Don't expect Justice Department deal to slow down California non-judicial foreclosures
The U.S. Justice Department along with the Attorneys General of 10 states have negotiated a preliminary "Consent Orders" with 14 of the largest loan servicers relating to the use of Robo-Signers to facilitate foreclosures.
The servicers include: JPMorgan, Wells Fargo, Bank of America Corp. (BAC), Citigroup Inc. (C), the GMAC unit of Ally Financial Inc., Aurora Bank FSB, EverBank Financial Corp., HSBC Holdings Plc, OneWest, MetLife Inc. (MET), PNC Financial Services Group Inc. (PNC), Sovereign Bank, SunTrust Banks Inc. (STI), and US Bancorp.
For the California homeowner facing foreclosure, it remains to be seen whether these actions will have any effect on the process. This office continues to observe suspicious and fraudulent documents filed in bankruptcy cases and on county title so as to facilitate non-judicial foreclosure.
It should be noted that the ten Attorney Generals participating are all from states that have judicial or court foreclosure processes.
California is a non-judicial foreclosure state and our Attorney General did not participate in the Consent Orders. Consent Orders are akin to servicer promises to change behavior.
It is unclear how homeowners who lost their homes will be compensated or who will decide the amount of any penalties.
While the companies also agreed to end the practice of dual-track foreclosures, in which servicers seize the homes of delinquent borrowers even while negotiating lower mortgage payments, it is unclear whether they will cease this practice in California or other non-judicial states. From this firm's perspective, the practice continues.
These government actions do not affect a Californians right to sue if a servicer has violated rights, committed fraud or otherwise failed to comply with the non-judicial foreclosure statute.
Banks to Pay Victims of Botched Foreclosures in Settlement With Regulators
The 14 largest U.S. mortgage servicers must pay back homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing collapse, the first of a set of sanctions regulators are seeking against the companies.
The settlement announced today between servicers and banking regulators could help the U.S. Justice Department determine the size and scope of fines for the flawed practices, regulators said.
Officials from the Justice department, the Department of Housing and Urban Development and 10 state attorneys general met with banks today, the second such meeting to negotiate a global settlement, Associate U.S. Attorney General Tom Perrelli said. The group is discussing potential fines and whether servicers should be required to reduce the principal on some home loans.
"This has been a very broad interagency effort," Perrelli told reporters. "The best possible resolution for consumers, for all government entities, is a fully coordinated resolution."
Today's consent decrees with banks address a "subset" of issues with mortgage servicers, Perrelli said.
Iowa Attorney General Thomas J. Miller, who is leading the talks on behalf of the states, said today's agreements won't limit his pursuit of penalties. In March, the attorneys general called for changes to foreclosure practices and mandatory loan modifications, including mortgage principal write downs.
Fines to Come
The consent decrees "will not limit our pursuit of remedies and reforms," Miller said today in a written statement. "We will continue our own efforts to ensure that the nation's servicing and foreclosure system is fair to homeowners, banks and investors."
Banking regulators said the consent decrees don't prevent them from issuing fines later.
"There will be civil money penalties. The issue is time and amount," acting Comptroller of the Currency John Walsh told reporters in a conference call.
The Federal Reserve issued a statement saying it plans to announce fines, calling them "appropriate."
The banks, including JPMorgan Chase & Co. (JPM) and Wells Fargo & Co. (WFC), agreed in the settlement to conduct a review of all loans that went into foreclosure in 2009 and 2010. They also agreed to improve their foreclosure, loan modification and refinancing procedures by hiring staff, upgrading document-tracking systems, assigning a single point of contact for each borrower and policing lawyers and vendors.
Ending 'Dual-Track'
The companies also agreed to end the practice of dual-track foreclosures, in which servicers seize the homes of delinquent borrowers even while negotiating lower mortgage payments.
The Office of the Comptroller of the Currency, the Fed, the Office of Thrift Supervision and the Federal Deposit Insurance Corp. released the consent decrees in Washington.
JPMorgan, the second-biggest U.S. bank by assets, today took a $1.1 billion charge and may add as many as 3,000 employees to comply with the consent agreement, Chief Executive Officer Jamie Dimon said in a conference call.
The banks didn't admit or deny regulators' findings, according to the orders.
The sanctions are the first to arise since last fall, when state and federal agencies began investigating mortgage servicers' lapses in foreclosure procedures. Unprepared for the record number of loan delinquencies caused by subprime loans and the collapse of housing prices, servicers relied on inexperienced workers who failed to track paperwork or improperly signed legal documents.
'A First Step'
Reports of robo-signing prompted several lenders to temporarily suspend foreclosures last year.
In their investigation, regulators did not find widespread evidence of missing promissory notes or mortgages, as many foreclosed homeowners have claimed. Servicers generally had "sufficient documentation" to foreclose, the agencies reported in their review, which was released today.
The consent decree lays out detailed goals and deadlines for the companies to help homeowners who are in default or have fallen behind on mortgage payments.
Global Settlement
The agreements drew immediate fire from critics who said they could undermine the broader negotiations. Representative Maxine Waters, a California Democrat and member of the Financial Services Committee, called the orders "disappointing."
"I fear that these consent orders are merely an attempt to do an end-run around our state attorneys general," Waters said in a written statement.
Under the consent decrees, banks must hire outside consultants to identify borrowers who improperly lost their homes, failed to get loans rewritten or were forced into court in 2009 and 2010 because of mistakes made by mortgage servicers or their vendors.
Banks must determine the financial injury to borrowers and, within the next six months, submit a plan to regulators for reimbursing them, according to the decrees.
Regulators also targeted two companies used by banks to manage loan documents, foreclosures and bankruptcies. Mortgage Electronic Registration Systems Inc., or MERS, of Reston, Virginia, and Lender Processing Services Inc. (LPS) of Jacksonville, Florida, were ordered to improve their internal controls and corporate governance.
In addition to JPMorgan and Wells Fargo, Bank of America Corp. (BAC), Citigroup Inc. (C), the GMAC unit of Ally Financial Inc., Aurora Bank FSB, EverBank Financial Corp., HSBC Holdings Plc, OneWest, MetLife Inc. (MET), PNC Financial Services Group Inc. (PNC), Sovereign Bank, SunTrust Banks Inc. (STI), and US Bancorp also signed consent agreements with regulators.
Some of the companies, including MetLife, issued statements saying they have already implemented many of the standards mandated by the order.
Ally Financial, in a statement, said it "deeply regrets the error" in processing certain affidavits.
To contact the reporter on this story: Lorraine Woellert in Washington at lwoellert@bloomberg.net.
To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.
