The nation’s banks still face severe consequences from allegations of pervasive mishandling of home foreclosures, despite reaching a relatively mild settlement with the bank regulators.
The Office of the Comptroller of the Currency (OCC), along with the Federal Reserve and Office of Thrift Supervision (OTS), announced on Wednesday consent decrees with the 14 largest mortgage servicers, including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup.
The settlements call for stricter rules for handling mortgage documentation, better procedures for dealing with homeowners, internal investigations and restitution to some homeowners if evidence shows that foreclosures were carried out in error.
The banks won in heading off, for now, more stringent and costly steps proposed by consumer groups, state attorneys general and some other federal agencies. These groups had called for big boosts in loan modifications, including principal writedowns. The bank regulators’ settlements contain no requirements for additional loan modifications.
But the banks and other loan servicers are still stuck in a quicksand of adverse court rulings, investigations by individual state attorneys general, pending investigations by other federal agencies and potential criminal prosecution of bank officials, employees or the banks themselves.
These banks also face billions of dollars in claims for damages by investors in mortgage-backed securities, who allege the banks cheated them by giving them riskier mortgages than promised, and by never turning over the documents required to give the investors legal ownership of the mortgages.
The consent decrees give the banks no protection from these risks. Foreclosure experts say that the federal bank regulators have no authority to sweep those away.
April Charney, a Florida legal aid attorney who has been a leader in consumer efforts nationally to stop improper foreclosure practices, said, "There is nothing that the OCC can say that will give servicers a get-out-of-jail-free card or say that actions by states won’t cost you a lot of money."
In March, the OCC and other bank regulators bolted from a joint effort by the 50 states’ attorneys general and multiple federal agencies to reach a "global" settlement with the servicers on terms tougher than those favored by the OCC.
The banks had complained that requirements for large numbers of loan modifications would lead to abuse and prove too costly. Consumer groups, such as the California Reinvestment Coalition, contend that the settlements by the OCC, OTS and Fed do little to help homeowners. The settlements also did not require the banks to admit wrongdoing.
Kevin Stein, associate director of the California coalition, said, "The banking regulators to put it mildly have not shown themselves interested or willing to do the right thing."
OCC spokesman Robert Garsson said there had not been any intent to undercut the other regulators, or protect the banks at the expense of consumers. Referring to the banks’ practices in servicing mortgages, he said, "From our perspective there’s a process that’s broken and needs to be fixed. Our enforcement orders will accomplish that."
He added that the OCC’s settlements will not prevent the state attorneys general and other federal regulators "from taking actions at the same time and doing whatever they want." (Reuters)
