Wednesday, April 20, 2011

Mortgage lending banks spanked for foreclosure gaffs

Uncle Sam has ordered mortgage lenders to pay back former homeowners who suffered questionable foreclosures, but not many former homeowners are likely to benefit.

by Broderick Perkins
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Deadline Newsroom - Uncle Sam has ordered mortgage lenders to pay back former homeowners who suffered questionable foreclosures, but not many former homeowners are likely to benefit.

In a settlement that reveals recession-spawning risky business in the mortgage industry is far from over, federal bank regulators recently ordered the nation's largest mortgage servicers to put an end to dirty tricks in the foreclosure business.

Among the practices still springing up years after the mortgage industry helped topple the economy include "dual tracking" lenders effectively scuttling their own efforts to keep homeowners out of foreclosure.

The settlement comes, typically, without the companies admitting to any wrong doing. It requires servicers to correct problems in foreclosure processing, loan modification programs and corporate governance, among other areas.

Servicers must also identify and compensate borrowers who suffered unnecessary financial harm during foreclosures over the two year period between January 1, 2009, and December 31, 2010, due to "deficiencies in residential mortgage loan servicing and foreclosure practices."

The eight mortgage servicing (lenders) culprits named in the settlement are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. Two service providers were also named; Lender Processing Services (LPS) and its subsidiaries DocX, LLC, and LPD Default Solutions, Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS).

The Office of the Comptroller of the Currency (OCC) based its enforcement actions on the findings of an interagency investigation detailed in "Interagency Review of Foreclosure Policies and Practices", produced by the OCC, the Board of Governors of the Federal Reserve System, and the Office of Thrift Supervision.

The latest scathing report about mortgage lending, servicing and foreclosure practices, the interagency review identifies "significant weaknesses in mortgage servicing and foreclosure governance that resulted in unsafe and unsound practices."

Among the problems investigated, were:

• The practice of "dual tracking" simultaneously engaging a homeowner in a loan modification, while foreclosing on the property.

• Using robo-signing to finalize foreclosures. Robo-signing is the practice of employees, dubbed "robo-signers," who vouched for the accuracy of foreclosure documents without reading them.

• Losing and misplacing documents, not keeping records of contact with homeowners, and asking homeowners to repeatedly submit the same documents.

The report lambastes mortgage lenders for what amounts to a shoddy foreclosure business practice, a practice of deception and bungled governance that virtually mirror the kind of risky business that brought the economy to its knees.

Problems included underdeveloped foreclosure governance processes (for oversight, auditing and quality control); inadequate and under-trained staffing; insufficient affidavit and notarization practices (including claiming documents were executed under oath when no oath was taken).

Lies and damn lies and more damn lies.

The report does say that most borrowers in its investigative sample pool were seriously delinquent and probably due for foreclosure anyway, but "a limited number of mortgages should not have proceeded to foreclosure."

Despite the limited number of foreclosures that shouldn't have been, the report says the foreclosure process is a mess.

"The failures and deficiencies identified...must be remedied swiftly and comprehensively," because the problems found "present significant risk to the safety and soundness of mortgage activities."

Among other provisions, the settlement's enforcement rules say:

• Servicers must not pursue foreclosures once a mortgage has been approved for modification. Duh!

• Services must establish a single point of contact for borrowers throughout the loan modification and foreclosure processes. Der.

• Servicers must establish robust oversight and control for third-party vendors, including outside legal counsel providing default management or foreclosure services. Hello?

"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations. 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," said acting Comptroller of the Currency John Walsh.

We can only hope.

States' attorneys general remain on the case pursuing legal action against mortgage lending rogues.

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Broderick Perkins, an award-winning consumer journalist, parlayed 30 years of old-school journalism into a digital real estate news service, the San Jose, CA-based DeadlineNews Group, including DeadlineNews.Com, a real estate news and consulting service and Web site, and the Deadline Newsroom, DeadlineNews.Com's news back shop.

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Perkins is managing editor of's Gulf Coast Response Center.

Perkins was the first Examiner to cover three beats for the news service:
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