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Government Accountability Office Pushes for Servicing Accountability

In the wake of the industry's robo-signing issues, the ""Government Accountability Office"":http://www.gao.gov (GAO) has released a report urging the new Consumer Financial Protection Bureau to make mortgage servicing standards a priority.
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After examining applicable laws and interviewing mortgage investors and other industry participants, the agency concluded that federal laws do not specifically address the foreclosure process, and as a result, oversight of servicers has been ""limited and fragmented.""

GAO ""points out in its report"":http://www.gao.gov/new.items/d11433.pdf that state laws primarily govern the foreclosure process and specify what, if any, documentation is required to foreclose on a property. Several federal laws include mortgage servicing provisions, but they largely are focused on consumer protection at mortgage origination, not specific foreclosure requirements, the agency noted.

""Although various federal agencies have authority to oversee most mortgage servicers, past oversight of their foreclosure activities has been limited, in part because banking regulators did not consider these practices as posing a high risk to banks' safety and soundness,"" GAO said. ""Federal housing and other agencies typically do not monitor servicers' foreclosure activities.""

The agency says it was only after documentation issues were disclosed that federal agencies increased attention to servicing activities.

This increased attention resulted in an interagency investigation involving the FDIC, Federal Reserve, Office

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of the Comptroller of the Currency, and Office of Thrift Supervision, which ""culminated in enforcement actions"":http://dsnews.comarticles/regulators-hand-down-enforcement-actions-to-servicers-and-their-vendors-2011-04-13 against the nation's 14 largest mortgages servicers and two third-party vendors, with monetary penalties still pending.

But federal regulators ""have not fully developed plans for the extent of future oversight,"" GAO said in its report. ""Further, regulators are considering the need for uniform servicing standards, but whether such standards will address foreclosure activities is yet unclear.""

The federal agency concluded, ""GAO recommends that banking regulators and the Consumer Financial Protection Bureau (CFPB) develop plans for overseeing mortgage servicers and include foreclosure practices in any servicing standards that are developed. GAO also recommends that regulators assess the risks that documentation problems pose for their institutions.""

According to GAO, ""The agencies generally agreed with the recommendations.""

In July, the newly created CFPB will have regulatory jurisdiction over mortgage servicing.

""How regulators and CFPB will interact and share responsibility for ongoing oversight of servicers is yet unclear, leaving the potential for continued gaps and inconsistency in oversight until final plans are developed,"" according to the government office's report.

GAO also offered an assessment of the impact of recent documentation issues on pending foreclosures, distressed borrowers, and local communities.

""Foreclosure documentation problems have slowed the pace of foreclosures across the United States, but most entities GAO interviewed indicated that such errors were correctable and that affected foreclosures would proceed,"" the agency stated in its report.

""Delays in the pace of foreclosures as servicers correct and re-file cases and implement more rigorous processes may benefit borrowers by providing more time to modify loans, but communities may be negatively affected as any vacant properties in foreclosure remain unoccupied for longer periods,"" GAO noted.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.
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