Federal regulators are about to come down hard on some of America’s largest banks for their poor handling of mortgages, according to testimony by John Walsh, acting comptroller of the currency.
The comptroller, the Federal Reserve and other regulators have spent the last few months investigating the 14 largest mortgage loan servicing companies, including those owned by Wells Fargo, Bank of America and JP Morgan Chase. The agencies found that by “emphasizing timeliness and cost efficiency over quality and accuracy,” servicers’ actions “have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole,” Walsh said in testimony to the Senate Banking Committee.
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Federal authorities haven’t decided exactly what changes they will force servicers to make, Walsh said. Some ideas include requiring them to increase staffing, create a single point of contact for borrowers, and a streamlined loan modification process.
Loan servicers play a critical, though usually invisible, role in modern mortgages. When banks bundle thousands of mortgages together and sell them to investors, it’s the servicer’s job to take the homeowner’s monthly mortgage payments, pay the taxes and insurance, and deliver dividends to investors.
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But servicers have come under consistent criticism in the recent year for allegedly putting their own interests ahead of homeowners or investors. In other cases, servicers have failed to produce the necessary paperwork to prove they actually own the loans they claim to. (For background on these problems, check out our recent stories here, here and here.)
Walsh hopes his investigation will help regulators and Congress create a new set of standards for the mortgage servicing industry, he said.
Image: Axel Rouvin, via Flickr.com