Alarmed by significant deficiencies uncovered as part of a regulatory review of residential servicing practices, federal banking agencies are preparing formal enforcement actions against the largest players in the receivables market that they hope will set de facto standards across the industry, according to sources familiar with the situation.
The enforcement orders are expected to hit most, and possibly all, of the 14 mortgage servicers reviewed by regulators after foreclosure problems surfaced in the press last year, but the largest firms — including Bank of America Corp., JPMorgan Chase, Wells Fargo & Co., and Ally Financial Inc. — are likely to face the toughest requirements, due to the sheer number of issues that must be addressed, sources said.
The orders are expected to be coupled with a global settlement with other government entities investigating the servicing industry, which is almost certain to include civil money penalties. Regulators are still discussing the terms with state attorneys general, the Justice Department, the Department of Housing and Urban Development, the Treasury Department and the Consumer Financial Protection Bureau.
"The OCC and the other federal banking agencies with relevant jurisdiction are in the process of finalizing actions that will incorporate appropriate remedial requirements and sanctions with respect to the servicers within their respective jurisdictions," said Acting Comptroller of the Currency John Walsh, according to prepared testimony slated to be delivered Thursday to the Senate Banking Committee.
"We expect that our actions will comprehensively address servicers' identified deficiencies and will hold servicers to standards that require effective and proactive risk management of servicing operations, and appropriate remediation for customers who have been financially harmed by defects in servicers' standards and procedures. We also intend to leverage our findings and lessons learned in this examination of enforcement process to contribute to the development of national servicing standards."
Regulators are hoping the enforcement orders will send a message to the rest of the servicing industry. (Of course, the nation's five largest servicers — B of A, Wells, Chase, CitiMortgage and Ally — control a stunning 64% of the servicing market in the U.S., according to figures compiled by National Mortgage News.)
Although the exact details of the orders are still under discussion, sources told American Banker they are likely to include requirements that servicers beef up staffing, establish a single point of contact for borrowers, and conduct a comprehensive look back at their servicing portfolio to detect and correct problems. (American Banker is an affiliate publication of NMN.)
