Banks displayed “critical weaknesses” in foreclosure processes, resulting “in unsafe and unsound practices and violations of applicable federal and state law and requirements,” according to a report released Wednesday by federal regulators regarding foreclosure practices among major mortgage servicers. The report was conducted by the Office of the Comptroller of the Currency, the Federal Reserve, and the Office of Thrift Supervision, and is separate from the investigation being conducted by the 50 states' attorneys general, which is still ongoing.
The report accompanies new regulations for foreclosure procedures, which John Walsh, acting Comptroller of the Currency, stated Wednesday will “require major reforms in mortgage servicing operations.” However, the enforcement actions—which are being taken against 14 mortgage servicers, including Bank of America, JPMorgan, and Wells Fargo—have been widely criticized as letting banks off too easily.
“The agreements are a huge disappointment. They rubber stamp the status quo,” Alys Cohen of the National Consumer law Center told The New York Times. “The banks who caused the economic crisis and received government bailouts are getting a free pass while homeowners still struggle to save their homes.”
According to the new stipulations, banks will be required to establish compliance programs to ensure their foreclosure operations meet legal requirements. They will also be required to create a single point of contact for customers going through the modification and foreclosure process, and will be prohibited from pursuing a foreclosure once a mortgage is approved for modification.
Each affected bank will have to hire an independent firm to review all foreclosure actions taken in 2009 and 2010, and will need to create a plan to remediate financial harm caused to customers through improper foreclosure actions, should errors be found by their independent consultants.
The regulators found an unspecified number of cases "in which foreclosures should not have proceeded due to an intervening event of condition."
Penalties on banks of an undetermined amount will be enforced at a later date.
While the report is long on criticism of the banks' practices, it runs short of specifics of how enforcement will be conducted, leaving many observers skeptical of it having any actual impact.
“It has no teeth. No specificity,” said Thomas Martin, president of America’s Watchdog in an interview with Builder on Wednesday. “We’ve all seen how well banks have done at regulating themselves.”
As for whether the new stipulations will affect the number of foreclosures that will come onto the markets, Martin foresees “no impact whatsoever on the number of foreclosures that come down.”
Patrick Newport, U.S. economist at IHS Global Insight, says “the new requirements will help a little, but not much.”
Newport believes lenders are more open to negotiating to avoid foreclosures now than they were six months ago thanks to the “bad news reports” as well as “pressure from regulators and politicians.” But in lots of situations, he contends, there’s not much that can stop the tide of foreclosures hitting the markets.
“The problem is that so many homes are deeply underwater, and house prices are still dropping. In most cases, there is little that can be done to prevent these homes from being foreclosed,” he wrote in an email to Builder.
As far as Newport is concerned, the new regulations have “no bearing on the housing outlook.”
Claire Easley is senior editor, online, at Builder.
Learn more about markets featured in this article: Greenville, SC.