U.S. bank regulators’ initiatives to settle critical deficiencies related to the foreclosure process with mortgage servicers were held back due to disagreements among the groups involved over the strictures of a defrayal, Reuters reported on Friday. However, the regulators are trying to sketch out a plan by mid-March to penalize mortgage servicers.
Though the extent and timing of punishment is yet to be finalized, we can presume that it would come as a lesson to mortgage servicers and lessen the looming threat on housing recovery.
Too Many Disagreements
The groups involved in the negotiations were unable to reach an agreement as it is difficult to frame a universal settlement that would protect mortgage servicers from innumerable fines, lawsuits and criticism.
Among many proposals, the negotiators suggested that this ought to be the biggest monetary settlement, amounting to as much as $20 billion. Other alternatives were also considered and differences in opinion mushroomed. Eventually, the penalty could be also in the form of a waiver of principal without forcing mortgage servicers to pay a fine.
What Fired Up Regulators?
Referring to the nationwide investigation related to paperwork and procedure of foreclosures, last week, the acting head of the Office of the Comptroller of the Currency, John Walsh, elucidated that many of the mortgage servicers violated state and local foreclosure laws.
As a result, the functioning of the foreclosure process was severely impaired. This is the underlying reason behind the critical deficiencies. However, the impact was not as strong for homeowners as only a few of them were unfairly evicted.
Among many other servicers, biggies like JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC) and Citigroup Inc. (C) were included in the investigation.
What Went Wrong?
At the time of foreclosing homes, many lenders use ‘robo-signers’—employees who sign hundreds of documents a day without verifying decisive information like the previously outstanding amounts of borrowers.
Despite being aware of the imminent danger, the negligence of homeowners and lawyers aggravated this problem. In many cases, signatures were not reviewed by any notary. Even when notarizations took place, it was unlikely that the officials executed the signings keeping legal requirements in mind.
Flawed paperwork also raised questions about the validity of the ownership documents. There are many cases in which an individual who moved into a house after a payment may not be the legal owner. This resulted in mortgage lenders improperly expelling original owners from their homes as part of their foreclosure process.
Too Late To Worry
Whatever be the form of settlement, it would be a significant step in controlling regulatory violations that would in turn put an end to the foreclosure crisis. While regulators battle it out, we can only sit and stare at the spreading poison.
However, prior to winding up, repercussions of faulty paperwork could make it difficult for lenders to find home buyers in the years to come. Needless to mention, this would only turn the housing situation from bad to worse.
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