Fed Releases Banks' Plans to Remedy Foreclosure Servicing Problems
On February 27, the Federal Reserve Board released plans that nine large financial institutions submitted to fix problems in their residential mortgage loan servicing and foreclosure processing.
Along with the action plans, the Board posted on its website engagement letters between the financial institutions and independent consultants retained by the firms to review foreclosures that were in process in 2009 and 2010.
Specific steps delineated
The Federal Reserve last year issued enforcement actions that required the institutions to compile and submit the action plans. The enforcement actions direct mortgage loan servicers regulated by the Fed to file documents that
- describe, among other things, how the institutions will strengthen communications with borrowers by providing each borrower the name of a primary point of contact at the servicer
- set limits on foreclosures where loan modifications have been approved
- establish third-party vendor controls and
- strengthen compliance programs.
The Federal Reserve enforcement actions also require the parent holding companies of mortgage servicers to submit acceptable plans outlining how the companies will improve oversight of their subsidiaries' servicing and foreclosure processing operations. In addition, the Fed enforcement actions order the mortgage servicing subsidiaries to provide appropriate remediation to borrowers who lost money as a result of errors by the servicers, which is where the engagement letters come in. Those letters describe how the consultants will review servicers' foreclosure files to determine whether borrowers suffered financial injury as a result of servicer error.
Further corrective actions forthcoming
During Fed reviews in late 2010 and early 2011, examiners found unsafe and unsound processes and practices in home mortgage loan servicing and foreclosure processing at a number of institutions. The Fed pledged to monitor the implementation of the action plans to ensure that the financial institutions correct deficiencies and evaluate any harm that was done to homeowners in the foreclosure process in 2009 and 2010. The Fed expects to post more engagement letters and action plans soon.
February 29, 2012