Fixing the broken foreclosure process will be “messy” but is necessary to restore integrity to the system, John Walsh, acting Comptroller of the Currency said.
In a speech in Washington today, Walsh said that an agreement announced yesterday that will force mortgage servicers to review two years of loans and pay restitution to borrowers who were damaged should not affect other efforts by law enforcement officials to assess wrong-doing.
“My hope is that our enforcement actions will establish a framework, and the actions that state law enforcement officials and the other federal agencies may take will be complementary to, and consistent with, what we are doing,” Walsh said. “This is a messy process, and it will take time to put things right.”
A groups of state attorneys general is continuing to negotiate with mortgage servicers, calling for changes to foreclosure practices and mandatory loan modifications, including mortgage principal write downs.
The 14 largest U.S. mortgage servicers including JPMorgan Chase & Co. must pay back homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing crisis, according to a settlement between regulators and servicers announced yesterday. The decrees were released jointly yesterday by the FDIC, the Office of the Comptroller of the Currency, the Fed, and the Office of Thrift Supervision.
“Our enforcement actions address the full range of deficiencies we found,” Walsh said. “They 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.”
The orders called for eliminating dual tracking, in which servicers seize the homes of delinquent borrowers even while negotiating lower mortgage payments, and require “robust” oversight and controls of third-party vendors.
Walsh said that while the integrity of the foreclosure system has suffered, the number of wrongful foreclosures may turn out to be relatively small.
“If there is any reassurance here, and there is sadly very little, it is that borrowers subject to foreclosure in our sample were indeed seriously delinquent,” Walsh said. Servicers “generally” possessed documents necessary for foreclosures and also considered borrowers for loan modifications before seizing homes, he said.
“While the servicers got a couple of things right, what stood out was the pervasiveness of flaws and failings right across the process. Robo-signing may be the image that has lodged most firmly in our minds from news reports, but other deficiencies, beyond the mishandling of affidavits, were equally serious,” Walsh said. “That such routine business operations could be so badly mismanaged as to raise safety and soundness concerns was, quite frankly, astounding.”
The “look-back” provision will require banks to authorize a comprehensive independent review of foreclosures actions for two years starting January 2009, and to pay restitution to borrowers who homes were foreclosed in error or otherwise suffered financial harm.