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Federal regulators have ordered 14 mortgage services to help borrowers that were harmed by foreclosure errors, but left it up to them to develop common remediation guidelines. The servicers and their consultants met in Washington this week to try and reach a consensus.
November 10 -
The foreclosure review process mandated by a federal consent order is turning out to be far more punitive and costly than banks and mortgage servicers initially thought, industry sources say.
November 1 -
OCC head tells American Banker regulatory symposium that banks could face restitution after complaint reviews. Gruenberg, meanwhile, announces FDIC community-bank initiatives.
September 19
WASHINGTON — The Office of the Comptroller of the Currency released new details Tuesday about the steps servicers are taking to comply with consent orders requiring them to correct deficient foreclosure practices.
In a report released Tuesday on the status of the consent orders, the OCC said "work is well under way" on the actions required under the agreements with 14 of the largest mortgage servicers. The agency said efforts to correct problems with foreclosure practices, management oversight and internal audit are the furthest advanced.
"While much of the work to correct identified weaknesses in policies, operating procedures, control functions and audit processes will be substantially complete in the first part of 2012, other longer term initiatives will continue through the balance of 2012," the report said.
Under the agreements, announced in April, servicers were required to hire independent consultants to review foreclosure activities in 2009 and 2010. They were also required to fix unsafe or unsound practices relating to mortgage servicing activities, oversight of management and third-party service providers, activities related to Mortgage Electronic Registration Systems, management information systems, risk assessment and management and compliance oversight.
The report provides an update on activities by servicers through Nov. 4 to comply with the consent orders, although it doesn't provide specific details on the actions taken by each firm. The agency said actions and progress varies from servicer to servicer, and examiners are continuing to oversee their activities to ensure compliance with the consent orders.
The agency also released the engagement letters submitted by the independent consultants that outline the methodology they will use to review foreclosure activities. The letters provide a glimpse into the massive amount of time, money and manpower required to review potentially millions of foreclosure cases.
The OCC accepted the letters in late September, and the servicers and consultants began an outreach effort on Nov. 1 to contact more than four million borrowers that may be eligible for a review.
That effort will continue through the end of the year, and will continue address tracing to locate borrowers who may have moved, as well as a national advertising campaign in print and online.
In October, the consultants also began reviewing files using sampling techniques to supplement the claims process, and help identify other potential errors.
"The tolerance for error is low in selecting samples of foreclosure files for review," the report said. "Reliability, or confidence level, should be not less than 95%."
On the mortgage servicing front, the servicers have all established policies for providing single points of contact to assist borrowers, including procedures for communicating information about the single points of contact to the borrowers, including direct ways to reach these contacts; creation of training programs for single points of contact; establishment of specific organizational structures to perform those duties; and the creation of standard communication strategies for conveying information to and from borrowers.
All servicers have also implemented controls to prevent "dual tracking" of loans, including specific review at points before the foreclosure sale, better communication between loss mitigation and foreclosure processing staff, and the use of checklists to ensure proper holds are placed on foreclosure processing as appropriation — for example, when a borrower's loan has been approved for a modification.
According to the report, servicers have also begun implementing new controls to improve oversight of third-party service providers. Some samples of actions include creating procedures to track complaints about third-party providers, including language in service contracts that set specific work standards, and improving management systems used by third parties to ensure the accuracy of their records.
Some servicers have also begun incorporating MERS into those third-party oversight programs, in addition to establishing training and certification programs related to MERS, improving processes for controlling data quality and increasing the number of staff members dedicated to MERS oversight.
"Corrective actions to enhance oversight and controls of activities related to MERS are expected to be in effect by the end of the first quarter of 2012," the report said.
Servicers have also begun to take steps to improve management information systems, risk management and compliance programs. Examples of those actions including periodic audits, implementing case management software to provide better access to single points of contact interacting with borrowers; conducting periodic risk assessments, identifying specific individuals or groups accountable for compliance and operational risk associated with servicing and foreclosures; and implementing training programs for signers of sworn documents and notaries to emphasize the personal knowledge required and specific requirements of state law.
Certain parts of the engagement letters were redacted, including the names of specific individuals leading projects for the independent consultants, as well as past work the consultants have done for the servicers that retained them, and potential conflicts of interest.
Rep. Elijah Cummings, the top Democrat on the House Oversight Committee, said the OCC should release full, unredacted versions of the letters, which he first requested in May.
"Although I am encouraged that some information is being made public today, our Committee should issue subpoenas to obtain full, unredacted copies of these documents so we can ensure that homeowners are being fully and appropriately compensated," Cummings said. "Six months is too long to wait to conduct oversight of mortgage servicing companies that illegally foreclosed against homeowners."
