OCC chief found deficiencies in bank foreclosure proceedings

Written by Biloxi

Office of Comptroller of Currency (OCC) acting chief John Walsh tesified in front of the Senate Banking Committee on Thursday on the agency's undertaken to implement the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Here are the highlights of the OCC's focus according to Mr. Walsh's testimony:

• The OCC’s progress integrating the staff and functions of the Office of Thrift
Supervision (OTS) into the OCC, and identifying employees for transfer to the
Consumer Financial Protection Bureau (CFPB);

• Highlights of our work to date in implementing important policy and rulemaking
initiatives required by Dodd-Frank, including the OCC’s participation on the
Financial Stability Oversight Council (FSOC or Council), and the challenges of
ensuring that these initiatives are appropriately coordinated with other
participating agencies and with international efforts to reform capital and liquidity
standards for financial institutions; and the Council’s achievements thus far; and

• Provides an update on a significant issue that was just emerging at the time of the
Committee’s last hearing on Dodd-Frank implementation by reporting on the
steps that the OCC, working with our fellow regulators, has taken to identify and
address irregularities in institutions’ foreclosure processes and our efforts to foster
development and implementation of comprehensive and nationally applicable
mortgage servicing standards.

In his testimony, Mr. Walsh explained his findings of mortgage servicers' deficiencies in the foreclosure process. OCC examiners reviewed samples of approximately 2,800 borrower foreclosure cases in various stages of foreclosure in judicial states and non-judicial states.. Here is the highlight of the findings according to Mr. Walsh:

In general, the examinations found critical deficiencies and shortcomings in foreclosure
governance processes, foreclosure document preparation processes, and oversight and
monitoring of third party law firms and vendors. These deficiencies have resulted in
violations of state and local foreclosure laws, regulations, or rules and have had an
adverse affect on the functioning of the mortgage markets and the U.S. economy as a
whole. By emphasizing timeliness and cost efficiency over quality and accuracy,
examined institutions fostered an operational environment that is not consistent with
conducting foreclosure processes in a safe and sound manner.

Despite these deficiencies, the examination of specific cases and a review of servicers’
custodial activities found that loans were seriously delinquent, and that servicers
maintained documentation of ownership and had a perfected interest in the mortgage to
support their legal standing to foreclose. In addition, case reviews evidenced that
servicers were in contact with troubled borrowers and had considered loss mitigation
alternatives, including loan modifications. A small number of foreclosure sales should
not have proceeded because of an intervening event or condition, such as the borrower:
(a) being covered by the Servicemembers Civil Relief Act; (b) filing bankruptcy shortly
before the foreclosure action; or (c) being approved for a trial period modification.

Mr. Walsh  had expressed sanctions and penalties to the bank. In addition, OCC developed a framework for reforms for comprehensive mortgage servicing standards. As I have said some quite some time, sanctions, punishments, and penalties must be implemented to the banks. And criminal charges should be filed against the banks that violated the Servicemembers Civil Relief Act (SCRA). No one is above the law and neither are the banks.