Four federal banking regulators Ã¢â‚¬" the ""Office of the Comptroller of the Currency"":http://www.occ.gov (OCC), the ""Office of Thrift Supervision"":http://www.ots.treas.gov/ (OTS), the ""FDIC"":http://www.fdic.gov, and the ""Federal Reserve"":http://www.federalreserve.gov Ã¢â‚¬" are in the process of conducting an in-depth review of foreclosure practices at the nation's largest mortgage servicing operations, which includes on-site evaluations and examinations of individual loan files.
[IMAGE] Federal Reserve Governor Elizabeth Duke says the interagency probe focuses on foreclosure practices generally, but with an emphasis on the breakdowns that led to inaccurate affidavits and other questionable legal documents being used in foreclosure proceedings.
""In cases where actual problems are found, regulators will require lenders and servicers to correct not only the faulty documents themselves but the faulty systems that allowed them to occur,"" Duke said. ""Institutions with widespread problems may be subject to fines and fees in addition to the costs associated with correcting the errors.""
The regulators expect the initial portion of their on-site examinations to be completed this year and will publish a summary overview of industry-wide practices in early 2011.
""Losing a home is a tragic event for families and the communities in which they live,"" Duke said. ""It is imperative that mortgage lenders and servicers provide borrowers every opportunity to modify the loan and retain[COLUMN_BREAK]
their homes or, if that is not possible and foreclosure becomes necessary, that they give borrowers all the protection afforded by following due process as required by law.""
Duke ""outlined the agencies' stance"":http://www.federalreserve.gov/newsevents/testimony/duke20101118a.htm on deficiencies in foreclosure documents at a congressional hearing Thursday held by a House subcommittee, after lawmakers began pointing the finger at regulators for failing to recognize cracks in the foreclosure process before the matter became a media frenzy.
Rep. Maxine Waters (D-California), chair of the Subcommittee on Housing and Community Opportunity, also questioned why the newly formed ""Financial Stability Oversight Council"":http://www.treas.gov/FSOC/, which includes the agencies spoken for by Duke, has not assessed the impact of the paperwork mess on the nation's ailing economy.
""Why is it you don't know how these systems work that you regulate? That's the big question among members on both sides of the aisle,"" Waters said.
John Walsh, the ""OCCÃ¢â‚¬â„¢s acting director, said"":http://financialservices.house.gov/Media/file/hearings/111/Walsh111810.pdf his agencyÃ¢â‚¬â„¢s primary focus has been on servicersÃ¢â‚¬â„¢ efforts to offer sustainable loan modifications rather than on the end result of a foreclosure.
But he noted, Ã¢â‚¬Å“The current foreclosure problems represent another painful chapter of the recent financial crisis, stemming from a record number of borrower defaults which has strained servicer capacity.Ã¢â‚¬Â
Walsh added, though, that operational challenges do not absolve the banksÃ¢â‚¬â„¢ from their responsibilities to have the appropriate staff, quality controls, and an effective audit process in place.
""These lapses are unacceptable, and we are taking aggressive actions to hold national banks accountable, and to get these problems fixed,"" Walsh said. ""We are directing banks to maintain adequate reserves for potential losses and other contingencies and to make appropriate disclosures,"" he added.