Lenders told to review foreclosure procedures
A top federal bank regulator said Thursday that he has directed seven of the nation's largest lenders to review their foreclosure processes after learning about the widespread mishandling of homeowner evictions by the industry.
John Walsh, acting director of the Office of the Comptroller of the Currency, told lawmakers during a hearing on the financial regulatory overhaul enacted this summer that some lenders "clearly had deficiencies" in their system for foreclosures.
The banks contacted by regulators include J.P. Morgan Chase, which announced Wednesday that it was freezing 56,000 foreclosures after finding errors in its preparation of documents, according to OCC spokesman Kevin Mukri. Other lenders contacted include Bank of America, Citibank, HSBC, PNC Bank, U.S. Bank and Wells Fargo.
"We both want to see that they fix the processing problems but also to look to see whether there is specific harm [that has been caused] in individual cases," Walsh said.
Revelations about widespread paperwork problems with foreclosures led Ally Financial, another major lender, to suspend evictions last week in 23 states where a court order is required to seize a property. Since then, the industry's handling of foreclosures has come under close scrutiny from regulators, with attorneys general in several other states calling for Ally to halt foreclosures.
The paperwork problems range from potentially forged documents to bank employees who never read borrowers' files before signing off on an eviction.
In J.P. Morgan's case, Mukri said the bank "determined that its affidavit procedures were non-compliant with foreclosure processing requirements in some states." He added that although J.P. Morgan has fixed internal procedures, the "negative impact or harm to customers has not been determined at this point."
"While we don't expect our review to find that consumers were harmed, we will take appropriate action if we find any impact," JP Morgan spokesman Tom Kelly said.
Mukri would not comment about other banks but said that the OCC has teams permanently stationed at each one and that those teams have been in close contact with senior management at the banks to ensure the reviews are completed in a timely manner.
Citibank declined to comment on the OCC's request but said it has strong training to ensure that employees in its foreclosure group are aware that they should have personal knowledge of the information in documents that require this before signing them and that staffing levels are adequate to allow them to review them properly.
There was no immediate comment from the other banks on Thursday.
Walsh made the remarks in response to questions from Christopher J. Dodd (D-Conn.), chairman of the Senate banking committee, about the spreading problem with foreclosure processing.
Referring to a front-page article in The Washington Post, Dodd called the news about lenders initiating improper foreclosures "very troubling." He asked senior bank regulators at Thursday's hearing - including Federal Deposit Insurance Corp. Chairman Sheila C. Bair and Federal Reserve Chairman Ben S. Bernanke - to comment on the matter.
Bair, whose agency insures deposits at thousands of U.S. banks, called the issue of document processing errors "troubling" and said "it's just a further indication of how wrong we went with the mortgage origination process and securitization process."
Bernanke said that "it's been a managerial challenge to the banks to deal with these foreclosure modifications." And, he added, "they haven't always met that challenge."