Staff and wire reports
The 14 largest U.S. mortgage servicers -- including metro Atlanta’s three biggest banks -- were ordered by federal regulators Wednesday to overhaul foreclosure practices after a probe found improper documentation and a lack of help for struggling borrowers.
The consent decrees ordered the companies to hire consultants to review foreclosures from 2009 and 2010 and reimburse homeowners if the process was improperly handled.
The settlement between the servicers and federal banking regulators could help the U.S. Justice Department determine the size and scope of fines for the flawed practices, regulators said. The department is negotiating a global settlement that, if realized, would include fines from regulators as well as state officials.
“There will be civil money penalties. The issue is time and amount,” acting Comptroller of the Currency John Walsh told reporters in a conference call.
Among lenders included are SunTrust Mortgage, an arm of Atlanta-based SunTrust Banks and the nation’s 8th-largest residential mortgage servicer. Also included are Charlotte-based Bank of America and San Francisco-based Wells Fargo, which along with SunTrust comprise the Big Three of metro Atlanta retail banking.
SunTrust, which in February reported problems with documents in 4,000 foreclosure cases, said the company “will take appropriate steps to comply with the letter and spirit of today’s order.”
“We have been -- and continue to -- work with borrowers in financial distress,” SunTrust said. “We already have expanded our special counseling and management staff, and significantly increased foreclosure mitigation efforts. Many of our foreclosures are subject to close judicial scrutiny, and we have no reason to believe that we have inappropriately foreclosed on anyone.”
SunTrust said it has already taken steps to fix documentation errors, termed “robo-signing” by some critics. Signing of the order, SunTrust said, is not a signal of other internal servicing problems.
Chris Marinac, a bank analyst with FIG Partners in Atlanta, said it is unclear how large a fine SunTrust might face.
“My gut tells me this is going to be noise in the scheme of things,” he said. “Even if [a potential future fine is] a big number, it’s going to be written off and we’ll move on.”
The impact of the settlement on Georgia is not immediately clear.
The banks, which also include JPMorgan Chase & Co. and Citigroup, also agreed to end the practice of dual-track foreclosures, in which servicers seize the homes of delinquent borrowers even while negotiating lower mortgage payments.
The Office of the Comptroller of the Currency, the Fed, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. released the consent decrees in Washington.
JPMorgan, said it is taking a $1.1 billion charge and may add as many as 3,000 employees to comply with the consent agreement, Chief Executive Officer Jamie Dimon said in a conference call.
The banks didn’t admit or deny regulators’ findings, according to the orders.
The sanctions are the first to arise from state and federal investigations into mortgage servicers’ lapses in foreclosure procedures. Unprepared for the record number of loan delinquencies caused by subprime loans and the collapse of housing prices, servicers relied on inexperienced workers who failed to track paperwork or improperly signed legal documents.
“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,” the FDIC said in a written statement.
Reports of robo-signing prompted several lenders to temporarily suspend foreclosures last year.
In their investigation, however, regulators did not find widespread evidence of missing promissory notes or mortgages, as many foreclosed homeowners have claimed. Servicers generally had “sufficient documentation” to foreclose, the agencies reported in their review.
The agreements drew immediate fire from critics who said they could undermine the broader negotiations on a global settlement. Rep. Maxine Waters, a California Democrat and member of the Financial Services Committee, called the orders “disappointing.”
“I fear that these consent orders are merely an attempt to do an end-run around our state attorneys general,” Waters said in a written statement.
Other lenders or loan servicers in the agreement: the GMAC unit of Ally Financial Inc., Aurora Bank FSB, EverBank Financial Corp., HSBC Holdings Plc, OneWest, MetLife Inc., PNC Financial Services Group Inc., Sovereign Bank, and US Bancorp also signed consent agreements with regulators. Mortgage Electronic Registration Systems Inc., or MERS, of Reston, Va., and Lender Processing Services Inc. of Jacksonville, Fla., were ordered to improve internal controls and corporate governance.
Contributing: Staff writer J. Scott Trubey and Bloomberg News
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