After penalizing the country’s five largest mortgage servicers last month, the Federal Reserve now plans to fine eight other banks for foreclosure abuses. This was stated by Suzanne G. Killian, a senior associate director of the Fed, at a congressional hearing in Brooklyn.
The banks that were held responsible for wrongly foreclosing homeowners’ properties include EverBank, The Goldman Sachs Group Inc. (GS), HSBC Holdings Plc (HBC), PNC Financial Services Group (PNC), MetLife Inc. (MET), OneWest Bank, SunTrust Banks (STI) and U.S. Bancorp (USB). However, the amounts of penalties have not been disclosed.
The nation’s mortgage servicers were under the radar for the alleged used of ‘robo-signers’ − employees who sign hundreds of documents a day without verifying decisive information like the previously outstanding amounts of borrowers. This was the main reason behind the foreclosure mess.
The problem further exaggerated because of the negligence of the homeowners and lawyers despite their awareness about the foreclosure rules. Flawed paperwork also raised questions about the validity of the ownership documents.
Hence, in October 2010, JPMorgan Chase & Co. (JPM), Bank of America Corporation (BAC) and Ally Financial temporarily suspended foreclosures across the country. Thereafter, a probe was launched by the bank regulators and a task force of attorneys general of all 50 states.
Moreover, in April 2011, the regulators announced an ‘independent foreclosure review’ process under which, 14 large servicers were asked to review their foreclosure practices. For this, they were required to employ independent consultants. The consumers who suffered due to improper foreclosures can receive compensation after their cases have been reviewed by the independent consultants.
Under the compensation process set up by the regulators, consumers can ask for the independent review of their foreclosure until July 31, 2012. Separately, the regulators have also sent letters to nearly 4.3 million borrowers who were at some stage of foreclosure procedure during 2009-2010.
However, this review process and fines are not related to the $25 billion settlement deal that was signed last month by the five large servicers – JPMorgan, Bank of America, Citigroup Inc. (C), Ally Financial Inc. and Wells Fargo & Company (WFC), 49 states’ attorneys general and the regulators. Under the agreement, these banks are required to lower the loan amounts for about 1 million homeowners who are at a risk of foreclosure. Further, about 750,000 borrowers who lost their homes due to foreclosure, over the last four years, will get nearly $2,000 in cash. The five accused banks have time till 2014 to fulfill these terms.
The Fed’s decision to penalize banks will act as a decisive step in restoring investors’ confidence in businesses. In addition, this will rejuvenate the sagging housing market, which is reeling under the effects of foreclosure mess and reduction in home prices. Also, the servicers, who had performed slowly in foreclosing the properties, will step up their actions, leading to an increase in foreclosure activity.
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