Two of the nation’s biggest housing lenders, JPMorgan Chase and Wells Fargo, are facing new restrictions on their mortgage businesses for failing to clean up their foreclosure practices, the Office of the Comptroller of the Currency said Wednesday.
The lenders, along with HSBC, US Bank, Santander and EverBank, have a business handling loan payments for mortgages that are on the books of other financial institutions. But the new rules block them from purchasing the rights to service those loans. While the order has no bearing on the banks’ ability to service the home loans they make, it could ultimately be a drag on their overall mortgage business at a time when the housing market is picking up.
Several of the banks have indeed been planning to expand their mortgage operations, but may be hindered by the new restrictions, according to Morris Morgan, the OCC’s deputy comptroller for large banks, who declined to name names.
“We’re not satisfied with where they are at this point in time,” he said, on a call with reporters Wednesday. Morgan said the OCC expects the banks to finish in “months, not years,” and promised to take further actions if the six lenders failed to comply.
Wednesday’s decision stems from an 2011 OCC and Federal Reserve order instructing 16 mortgage servicers to hire independent consultants to review files of homeowners in any stage of foreclosure. At the time, there were allegations of banks using forged or sloppy paperwork to rapidly foreclose, a practice known as “robo-signing.”
Regulators shut down the process a year later because no homeowners were receiving financial help and the banks were barely halfway through the review. There were some glaring problems in the original review, like the $1.9 billion that banks paid the eight consultants managing the process. Or the fact that not a single homeowner received a dime in the 12 months that the review was underway.
By 2013, regulators forged a new $10 billion deal with most of the servicers. The revised agreement handed $3.9 billion in cash to 4.4 million borrowers, while $6.1 billion was set aside for foreclosure prevention.
Millions of borrowers received $300 from the 13 mortgage servicers that immediately signed the amended order. But some of the first checks bounced, while a later batch had the wrong amounts. To date, the government has distributed more than $2.7 billion in compensation to about 3.2 million eligible borrowers.
There is still $280 million worth of checks that have not been cashed. That money will be left in the hands of the state of the borrower’s last known address for collection. Web sites such as www.missingmoney.com list unclaimed compensation from government settlements.
Of the nine banks that were still under the consent order, Citigroup, Bank of America and PNC Financial are in the clear, according to the OCC, which commended them for complying the terms of the order.
Wednesday’s action will have the greatest impact on Wells Fargo and HSBC because of the number of problems regulators found and the severity of those violations. There were 98 items that all of the banks were asked to fix, including timely reporting. Wells Fargo failed to comply with 15 of those items, while HSBC failed to live up to 45.
“Wells Fargo has implemented significant changes to our mortgage servicing operations and achieved compliance with major elements of the original order,” said Mike Heid, president of Wells Fargo Home Mortgage, in a statement.
HSBC spokesman Rob Sherman said the bank is “actively addressing the remaining issues.”
None of the banks affected by the restrictions will be able to appoint senior mortgage servicing officers until they comply with the order. JPMorgan, for its part, expects to have the 10 items left to complete done by the end of the summer, according to company spokeswoman Amy Bonitatibus.
Kevin Barker, senior equity analyst at Compass Point, said while the order is unlikely to have material impact on the housing market, it will place more pressure on lenders who are already contending with regulatory scrutiny.
“This is one in a long list of issues that the government has put pressure on banks for in the last several years regarding mortgage practices,” he said. “The scrutiny will continually put pressure on credit availability or banks willingness to enter the industry.”
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