Tag Archives: Office of Thrift Supervision

Independent Foreclosure Review: Case Closed?

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The Federal Reserve Board issued its Independent Foreclosure Review. By way of background,

Between April 2011 and April 2012, the Office of the Comptroller of the Currency (OCC), the Board of Governors of the Federal Reserve System (“Federal Reserve”), and the Office of Thrift Supervision (OTS) issued formal enforcement actions against 16 mortgage servicing companies to address a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing identified by examiners during reviews conducted from November 2010 to January 2011. Beginning in January 2013, 15 of the mortgage servicing companies subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing reached agreements with the OCC and the Federal Reserve (collectively, the “regulators”) to provide approximately $3.9 billion in direct cash payments to borrowers and approximately $6.1 billion in other foreclosure prevention assistance, such as loan modifications and the forgiveness of deficiency judgments. For participating servicers, fulfillment of these agreements satisfies the foreclosure file review requirements of the enforcement actions issued by the OCC, the Federal Reserve, and the OTS in 2011 and 2012. (1)

The government’s actions regarding the Independent Foreclosure Review have been its controversial, with some believing that it was completed too hastily. I am less interested in that debate than in FRB’s sense of the the servicing sector going forward.

The report states that “the initial supervisory review of the servicer and holding company action plans has shown that the banking organizations under Consent Orders have implemented significant corrective actions with regard to their mortgage servicing and foreclosure processes, but that some additional actions need to be taken.” (24) Overall, the report reflects an optimism that endemic servicer problems are a thing of the past.

A drumbeat of reports and cases seems to be at odds with that assessment, although there is obviously a significant lag between the occurrence of  problems and the report of them in official sources. As a close observer of the mortgage industry, however, I am not yet convinced that regulators have their hands around the problems in the servicer industry. Careful monitoring remains the order of the day.

Doing Justice with the $13B JPMorgan Settlement

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I have posted a couple of items on this massive settlement (here and here).  This should be my last one. Perhaps I am ungrateful, but the Statement of Facts agreed upon by the Department of Justice and JPMorgan Chase left me with an empty feeling. Recovering $13 billion for homeowners, investors and the government is certainly a key aspect of the justice done in this case. But the law can and should have an expressive function — it should make a statement about the difference between right and wrong behavior. Unfortunately, the Statement of Facts almost completely fails as an expressive document.

It only makes it clear at one point that JPMorgan, Bear Stearns and Washington Mutual did something very wrong:

employees of JPMorgan, Bear Stearns, and WaMu received information that, in certain instances, loans that did not comply with underwriting guidelines were included in the RMBS sold and marketed to investors; however, JPMorgan, Bear Stearns, and WaMu did not disclose this to securitization investors. (1)

The Statement of Facts provided a couple of facts that made clear what JPMorgan did wrong (see page 2), but I could not even parse the sections of Bear Stearns and WaMu to tell you what they did wrong. This is about as strong as it gets:

in 2008, internal WaMu reviews indicated specific instances of weaknesses in WaMu’s loan origination and underwriting practices, including, at times, non-compliance with underwriting standards; the reviews also revealed instances of borrower fraud and misrepresentations by others involved in the loan origination process with respect to the information provided for loan qualification purposes. (10)

You can’t tell from such language whether WaMu was acting intentionally, recklessly or negligently.  You can’t really tell whether this behavior was endemic, frequent, occasional or rare. You can’t tell whether it was the fault of some low-level employees or of upper management. Just about the only thing you can tell from the WaMu section (and the Bear Stearns section, for that matter) is that it was not JPMorgan’s fault:

The actions and omissions described above with respect to WaMu occurred prior to OTS’s closure of WaMu and JPMorgan’s acquisition of the identified WaMu assets and liabilities. (11)

No doubt, JPMorgan tried to control the PR and legal liability to third parties that this Statement of Facts could engender. But Justice could have held the line on the expressive aspect of the settlement just as it did with the monetary aspect. In the long run, that could turn out to be just as important.