Federal Reserve Governor Sarah Bloom Raskin said the central bank should fine mortgage servicing companies that broke the law and are partly to blame for the current “foreclosure crisis” in U.S. housing.
“The Federal Reserve and other federal regulators must impose penalties for deficiencies that resulted in unsafe and unsound practices or violations of federal law,” Raskin said in a speech today in Washington. “The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties,” she said.
The Fed in April initiated formal enforcement actions against 10 banking organizations to address a “pattern of misconduct and negligence” in mortgage loan servicing and foreclosure processing.
“One purpose of monetary penalties, when they are appropriately sized, is to incentivize mortgage servicers to incorporate strong programs to comply with laws when they build their business models,” Raskin said. “This is an operational purpose, but as mentioned earlier, monetary penalties also remind regulated institutions that non-compliance has real consequences.”
The 10 institutions the Fed announced enforcement actions against included Bank of America Corp., Citigroup Inc., Ally Financial Inc., HSBC North America Holdings, Inc., JPMorgan Chase & Co., MetLife, Inc., PNC Financial Services Group, Inc., SunTrust Banks, Inc., U.S. Bancorp, and Wells Fargo & Co.
The inability to process foreclosures has damaged an economy so weak that the unemployment rate has remained above 8 percent for nearly three years, Raskin said.
“Home mortgage foreclosures hurt the pace of an economic recovery,” Raskin said, and “the severe misconduct that has been uncovered in the mortgage servicing sector” should “be addressed through intensified public enforcement of the law as part of the overarching effort to rebuild our damaged communities and neighborhoods.”
Mortgage servicers collect mortgage payments, negotiate modifications to loans, and initiate foreclosures.
Raskin said she encourages policy makers to think “through imaginative and creative ways to put an appropriate response together” to eliminate practices that triggered the housing crisis. Monetary penalties and corrective claims are just some of the possible responses, she said, responding to audience questions.
“We don’t and we are not approaching this in such a way that the remedies become a cookie cutter,” Raskin said. “The purpose of enforcement action is to tailor the problem, to fix the problem and to make sure that it doesn’t happen again.”
Raskin told a group of bankers yesterday that the Fed’s monetary policy actions have been well-suited to address the weak economy.
“Our deployment of unconventional policy tools has been completely appropriate to help promote the Federal Reserve’s statutory mandate of maximum employment and price stability,” said Raskin, 50, who was Maryland’s chief banking regulator before her appointment to the Fed in 2010.
The Labor Department said yesterday that payrolls rose by 200,000 last month, more than economists forecast.
Raskin’s remarks follow comments yesterday by three Fed policy makers backing additional action to aid the housing market. New York Fed President William C. Dudley, in a New Jersey speech, called on the U.S. government to try new programs to revive the housing market while saying the central bank may still consider ways to cut interest rates.
Boston Fed President Eric Rosengren, speaking in Connecticut, said Fed purchases of additional mortgage-backed securities “would in my view help provide a more rapid recovery in housing” and Fed Governor Elizabeth Duke said in Richmond, Virginia, that “forceful and effective housing policies have the potential to significantly influence the speed and strength of our economic recovery.”