Report Blasts Banks For Flawed Foreclosure Process

In a report, federal regulators have agreed with millions of U.S. homeowners that banks generally did a poor job of dealing with the flood of foreclosures caused by the end of the housing bubble and the onset of the recession.

Coinciding with the release of the report by the Office of the Comptroller of the Currency, eight mortgage servicers and two third-party service providers have signed consent agreements, submitting to new oversight procedures.

The eight servicers are Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. The two service providers are Lender Processing Services (LPS) and its subsidiaries DocX, LLC, and LPD Default Solutions, Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems, Inc. (MERS).

Calls for ‘major reforms’

"These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations," said acting Comptroller of the Currency John Walsh. "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."

For at least the last two years, homeowners have complained to ConsumerAffairs.com with remarkable consistency about the frustration of dealing with loan servicers in the modification process. Those complaints continue this week.

"Never have I seen such an incompetent organization as Chase Bank," Elizabeth, of Houston, told ConsumerAffairs.com. "I was going to thru a modification process with Chase Bank. Well it took 13 months where I was mislead into thinking that they were actually working to help me a keep my home."

Groundhog Day process

Elizabeth and other complain that they would submit requested documents, only to be asked for the very same documents weeks later. Their point of contact, working on their case, seemed to change each time they called. The complaints are remarkably consistent, regardless of the servicer.

The enforcement actions require the servicers to promptly correct deficiencies in residential mortgage loan servicing and foreclosure practices that examiners identified in reviews conducted during the fourth quarter of 2010.

The agreement with the government requires the servicers to make significant improvements in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and dual-tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process.

Single point of contact

The enforcement actions also require the servicers to ensure that foreclosures are not pursued once a mortgage has been approved for modification and to establish a single point of contact for borrowers throughout the loan modification and foreclosure processes. In addition, the actions require servicers to establish "robust" oversight and controls pertaining to their third-party vendors, including outside legal counsel, that provide default management or foreclosure services.

In advance of the announcement, a coalition of consumer and housing groups issued a scathing review of the proposed consent agreement, saying it doesn't go far enough in preventing avoidable foreclosures.