The Fed ordered Goldman Sachs to conduct an independent review of Litton’s foreclosures in 2009 and 2010 to address a “pattern of misconduct and negligence,” the regulator said today in a statement. Litton’s sale to Ocwen Financial Corp. (OCN) was completed today after reaching accords with the Fed and New York state regulators, according to a Goldman Sachs statement.
Goldman Sachs leaves mortgage servicing after Litton was accused of robo-signing, in which foreclosure documents are signed by company officials who vouch for their accuracy without personally verifying the contents. The practice raised concern that some borrowers may have been wrongfully evicted and triggered calls for more staffing and oversight.
“Our agreement sets a new higher standard for the residential mortgage-servicing industry, whose troubling foreclosure and servicing practices we have been investigating along with other regulators across the country,” Benjamin Lawsky, superintendant at the New York State Department of Financial Services, said in a statement.
Mortgage servicers send out bills, collect payments and handle foreclosures. New York-based Goldman Sachs acquired Houston-based Litton with 1,000 employees in 2007, took a writedown of about $200 million earlier this year and agreed in June to sell the unit to Ocwen for $263.7 million. The value of mortgage servicing companies has been eroded as record U.S. foreclosures and delinquencies drove up costs.
Goldman Sachs agreed to provide the Fed with findings of the independent review as well as its plans to reimburse customers for fees or losses stemming from improper foreclosures, according to the settlement. The firm also agreed to improve compliance and borrower communications should it re- enter the business.
“The review is intended to provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process,” according to the Fed’s statement.
Goldman Sachs also agreed to pay any penalty the Fed imposes on Litton based on today’s enforcement action. The regulator said it plans penalties for Litton as well as other large servicers, including Bank of America Corp. and JPMorgan Chase & Co. (JPM), which received enforcement actions in April.
Attorneys general from all 50 states last year announced their investigation into bank foreclosure practices after reports that faulty or manufactured documents were being used to seize homes. Since then, a group of attorneys general and officials from federal agencies, including the Justice Department, have been negotiating a settlement with the nation’s five largest mortgage servicers.
The New York agreement requires the companies to withdraw pending foreclosures with robo-signed affidavits and compensate borrowers whose homes were wrongfully foreclosed, according to the statement. The $53 million represents 25 percent of unpaid principal for all 60-day delinquent home loans serviced by Litton.
Ocwen is getting a portfolio of loans with about $41.2 billion in unpaid principal balance as of March 31, most of them non-prime home mortgages, according to a June filing.
Goldman Sachs’s agreement to reduce unpaid principal in the New York accord is “the most specific we’ve seen,” said Guy Cecala, publisher of Bethesda, Maryland-based trade publication Inside Mortgage Finance. While the need for sale approval and small size of Litton may limit the comparability with other potential settlements, the deal may give some insight to how future deals could be structured, he said.
“In Goldman’s case, this is a cost of doing business in terms of getting this deal done,” Cecala said. “This is a blueprint for what the states are looking for: potentially some lump sum that they can use to help out borrowers who are in trouble, regardless of whether or not they’ve suffered any foreclosure abuse.”
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