Government Orders 16 Mortgage Lenders And Servicers To Reimburse Homeowners

WASHINGTON/CHARLOTTE, North Carolina (Dave Clarke and Joe Rauch) - U.S. bank regulators announced pacts with the largest home lenders over allegations of shoddy foreclosure practices, jumping ahead of a states-led probe and leaving the amount of fines until later.

Under the agreements announced on Wednesday, the banks will compensate borrowers who were wrongly foreclosed upon and overhaul their mortgage operations, including undergoing an independent review of their 2009 and 2010 foreclosures.

The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision reached the settlements with 14 of the largest U.S. financial institutions, including Bank of America Corp, Wells Fargo & Co, JPMorgan Chase and Citigroup Inc.

"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," acting OCC head John Walsh said in a statement.

Federal regulators and state attorneys general have been investigating bank mortgage practices that came to light last year, including the use of "robo-signers" to sign hundreds of unread foreclosure documents a day.

Lenders still face a probe by the state attorneys general and other federal agencies, including the U.S. Justice Department.

The partial settlement leaves in doubt the total costs facing the industry. It also fails to resolve legal uncertainty that has stalled foreclosures, keeping the recovery of the broader housing market in limbo.

Some state attorneys general, along with some parts of the Obama administration, have pushed for principal reduction on troubled mortgages and fines of about $20 billion.

At first, all the government agencies involved in the probes said they wanted to announce deals with servicers at the same time, so there could be a clean conclusion to the process.

"The enforcement orders issued today are important, but they are only a first step in setting out a framework for these large institutions to remedy these deficiencies and to identify homeowners harmed as a result of servicer errors," said the Federal Deposit Insurance Corp.

The bank regulators said their probe found a series of problems including servicers filing affidavits in court where an employee vouched for personally knowing the details to be true when they did not.

The banks neither admitted or denied the findings.

Under the agreement, servicers would have to hire an outside consultant to review foreclosure actions that took place between January 2009 and December 2010.

Lenders would have to provide a single point of contact for borrowers involved in a foreclosure or loan modification program so they have a direct line to the servicer.

Servicers would also be prohibited from so-called "dual tracking," the practice of starting a foreclosure while a loan modification is pending.

Guggenheim Securities bank analyst Marty Mosby said the outside review of foreclosures was bound to turn up errors given the volume of foreclosures triggered by the housing collapse and the 2007-2009 financial crisis.

"There's no way you can overcome the mountain of what we've had to go through without making some errors, and I think the cost of those errors will vary between the banks," said Mosby.

JPMorgan on Wednesday gave an early glimpse of the costs of cleaning up its foreclosure practices. The bank said it would take a $1.1 billion pretax loss for increased mortgage servicing costs.

The other lenders and loan servicers who signed agreements with their regulators were: HSBC bank, MetLife Bank Bank, Ally Financial, PNC bank, SunTrust, US Bancorp, Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.

The bank regulators' decision to forge ahead with their own settlement has drawn criticism from consumer groups and some Democratic lawmakers.

On Tuesday, Democratic Representative Elijah Cummings wrote to OCC's Walsh, asking him to postpone finalizing the consent agreements.

(Reporting by Dave Clarke in Washington, Clare Baldwin in New York and Joe Rauch in Charlotte; Editing by Lisa Von Ahn and Tim Dobbyn)

Copyright 2011 Thomson Reuters. Click for Restrictions.

Comments

[Corporate]

11:44 PM on 04/15/2011

How does a person who has been in her home for 24 years, lose all the equity in that home in 3 years? 4 years ago Bank of America refinanced my mortgage, sending in the appraiser, at my expense, and now, I am under water? WTF? Oh I don't think so. BOA (constrictor) is at fault and I'm supposed to walk away from my home of 24 years? I can afford my payments but what the bleep happened to my nestegg? I am supposed to retire soon and should have a fair amount equity in my home but I owe way more than it's worth now. Come on!!! I want BOA constrictor to eat the loss. Oh, wait....that would be too much like right. My elected officials would cut off their right arms before enacting legislation to protect the little people like me. They should make BOA, et al, write off every mortgage like mine. This is a damned disgrace and I am truly ashamed of our economic and political system right now. Corporate greed lives on!!

[primoprimo]

12:14 AM on 04/16/2011

Boy... You sure hit it right on the nail! Thank-you for posting!!!!

[DavidMcK]

10:50 PM on 05/10/2011

We have a run away government that is now being controlled by corporations that include banks and politicians. The little people will have to revolt one day and take a stand against the powers that be since they are forcing us into this apathetic state of disgrace. I want mortgage relieve and if that includes eating my mortgage, I say suck it up banks and give back the people what they worked for.

[EdCorner]

12:20 PM on 04/14/2011

Unfortunately the Reuters writer has it wrong. Speeding foreclosures will not speed a housing recovery. It will mean more "shadow inventory" that's already years out to be absorbed. It will speed a bankster recovery but at the cost of our economy again and it's another taxpayer bailout. It's supply and demand, the more homes there are the lower prices will go and speeding foreclosures will seriously harm Main Street. A "housing recovery" should not be contemplated for many years imho as a real estate appraiser. One of the major reason is that banks are using realtors to value homes and then use these same realtors to list the homes. What incentive is there for the realtor to price it fairly to the market and have it sit for months? None. The incentive is to list the home at a low price and sell it as quickly as possible. This is banks trying to save money on the appraisal by hiring a realtor to value the home, and while saving money on the front end they lose many thousands on the back end sale. Banks can not see beyond quick profits or how their love of quick profits is hurting Main St - and they don't care.

[Notsurprisedanymore]

10:05 AM on 04/14/2011

I won't be happy until all of these over paid CEO's and the other people involved are put to the task...jail, fined into poverty, digging ditches...pounding rocks. Whatever it takes to remove them from their positions and punished. They are nothing but a bunch of thieves and should be treated as such.

[stroses]

10:53 PM on 04/14/2011

Ditto.

[miltonc4l]

08:03 AM on 04/14/2011

One standard of justice for the bankers, a separate standard for We, The (little) People.

What would happen to the average citizen if they engaged in fraud, forged documents, submitted a fraudulent affidavit to a court and committed perjury? Would the legal system simply tell the person to "reform" their processes, or would they be charged with a crime and prosecuted? The banks are guilty of thousands of such violations, and the remedy proposed by the regulators (the ones that are supposed to be representing the public interest) is to tell them "Stop doing that!"

???????????

I try very hard to refrain from making generalizations and attributing particular beliefs to groups of people, but for this case I'll say: "To all you liberals/leftists or people that think the government is the solution to all of our problems, let this be THE example which should cause you to question your world view. Is this massive, taxpayer-funded government bureaucracy really looking out for your best interests and protecting society from criminals and fraudsters, or are they enabling, facilitating and covering up the frauds and crimes that they are supposed to be preventing and prosecuting?

It's silly to believe that a big government which constantly betrays our best interests is suddenly going to reform if we hand them more wealth and more power. It's time to start heading back in the opposite direction.

[stroses]

08:38 AM on 04/14/2011

What justice will you get with no government? Is that when the guns come out and then what? This isn't a big vs. small government. It's big business fraud and corruption. The change will happen as more and more PEOPLE stand up against it. Forget the labels we put on each other.

[miltonc4l]

10:55 AM on 04/14/2011

I never suggested that we go back to "No Government" or that vigilante justice should prevail. I just believe that the massive regulatory apparatus that we've built up in Washington D.C. is not only a failure, but is actually harmful to the purpose for which it allegedly exists. This case is a perfect example.

"This isn't a big vs. small government­. It's big business fraud and corruption­."

When a big government bureaucracy justifies its existence by ostensibly protecting the citizens and other participants in the economy against big business fraud and corruption, it's entirely relevant. This case with the banks is hardly "isolated", in fact, it more or less illustrates the general functioning of big government. Total regulatory capture.

"The change will happen as more and more PEOPLE stand up against it."

I agree, but the question of HOW you're going to do that is important. My point is that more laws (which won't be enforced), more government (which is not only ineffectual but counterproductive) and more bureaucrats(who won't enforce the laws) are obviously NOT the solution.

[formontoya]

07:21 AM on 04/14/2011

If an earlier report said the government found NO wrongdoing, then how are they going to find forclosures that were improper?

[big tom]

06:29 AM on 04/14/2011

PRISON TIME IS A GOOD START FOR THESE CROOKS... NOTHING ELSE WILL SEND THE MESSAGE.

[Linda from Deerfield]

06:21 AM on 04/14/2011

How did the Federal Reserve get from a report just a few days ago that they could not find any improper foreclosures to demanding compensation for the abused? That was too fast. I sent them links to articles about improper foreclosures just to let them know they would look like total idiots if they continued to deny it. I would be flattering myself to think that I turned them around, so where is the missing reporting?

[The Wallet]

05:57 AM on 04/14/2011

there is no "cracking down" except after work @ the Gentleman's club..

[emjacl]

03:27 AM on 04/14/2011

The liberals Christmas List:
Dear Santa,
Please give me all of the following:
1. Have the government get my bank to forgive my home loan and pay me a penalty for the mental anguish they have put me through.
2. For any union member and any democrat party worker, forgive all student loans
3. Extend unemployment insurance indefinitely and raise the rates
4. Allow any/all drug use to be legal
5. Give all muderers, rapists and other hard corps prisoners a free ticket out of jail if they are a minority as they are probably either innocent or a victim of a biased society.
6. Make gay a preferred life style and increase children's awareness about this "perfectly normal" life choice.
7. Have a two tier tax system: higher for reps; lower for dems.
8. Make it a crime to call out Obama for decisions that mirror those of President Bush.

That is all I want and I am entitled to all of it.

A lib

[formontoya]

07:23 AM on 04/14/2011

For a liberal/progressive all you really need is:

1. Take care of me from the cradel to the grave.

[stroses]

08:50 AM on 04/14/2011

Why such narrow minded ignorance? Is your mom your cousin too?

[emjacl]

03:16 AM on 04/14/2011

The new lib entitlement program: I can live in my house for 18 months without paying my mortgage (even though I have the money) and the government will protect me. And, if the nasty bank tries to foreclose in, say, one year, the government will make it very costly for them to follow through. Thank God that the government takes care of me! I love socialism and big brother!

[emjacl]

03:03 AM on 04/14/2011

Any personal responsibility here? Are we so stupid that we don't understand the loans we are begging a bank to give us?

[Gail Cerridwen]

02:49 AM on 04/14/2011

This kind of deal--a slap on the wrist for megalithic banks--only encourages them to continue their stinky practices. When the rewards are so big big for cheating and lying and you only face small penalties on the off chance you're caught . . . Well, it doesn't take a genius, does it?

[iam99]

02:33 AM on 04/14/2011

Why let the wheels of justice grind exceedingly slow and fine when some government agency or another is given the ability to negotiate some other fine with agreement to never act in the said manner again?

This behavior subverts the Rule of Law denying Justice to All!

[mxytsplyk]

02:27 AM on 04/14/2011

Not good enough. The individuals responsible for these phony foreclosures must do prison time. Perhaps losing their own homes and seeing their own families homeless will induce a proper conduct within the industry.

[cadawa]

02:13 AM on 04/14/2011

Why so soon? They have only been stealing homes for a couple of years.