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GEOFF MORRIS

 

Federal Reserve penalizes lenders for improper foreclosure practices – what does this mean to you?


On April 13, 2011 the Federal Reserve published their findings after conducting on site reviews of foreclosure processing of the 14 largest mortgage servicers, including Bank of America, Chase, GMAC, Wells Fargo and Citibank  http://www.federalreserve.gov/newsevents/press/enforcement/20110413a.htm

I have read the report and it does not say anything that anyone who has ever applied for a loan modification or whose home has faced foreclosure does not already know. It is a shame that now we are three years into this mortgage crisis and the Federal Reserve finally takes some action to hold the banks accountable.  The Feds review discovered that the banks loss mitigation departments were understaffed, under trained and under supervised.  Additionally, it was discovered that third party vendors i.e. loan services and attorneys lacked oversight from the banks. This lack of supervision resulted in short cuts being taken with respect proper preparation of documentation during the foreclosure process,  which led some homeowners to wrongfully lose their homes. There was also found to be some circumstances where homeowners lost their home to foreclosure while they in the middle of trial plans with their lenders.

As a result of these finding the banks were ordered to retain an independent firm to conduct a review of foreclosure actions that were pending at any tme from January 1, 2009, through December 31, 2010, to, among other things, 1) identify borrower that have been financially harmed by deficiencies identified in the feds review and 2) provide remediation to those borowers where appropriate.

Also, as part of the orders, the banks have 60 days to present a plan to the Federal Reserve regarding how they plan to fix their short comings.  A requirement of the plan is that the banks provide a single point of contact for the borrowers.

What will this end up meaning to borrowers? It appears that it should be more straight forward when communicating with your lender and the banks’ staff should be more informed and the loan modification process should be more efficient This is good news for borrowers who have been frustrated when speaking to different bank employees and getting the run around or receiving conflicting information.

In the cases where the bank or its vendors “robo signed” foreclosure document or proceeded with a foreclosure when an intervening act should have stopped the process, the banks are supposed provide compensation where it is found that the borrower was financially harmed.  The report found that in most of these cases that the servicers did possess original notes and mortgages and, therefore, had sufficient documentation available to demonstrate authority to foreclose.  So even if the bank did use a robo signer, they had the authority to foreclose and I would not expect the banks to make any sort of financial compensation to borrowers in those cases.

While there is some good news in this report, overall I feel that the report fails to address some of the major problems facing homeowners attempting to modify their mortgages or attempting to save their homes from foreclosure.  Despite the fact that the government’s HAMP program does not require a borrower to be delinquent to obtain a loan modification, it is an implicit requirement for the banks. Thus, forcing homeowners into strategic defaults and beginning a vicious cycle.  Once homeowners are in default the banks continue to proceed with the foreclosure process while the homeowner is under review for a loan modification. In most cases homeowners are faced with sale dates of their homes before their modification is accepted or denied.  In some cases homes are sold while the home owner is in the middle of  a trial modification. In other cases after a trial plan is completed a permanent modification is denied and the homeowner is given days to bring their home current or it will be sold. The solution is obvious, a lender should not be able to move forward with the foreclosure process until it has reached a decision with the borrower regarding a modification. This solution is not presented in the report and I doubt it is something that the banks will offer do do on their own.

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