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.
Continue Reading Below
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 (BAC.N), Wells Fargo & Co (WFC.N), JPMorgan Chase (JPM.N) and Citigroup Inc (C.N).
"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.
Continue Reading Below
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 (HSBA.L), MetLife Bank (MET.N) Bank, Ally Financial, PNC bank (PNC.N), SunTrust (STI.N), US Bancorp (USB.N), 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.