Over the past year or so there have been dozens, if not hundreds, of stories questioning the manner in which lenders were handling the servicing of their loans, particularly those of underwater borrowers, as well as the foreclosure practices of many including “robo-signing” of foreclosure affidavits. Next came the lawsuits and now, this week, the Federal Reserve Board announced formal enforcement actions requiring 10 banking organizations to address “a pattern of misconduct and negligence related to deficient practices in residential mortgage loan servicing and foreclosure processing.”

With regard to those “deficiencies”, the board stated they “represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.”

The 10 banking organizations that were on the receiving end of these actions are:

1. Bank of America Corporation
2. Citigroup Inc.
3. Ally Financial Inc.
4. HSBC North America Holdings, Inc.
5. JPMorgan Chase & Co.
6. MetLife, Inc.
7. The PNC Financial Services Group, Inc.
8. SunTrust Banks, Inc.
9. U.S. Bancorp
10. Wells Fargo & Company

According to the Federal Reserve Board, the above ten banks represent 65 percent of the servicing industry, or nearly $6.8 trillion in mortgage balances.

The actions taken by the Federal Reserve require each servicer to take a number of actions, including to make significant revisions to certain residential mortgage loan servicing and foreclosure processing practices. Each servicer must, among other things, submit plans acceptable to the Federal Reserve that:

• strengthen coordination of communications with borrowers by providing borrowers the name of the person at the servicer who is their primary point of contact;
• ensure that foreclosures are not pursued once a mortgage has been approved for modification, unless repayments under the modified loan are not made;
• establish robust controls and oversight over the activities of third-party vendors that provide to the servicers various residential mortgage loan servicing, loss mitigation, or foreclosure-related support, including local counsel in foreclosure or bankruptcy proceedings;
• provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process; and
• strengthen programs to ensure compliance with state and federal laws regarding servicing, generally, and foreclosures, in particular.

In addition to the actions against the banks, the Federal Reserve also announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc. (MERS), which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance.

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