Mortgage servicers – entities that manage home mortgage loans – halted foreclosures throughout the country in September 2010, finding that documents required to be provided to courts in some states had been improperly signed or notarized. In addition, on-going litigation has raised questions over whether foreclosures are being brought properly because of concerns over how loans were transferred into mortgage-backed securities. The General Accounting Office (GAO) was asked to examine the following:
• the extent to which federal laws address mortgage servicers’ foreclosure procedures and federal agencies’ past oversight;
• federal agencies’ current oversight and future oversight plans; and
• the potential impact of these issues on involved parties.
It appears that the GAO did an extensive and very thorough investigation. It should be noted that federal laws do not specifically address the foreclosure process. As a result, past oversight by federal agencies of servicers’ foreclosure activities has been limited and fragmented. State laws primarily govern the foreclosure process and specify what, if any, documentation is required to foreclose on a property.
While several federal laws include mortgage servicing provisions, they largely are focused on consumer protection at mortgage origination, not specific foreclosure requirements. We will discuss the mortgage servicers and foreclosure problems in this issue of the Report. Although various federal agencies have authority to oversee most mortgage servicers, past oversight of their foreclosure activities has been very limited. This was due in part because banking regulators have not considered these practices as posing a high risk to banks’ safety and soundness. Some servicers have not been under direct federal oversight.
The GAO has recommended that banking regulators and the Bureau of Consumer Financial Protection (CFPB) develop plans for overseeing mortgage servicers and include foreclosure practices in any servicing standards that are developed. It’s also recommended by GAO that regulators assess the risks that documentation problems pose for their institutions. If you want more information on this subject, you can go to www.GAO.gov.
Source: The General Accounting Office
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