06/04/2012 06:37 pm ET

OCC Dropped The Ball On Robo-Signing Scandal, Watchdog Says

Federal regulators sure did drop the ball on the robo-signing scandal, according to a government watchdog.

The Office of the Comptroller of the Currency, an independent bureau of the Treasury Department, failed to catch the 2008-2010 robo-signing crisis, in which banks systematically signed off on foreclosures without properly reviewing the specifics of the cases, according to a report released last week by the Treasury Department Inspector General (h/t American Banker.)

The OCC's examination procedures "were not sufficient in scope or application to identify significant weaknesses in national banks’ foreclosure documentation and processing functions," the report said.

Banks came under fire in 2010 when it was revealed that they had been rushing into foreclosing on some people with incomplete or fraudulent documentation. The nation's five largest banks reached a $25 billion settlement with 49 states and the federal government over "robo-signing" and other foreclosure-related allegations.

The report lists several reasons why the OCC underestimated the danger of faulty foreclosure processing. The inspector general writes that the OCC did not identify foreclosure documentation and processing as "an area of significant risk" because the OCC was overly focused on compliance with federal laws at the expense of overseeing compliance with state laws, the OCC did not make examiners document their assessment of risk and the Mortgage Banking Comptroller's Handbook had not been updated since 1998.

An OCC spokesman declined to comment to The Huffington Post about the report but pointed to responses within the report itself.

Thomas Curry, comptroller of the currency, wrote in his "management responses" in the report that the OCC aims to finish an updated Mortgage Banking Handbook by early 2013. He also wrote that the OCC has "reviewed the coding of foreclosure-related consumer complaints and determined that the current coding was sufficient to identify consumer concerns."

"Complaint data alone would be unlikely to identify something so specific and invisible to the customer as documentation or process issues and absent such granularity in the complaints, additional coding would not improve its understanding of servicer performance," Curry wrote.