Monday, April 18, 2011

Feds Make Good First Step in Compensating Homeowners (ContributorNetwork)

COMMENTARY | The nation's largest mortgage lenders have reached an agreement with federal bank regulators to address the growing number of consumer complaints in the residential foreclosure process.

The good news coming out of this agreement for consumers is that federal regulators are requiring banks to compensate homeowners who were victims of foreclosure fraud between 2009 and 2010. It should also streamline the loan modification process by requiring banks to establish a single point of contact during the process.

The banks, which hold $6.8 trillion in mortgage balances, include Bank of America, Citigroup, Ally Financial, HSBC, JPMorgan Chase, MetLife, The PNC Financial Services Group, SunTrust, U.S. Bancorp, and Wells Fargo.

The actions by the feds is the result of a year-long investigation of bank practices which uncovered "unsafe and unsound practices, violations of law, and foreclosure processes geared toward speed and quantity, instead of quality and accuracy," the Office of Thrift and Supervision said in a statement.

Many of these violations of the law, and the quest for "speed and quantity" in filing foreclosures, were examined April 3 on CBS' "60 Minutes." Scott Pelley reported on the "Robo Signing" scandal perpetrated by unscrupulous companies that perform foreclosure services for the big banks.

This scandal was dubbed "Robo Signing" because the servicing company would simply recreate and forge lost documents. In this case, DocX, a subsidiary of Lender Processing Services (LPS), would have a $10/hour employee forge thousands of foreclosure documents a day, and have those documents notarized by an in-house notary. It was clear from the broadcast that servicing companies such as DocX were nothing more than a hired foreclosure mill, with the banks playing the role of accomplice.

It's no coincidence that the agreement with banks, which includes halting foreclosures during the loan modification process, will also include enforcing additional oversight for outsourced default management companies such as LPS.

Specifically, federal regulators want to hold the banks accountable for overseeing the actions of default management companies and their law firms.

In a statement, acting Comptroller of the Currency John Walsh said:

"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations. These reforms will not only fix the problems we found in foreclosure processing, but will also correct failures in governance and the loan modification process and address financial harm to borrowers. Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward."

Only time will determine if the recent actions by federal regulators will be enough to adequately protect homeowners from fraudulent foreclosure practices that many economists believe slowed the recovery from the recession. It's a good first step.


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