternaffidavits and other documentation in foreclosure proceedings (so-calledrn”robo-signing”), inadequate oversight of attorneys and other thirdrnparties involved in the foreclosure process, inadequate staffing and trainingrnof employees, and the failure to effectively coordinate the loan modificationrnand foreclosure process to ensure effective communications to borrowers seekingrnto avoid foreclosures. The interagency review was limited to the management ofrnforeclosure practices and procedures, and was not, by its nature, a full scopernreview of the loan modification or other loss-mitigation efforts of thesernservicers. A thorough regulatory review of loss mitigation efforts is needed tornensure processes are sufficiently robust to prevent wrongful foreclosurernactions and to ensure servicers have identified the extent to which individualrnhomeowners have been harmed.”</p

The banking organizations have been order to provide corrective actionsrnin servicing and foreclosure processes.  Amongrnother things, each must submit plans acceptable to the Federal Reserve that: </p<ul class="unIndentedList"<liProvide borrowers a specific person to be their primary point ofrncontact; </li<liEnsure that the foreclosure process ends once a modification has beenrnapproved and the borrower is performing under that modification. </li<liEstablish oversight over third-party vendors of mortgage loanrnservicing, loss mitigation, or foreclosure-related support, including localrncounsel in foreclosure or bankruptcy proceedings; </li<liProvide remediation to borrowers who suffered financial injury as arnresult of wrongful foreclosures or other deficiencies identified in a review ofrnthe foreclosure process; and </li<liStrengthen programs to ensure compliance with state and federal lawsrnregarding servicing, generally, and foreclosures, in particular. </li</ul

In addition to ordering corrective action the Fed said it expects tornlevy financial penalties on the organizations. rnThere are other actions under consideration by federal and staternregulatory and law enforcement organizations and the Fed said its actions arerncomplementary to and do not preclude any actions that may be taken by others. No penalties have been announced yet. </p

A few of the banks have already responded to the FederalrnReserve action.  Ally Financial confirmedrnit had entered into a consent order with both the Federal Reserve and the FDICrnas a result of the ongoing investigation into it loan processing procedures.  MetLife also confirmed its consent order andrnsaid it has committed to further enhance its oversight of risk management,rnaudit and compliance programs.</p

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