Federal bank regulators announced new rules last month for 14 of the nation’s largest mortgage servicers. The changes are designed to curb past and future foreclosure abuses. Spawned by a federal investigation that identified “significant weaknesses” in mortgage servicer practices, regulators said the changes represent major reforms in an industry that touches virtually every U.S. homeowner with a mortgage.
In the government’s most forceful response yet to the nation’s four-year foreclosure crisis, the regulators ordered the mortgage servicers to hire outside firms to review every foreclosure action they had pending from Jan. 1, 2009, through Dec. 31, 2010, identify borrowers harmed by the servicers’ deficiencies and compensate them. They will also face unspecified financial penalties that are still to come, according to the regulators. The banks and other companies covered by the orders collect the monthly payments from homeowners representing about two-thirds of the residential mortgage market.
The Comptroller of the Currency, along with the Federal Reserve and the Office of Thrift Supervision, investigated the servicers. Consumer advocates say the changes are too little, too late, create no meaningful protections for consumers and are far less aggressive than those being pursued by the 50 state Attorneys General, whose investigation of mortgage servicers is continuing.
The regulators said the mortgage servicers — including Bank of America, Citibank, JPMorgan Chase and Wells Fargo — had significant weaknesses in their mortgage servicing and foreclosure processes. The problems violated state and federal laws. Even more critically, they raised costs or limited the options of borrowers trying to keep their homes, slowed the housing market’s recovery by prolonging the foreclosure crisis and placed excessive burdens on the court system, the regulators said. To correct those deficiencies, the mortgage servicers agreed to make changes that will include:
It appears that not everybody is satisfied with the government’s actions. The regulators “let the banks play a ‘Get out of jail free’ card,” according to Adam Levitin, professor of law at Georgetown University. It will be interesting to see what effect the new regulations will actually have. Hopefully, they will prove to be a step in the right direction.
Source: USA Today
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