Bankers Behaving Badly

Fed announces enforcement actions against 10 major banks for a 'pattern of misconduct and negligence.'

April 29, 2011

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.

These deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions.

The Fed is taking these actions to ensure that firms under its jurisdiction promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable laws, and are safe and sound.

The 10 banking organizations are: Bank of America Corp., Citigroup Inc., Ally Financial Inc., HSBC North America Holdings Inc., JPMorgan Chase & Co., MetLife Inc., The PNC Financial Services Group Inc., SunTrust Banks Inc., U.S. Bancorp, and Wells Fargo & Co.

Collectively, these organizations represent 65% of the servicing industry, or nearly $6.8 trillion in mortgage balances.

All 10 actions require the parent holding companies to improve holding company oversight of residential mortgage loan servicing and foreclosure processing conducted by bank and nonbank subsidiaries.

In addition, the enforcement actions order the banking organizations that have servicing entities regulated by the Federal Reserve (Ally Financial, SunTrust, and HSBC) to promptly correct the many deficiencies in residential mortgage loan servicing and foreclosure processing.

Those deficiencies were identified by examiners during reviews conducted from November 2010 to January 2011.

The Federal Reserve believes monetary sanctions in these cases are appropriate, and it plans to announce monetary penalties. These monetary penalties will be in addition to the corrective actions that the banking organizations are expected to take pursuant to the enforcement actions.

The enforcement actions complement the actions under consideration by federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action. The Federal Reserve continues to work with other federal and state authorities to resolve these matters.

The Fed wants the offending banks 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 the name of the person at the servicer who is the borrower’s primary point of contact;
  • Ensure that foreclosures aren’t pursued once a mortgage has been approved for modification unless repayments under the modified loan aren’t made;
  • Establish robust controls and oversight over the activities of third-party vendors that provide 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 and foreclosures.