Thursday, September 15, 2011

Fourteen Mortgage Servicers Reviewed By OCC, FDIC and OTS

The Federal Reserve System, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and the Office of Thrift Supervision (OTS), referred to as the agencies, conducted on-site reviews of foreclosure processing at 14 federally regulated mortgage servicers during the fourth quarter of 2010.

In order to ensure consistency with the reviews they conducted, they used divided work programs into the following categories:
  • Policies and procedures;
  • Organizational structure and staffing;
  • Management of third-party service providers;
  • Quality control and internal audits;
  • Compliance with applicable laws;
  • Loss mitigation;
  • Critical documents; and
  • Risk Management.

The reviews found critical weaknesses in servicers' foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party vendors, including foreclosure attorneys. The servicers included represent more than two-thirds of the servicing market. These weaknesses pose a variety of risk to the financial services industry and investors.

They found the following functions were not being provided at satisfactory levels:
  • ensuring accurate foreclosure documentation, including documentation pertaining to the fees
  • assessed;
  • incorporating mortgage-servicing activities into the servicers’ loan-level monitoring, testing, and
  • validation programs;
  • evaluating and testing compliance with applicable laws and regulations, court orders, pooling and
  • servicing agreements, and similar contractual arrangements; and
  • ensuring proper controls to prevent foreclosures when intervening events or conditions occur that warrant stopping the foreclosure process (e.g., bankruptcy proceedings, applicability of the Servicemembers Civil Relief Act, or adherence to a trial or permanent loan modification program).

They found internal audit procedures were inadequate.

This has resulted in the following industry reforms:
Governance and Oversight
  • implement and routinely audit sound enterprise-wide policies and procedures to govern and control mortgage-servicing and foreclosure processes;
  • develop quality controls for effective managementof third-party vendors who support mortgage-servicing and foreclosure processing;
  • strengthen the governance standards intended to ensure compliance with applicable federal and state laws and company policies and procedures;
  • develop company standards that emphasize accuracy and quality in the processing and validation of foreclosure and other servicing-related documents throughout the entire foreclosure process.

Organizational Structure, Staffing, and Technology

  • increase staffing to adequate levels and provide them with requisite training to effectively manage the volume of default loans and foreclosures
  • upgrade information systems and practices to better store, track, and retrieve mortgage-related documents
Accountability and Responsiveness Dealing with Consumers

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