Federal regulators and state attorneys general say their investigations of servicing practices and foreclosure processes have uncovered ""critical deficiencies and shortcomings"" that have resulted in violations of foreclosure laws. They've made it clear that mortgage servicers will be required to make operational changes and will be hit with sanctions and penalties.
[IMAGE] It's been widely reported by a number of industry trade publications as well as the mainstream financial media that the 14 servicers subject to the investigations will, as a group, face a hefty $20 billion in fines for faulty foreclosure processing. But it seems that figure is a premature claim Ã¢â‚¬" no consensus has been reached among the regulators involved, and negotiations are still ongoing.
The _Wall Street Journal_ notes that it's the new Consumer Financial Protection Bureau and state attorneys general who are fighting for such a steep levy. Other regulators involved in the settlement discussions, such as the Office of the Comptroller of the Currency (OCC), are concerned penalties could be too stiff, the paper said.
An ""in-depth report"":http://www.nationalmortgagenews.com/nmn_features/servicer-settlement-talks-1023550-1.html?ET=nationalmortgage:e937:76439a:&st=email&utm_source=editorial&utm_medium=email&utm_campaign=NMN_Daily_Briefing_022511 from _National Mortgage News_ says the $20 billion fine is in the words of one source involved in the negotiations ""a crazy figure.""
On top of the varying opinions of the four federal regulatory agencies involved, the Treasury, and state attorneys general from 50 states and the District of Columbia, the 14 servicers Ã¢â‚¬" among them Bank of America, Wells Fargo, and GMAC Mortgage Ã¢â‚¬" would have to consent to the terms of any settlement that's put forth. _Bloomberg News_ says the government has already floated a $25 billion penalty, which the banks rejected.[COLUMN_BREAK]
Servicers have maintained all along that even at the hands of robo-signers, no borrower was foreclosed on that should not have been. And regulators' investigation largely corroborates those claims.
John Walsh, head of the OCC, told a congressional panel last week that despite the procedural deficiencies found, regulators' examinations of specific cases found that the loans sent to foreclosure were seriously delinquent and that servicers had maintained documentation of ownership to support their legal standing to foreclose. He also noted that servicers were in contact with troubled borrowers and had considered loss mitigation alternatives prior to foreclosure.
Whatever settlement amount is finally agreed upon, officials have indicated to the _Journal_ that ""payment"" by servicers could be made by funding a comparable amount in loan modifications for struggling borrowers.
It's being reported that mandatory principal write-downs on underwater mortgages is also being considered as a piece of the settlement, the cost of which would fall on the servicing companies, not on investors of the mortgage bonds in which the loans are held.
But analysts say that even the exorbitant $20 billion penalty being tossed around wouldn't amount to a drop in the bucket when you consider that underwater borrowers collectively owed $744 billion more to their lenders than their homes were worth, ""as reported by CoreLogic"":http://dsnews.comarticles/increase-in-foreclosures-leaves-fewer-borrowers-underwater-corelogic-2010-12-13 in December.
Federal regulators say they also intend to leverage their findings to develop a set of national mortgage servicing standards. Even industry players concede that while mortgage originations have long been subject to rules and compliance measures, the servicing side of the business is vastly lacking in this respect Ã¢â‚¬" an issue that has grown from a concern to an Achilles' heel as default volumes have mounted, as clearly evidenced by the robo-signing debacle.
Walsh says the OCC has already drafted a framework for comprehensive, industry-wide mortgage servicing standards that has been shared with the other regulatory agencies.