Think Washington is going soft on the banks again? You have company – at the FDIC, no less.
The three primary federal bank regulators – the Federal Reserve, the Office of Thrift Supervision and the Office of the Comptroller of the Currency – issued enforcement actions Wednesday that order the biggest U.S. banks to clean up their foreclosure mills.
The move, affecting 14 institutions and promising fines at some undetermined point down the road, is the biggest federal move against the banks in the foreclosure crisis.
But the Federal Deposit Insurance Corp. – which oversees state-chartered banks outside the Fed system and runs the federal deposit insurance fund – says the crackdown doesn’t go far enough. It wants regulators to go back and figure out who the banks have wronged with their dingbat approach to mortgage recordkeeping and their addiction to profit-padding cost cuts.
“A thorough regulatory review of loss mitigation efforts is needed to ensure processes are sufficiently robust to prevent wrongful foreclosure actions and to ensure servicers have identified the extent to which individual homeowners have been harmed,” the FDIC said.
The statement indicates some displeasure with the feds, and no wonder. Consider the release issued by the OCC, which has long been seen as soft on the banks. It blithely suggests that the enforcement actions that haven’t even been fully elaborated — how big will those fines be? — will accomplish everything short of handing the mortgage market a new toaster.
These reforms will not only fix the problems we found in foreclosure processing, but will also correct failures in governance and the loan modification process and address financial harm to borrowers. Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward.
But the FDIC doesn’t see it that way, and unlike the other regulators it has some semblance of credibility. For starters it is headed by Sheila Bair, the one Washington honcho who doesn’t seem to have spent the past decade drinking the big bank Kool-Aid.
So when the FDIC suggests that the current arrangements are unsatisfactory, it is worth a listen:
The enforcement orders issued today are important, but they are only a first step in setting out a framework for these large institutions to remedy these deficiencies and to identify homeowners harmed as a result of servicer errors. While today’s orders put these large servicers on a path to improving their management of the foreclosure process, they do not purport to fully identify and remedy past errors in mortgage-servicing operations of large institutions. Much work remains to ensure that the servicing process functions effectively, efficiently, and fairly going forward.
That’s not all. The FDIC takes issue with the OCC’s claim – very much in line with the one made by the banks, at least until they are confronted with evidence to the contrary –that “based on the sample of files reviewed by OCC examiners, borrowers in the sample were seriously delinquent at the time of foreclosures and servicers held the notes and documents required to foreclose.”
The FDIC says instead:
There is evidence that some level of wrongful foreclosures has occurred. It is important that servicers identify any harmed homeowners and provide appropriate remedies. This is essential to managing litigation and reputation risk, as well as fairness to borrowers.
Though most foreclosures are probably legitimate, it beggars credulity to claim, as the OCC does, that there have been no material mistakes by the banks. But then, you get the idea sometimes that the regulators don’t think an awful lot about their credibility.