Federal banking regulators have been conducting extensive reviews of foreclosure practices at the nation's largest mortgage servicers. They say the robo-signing controversy has exposed what they describe as widespread[IMAGE]
and inexcusable breakdowns in the process, and some are pushing for Congress to enact legislation that would establish federal standards for foreclosure procedures in order to prevent a repeat of the recent affidavit scandal.
At a Senate Banking Committee hearing Thursday Ã¢â‚¬" the committee's second on the foreclosure paperwork issue Ã¢â‚¬" Federal Reserve Governor ""Dan Tarullo told lawmakers"":http://banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=04643281-8f23-40eb-9a14-9fabc2b1f89e that examinations by regulators have uncovered extensive deficiencies in servicing and foreclosure processes. He said it's become clear that the industry will need to make ""substantial investments"" to fix the problems and should consider fundamental changes to the current mortgage system.
""While quite preliminary, the banking agencies' findings from the supervisory review suggest significant weaknesses in risk-management, quality control, audit, and compliance practices as underlying factors contributing to the problems associated with mortgage servicing and foreclosure documentation,"" Tarullo said.[COLUMN_BREAK]
""We have also found shortcomings in staff training, coordination among loan modification and foreclosure staff, and management and oversight of third-party service providers, including legal services,"" he added.
Tarullo stressed that the extent of these problems is not the same across all firms, but he says they're sufficiently widespread to suggest what he called ""structural problems in the mortgage servicing industry.""
""The servicing industry overall has not been up to the challenge of handling the large volumes of distressed mortgages,"" Tarullo told the Senate panel.
""It has been increasingly apparent that the inadequacy of servicer resources to deal with mortgage modifications Ã¢â‚¬Â¦ was actually a reflection of a larger inability to deal with the challenges entailed in servicing mortgages in many jurisdictions and dealing with a complicated investor base,"" he said. ""For example, foreclosure procedures are specifically the province of real property law governed by the states, and can vary not only by state, but also within states and sometimes even within counties.""
ThursdayÃ¢â‚¬â„¢s hearing on mortgage servicing and foreclosure procedures was the last Senate Banking Committee hearing to be chaired by Sen. Chris Dodd (D-Connecticut), who did not run for re-election to Congress last month. Dodd supported TarulloÃ¢â‚¬â„¢s suggestion of national foreclosure standards, as did other regulators testifying at the hearing.
""I would like you to submit very specific ideasÃ¢â‚¬Â¦legislative ideas and language that could be part of this committee's consideration over the next months. It would be very, very helpful,"" Dodd said to Tarullo and the other regulators present, which included FDIC Chairman Sheila Bair, Comptroller of the Currency John Walsh, and Federal Housing Finance Agency Acting Director Edward DeMarco.