Officials Move On to the Smaller Fish

April  6, 2012
By Joel Cone, Staff Writer

Now  that Bank of America, Wells Fargo, Citigroup, Ally Financial and J.P. Morgan Chase have come to terms with federal and state officials over the $25 billion foreclosure  settlement, those same officials are looking forward to catching some of  the smaller fish involved in this ocean of deception and greed.

The  Washington Post reported that as part of the  settlement, the nation’s big five agreed to change the way the foreclosure  process is handled including prohibiting the practices that have become known as robo-signing and to provide borrowers with a single point of contact to deal  with the lender, thus avoiding the dual-track practice of foreclosing on the borrower while at the same time negotiating a possible loan modification.

Since  the robo-signing incident garnered national attention back in October 2010, the  nation’s housing market has experienced 17 straight months of year-over-year  declines in foreclosure activity, according to data compiled by RealtyTrac. But there are signs that lenders are starting to ramp foreclosure activity back up, with 21 states posting annual increases in foreclosure activity in February 2012. Now with the settlement behind them, officials can now focus on others who suffered from the inaccurate and forged documents, poor customer service and avoidable foreclosures of past recent years, according to Patrick Madigan, assistant Iowa attorney general who helped negotiate the final settlement.

Large investors in mortgage-backed  securities also have been hurt by the lackluster performance of servicers, he said, and the housing market and the economy also have suffered as a result.

“So, it’s important on a lot of  levels that you get servicing fixed,” Madigan told the Post. Now he is first turning his attention to figuring out which firms to go after next and how to negotiate with them.

Just last week, a senior Federal  Reserve official told lawmakers on Capitol Hill that regulators are preparing to levy fines against eight financial firms over foreclosure practices involving flawed and fraudulent documents.

The companies facing those fines —  SunTrust Bank, U.S. Bancorp, PNC Financial Services, EverBank, Goldman Sachs,  OneWest, MetLife and HSBC’s U.S. bank division — were not part of the recent  foreclosure settlement but were found by federal regulators to have undertaken  a pattern of negligence and misconduct in the way they serviced mortgage loans, the Post reported.

Suzanne G. Killian, senior associate director of the Fed’s division of consumer and community affairs, told lawmakers that the agency plans to announce monetary penalties against the  firms for “unsafe and unsound practices in their loan servicing and foreclosure  processing.”

Those penalties hark back to a deal  that federal regulators struck last year with 14 servicers after an investigation revealed widespread robo-signing and other abuses.

Under that agreement, the servicers agreed to  hire independent consultants to evaluate whether borrowers suffered financial injury during the foreclosure process and to compensate them for any wrongdoing.

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