Regulators charged the biggest U.S. banks with “unsafe and unsound practices” on foreclosures, and ordered a sweeping overhaul of their mortgage operations.
The move is the strongest federal response so far to the bankers’ massive, greed-driven misconduct during the crisis of the past half-decade. It comes after a months-long federal review of the banks’ handling of mortgage paperwork and foreclosure actions.
But in a telling omission, the regulators didn’t say how big the fines they will assess might be — making it impossible to judge whether the action amounts to more than a slap on the wrist.
Federal banking watchdogs filed enforcement actions alleging mortgage-related wrongdoing at Bank of America (BAC), JPMorgan Chase (JPM), Wells Fargo (WFC), Citigroup (C) and 10 others. The banks consented to the orders without, as usual, accepting or denying responsibility.
The authorities didn’t announce fines, but the Federal Reserve said it believes “monetary sanctions in these cases are appropriate.” The Fed didn’t say when it might announce the penalties.
The regulators didn’t mince words about the banks’ wrongdoing. The enforcement actions are meant “to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing,” the Fed said. “These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.”
The FDIC — which wasn’t part of the federal review — went even further, suggesting further probes of the banks are in order:
The findings of the interagency review clearly show that the largest mortgage servicers had significant deficiencies in numerous aspects of their foreclosure processing. These deficiencies included the filing of inaccurate affidavits and other documentation in foreclosure proceedings (so-called “robo-signing”), inadequate oversight of attorneys and other third parties involved in the foreclosure process, inadequate staffing and training of employees, and the failure to effectively coordinate the loan modification and foreclosure process to ensure effective communications to borrowers seeking to avoid foreclosures.
The interagency review was limited to the management of foreclosure practices and procedures, and was not, by its nature, a full scope review of the loan modification or other loss-mitigation efforts of these servicers. 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 actions come as the banks battle with state and federal regulators over possible responses to the banks’ bad acts during the housing bubble and in the foreclosure crisis. Some state attorneys general have been pushing for the banks to pay $20 billion to aid foreclosure victims and make amends for past missteps, but federal regulators have been divided on the issue, not wanting to intensify financial strains for the banks with the economy still weak.
The Fed stressed Wednesday that it isn’t usurping the agency of the attorneys general by announcing the federal actions.
The enforcement actions complement the actions under consideration by the federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action. The Federal Reserve continues to work with other federal and state authorities to resolve these matters.
JPMorgan Chase said Wednesday that mortgage-related costs wiped nearly $2 billion off its first-quarter earnings and warned that those expenses will remain elevated in coming quarters. The question now is just how much any fines might elevate those costs.