Posts Tagged ‘Office of Thrift Supervision’

Regulators Cracking Down on Banks Over Foreclosures

Tuesday, April 26th, 2011

Federal regulators at the Departments of Justice, Treasury and Housing, as well as the Federal Trade Commission, have ordered the nation’s largest banks to revamp their foreclosure procedures and compensate borrowers who were financially hurt by “pervasive” bad behavior or carelessness.  According to the bank regulators, failure to comply with the rules will result in fines and a broad investigation conducted by state attorneys general and other federal agencies.  The regulators acted after being criticized for not putting a halt to risky lending practices during the housing boom.

Describing the lending practices as “a pattern of misconduct and negligence,” the Federal Reserve said that “These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.”  Borrowers in trouble have complained that applying for a modification using the Obama administration’s program has been too complicated and characterized by multiple games of telephone tag.  Enforcement requires servicers to set up compliance programs and hire an independent firm to review residential-foreclosures.  The banks will be required to make sure that communications are more “effective” between borrowers and banks when it comes to foreclosure and mortgage-modification proceedings.

Citibank, Bank of America, JPMorgan Chase and Wells Fargo, the nation’s four leading banks, top the list of financial firms cited by the Federal Reserve, Office of Thrift Supervision and Office of the Comptroller of the Currency.  Citigroup said that it had “self-identified” desired changes in 2009 and that it has helped more than 1.1 million homeowners avoid foreclosure.  “We are committed to working with our regulators to further strengthen our programs in these areas and meeting these new requirements,” the company said.

As stern as the recent move seems to be, there are still critics.  “These consent orders are worse than doing nothing,” said Alys Cohen, staff attorney for the National Consumer Law Center.  “They set the bar so low on some things and they give the banks carte blanche on others.  And they give the appearance of doing something while giving banks control of the process.”  Additionally, consumer advocates and members of Congress said the new rules are too little, too late.

Congressional critics maintain that the order is too moderate.  House Democrats introduced legislation that would require lenders to perform specific actions, including an appeals process, before starting foreclosures.  “I want to know what abuses (the government agencies) identified, which banks committed them and how their proposed consent agreement is going to fix these problems,” said Rep. Elijah Cummings (D-MD) the ranking member of the House Government and Oversight Committee.  “Based on what I have read…I am not encouraged at all.”

More than 50 consumer groups don’t like the settlement,  and claim that the expected settlements do little more than require mortgage servicers to obey existing laws and that they lack penalties.  “They’re left to police their new improvements,” said Katherine Porter, a University of Iowa law professor who is an expert on mortgage services.  Another concern is that the settlements may weaken the ability of 50 state attorneys general to force concessions from mortgage servicers.  The attorneys general have been investigating mortgage servicers since last fall, and in March sent the companies a list of terms, which go further than those pursued by bank regulators.  Iowa Attorney General Tom Miller, who’s leading the joint effort, says any settlements with banking regulators will not “pre-empt” the states’ efforts.

Obama Administration Rolls Out New Program to Help Underwater Homeowners

Monday, April 5th, 2010

A new FHA initiative could help between three and four million distressed homeowners.  The Obama administration has announced a new initiative to assist troubled homeowners by helping them refinance with government-backed mortgages that cut monthly payments.  The program would also temporarily reduce payments for unemployed borrowers who are actively job hunting.  The government is encouraging lenders to write down the value of loans for borrowers participating in modification programs.  Officials expect this and other in-place federal programs to help between three and four million distressed homeowners over the next several years.  A Treasury Department statement said the initiatives are designed to “balance the need to help responsible homeowners struggling to stay in their homes, with the recognition that we cannot and should not help everyone.”

The thrust of the new initiative, which likely will cause some controversy, is that the government – through the Federal Housing Administration (FHA) – will help owners who are underwater or owe more than their house is worth to refinance.  Estimates are that 11 million households or 20 percent of all mortgage-holders, are underwater.  Many of these homeowners refinanced during the housing boom and took cash, putting them at risk when prices fell.  The homeowners will have to eat some of their losses, but will be in better shape than families who had no option but foreclosure.  By insuring the new loan against the risk of default, the FHA gives the borrower a good reason to make payments instead of abandoning the house.

The program’s success depends on investors’ eagerness to participate.  Over the last three years, the FHA has expanded its mortgage guarantee program to help homeowners cope with the housing crisis.  Today, the FHA guarantees more than six million borrowers, many of whom made small downpayments and currently are underwater.  Approximately $14 billion in TARP funds will fund the project.