The Office of the Comptroller of the Currency (OCC) said on Monday that regulators are about to allow the nation's major banks 30 more days to submit their foreclosure plans to address mortgage servicing malpractices. In April, OCC entered into an agreement with 14 major lenders to ensure reimbursement to victims of incorrectly foreclosed homes.
Initially, OCC had given these banks 60 days' time to chalk out a rectification plan for their mortgage-servicing flaws. The banks were allowed to take time to hire auditors and detect how many foreclosures could have been avoided in the last two years, had these banks not messed up the documents.
Now, in order to give time to state and federal agencies to negotiate with these banks for their carelessness at the time of foreclosing homes, the Department of Justice has requested a 30-day extension. This prolonged period will also help the banks to coordinate with state and federal agencies.
Why So Late?
Following the detection of critical deficiencies related to the foreclosure process, U.S. bank regulators were gearing up to punish mortgage servicers. But the disciplinary initiatives were dramatically held back by inter-group bickering over the strictures of a defrayal.
The groups involved in the negotiations were unable to reach an agreement as it is practically impossible to frame a universal settlement that would protect mortgage servicers from innumerable fines, lawsuits and criticism.
Though the regulators failed to reach an agreement, a monetary settlement amounting more than $20 billion was suggested by some.
However, the state Attorneys General (AGs) and the Justice Department are in discussion with mega banks including Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C), Wells Fargo & Co. (WFC) and Ally Financial for a separate imbursement.
Self-initiatives by Banks
Last month, U.S. mega banks decided to pay as much as $5 billion to settle critical deficiencies related to the foreclosure process. These banks are willing to spend the amount to address claims by federal and state officials for their mortgage foreclosure malpractices. However, the proposed payment is substantially lower than the amount discussed by the groups involved in negotiations.
Root of the Problem
In the foreclosure process, many lenders use ‘robo-signers’ — employees who sign hundreds of documents a day without verifying decisive information like the outstanding amounts of previous borrowers.
Despite being aware of the imminent danger, the negligence of homeowners and lawyers aggravated this problem. During many transactions, signatures were not reviewed by any notary. Even when notarizations took place, it was unlikely that the officials executed the signings keeping legal requirements in mind.
Flawed paperwork also raised questions about the validity of the ownership documents. In many cases, an individual who moved into a house even after making payments may not be the legal owner. This ended up in mortgage lenders improperly expelling original owners from their homes.
Better Late Than Never
We are not sure how things will change with this extra time. However, though late, this corrective measure would save us from yet another foreclosure crisis. Most importantly, it would leave a lasting impact on lenders, forcing them to be extra cautious during housing transactions.
Whatever the settlement, it will take a long time to control regulatory violations and finally put an end to the foreclosure crisis. While regulators battle out how to put the housing sector back in order, we can only remain hopeful that a concrete settlement will be reached one day.
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