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Highlights

Mortgage servicers--entities that manage home mortgage loans--halted foreclosures throughout the country in September 2010, finding that documents required to be provided to courts in some states may have been improperly signed or notarized. In addition, academics and court cases are raising questions over whether foreclosures are being brought properly because of concerns over how loans were transferred into mortgage-backed securities (MBS). GAO was asked to examine (1) the extent to which federal laws address mortgage servicers' foreclosure procedures and federal agencies' past oversight, (2) federal agencies' current oversight and future oversight plans, and (3) the potential impact of these issues on involved parties. GAO reviewed federal laws, regulations, exam guidance, agency documents, and studies, and conducted interviews with federal agencies, mortgage industry associations, investor groups, consumer advocacy groups, and legal academics.

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Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Board of Governors 1. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should develop and coordinate plans to provide ongoing oversight and establish clear goals, roles, and timelines for overseeing mortgage servicers under their respective jurisdiction.
Closed - Implemented
In May 2012, the Board of Governors of the Federal Reserve System, Bureau of Consumer Financial Protection, and the other banking regulators entered into a Memorandum of Understanding on supervisory coordination. The objective of the memo is to establish guidelines for coordination and cooperation between CFPB and the banking regulators on scheduling examinations and the roles of each agency in conducting examinations of supervised activities, including servicing.
Office of Thrift Supervision 2. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should develop and coordinate plans to provide ongoing oversight and establish clear goals, roles, and timelines for overseeing mortgage servicers under their respective jurisdiction.
Closed - Implemented
OCC has assumed oversight responsibility for savings associations from OTS. This recommendation is closed via action taken in June 2012 by OCC, the Federal Reserve, and the Consumer Financial Protection Bureau to coordinate examinations.
Office of the Comptroller of the Currency 3. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should develop and coordinate plans to provide ongoing oversight and establish clear goals, roles, and timelines for overseeing mortgage servicers under their respective jurisdiction.
Closed - Implemented
In May 2012, the Office of the Comptroller of the Currency, Bureau of Consumer Financial Protection, and the other banking regulators entered into a Memorandum of Understanding on supervisory coordination. The objective of the memo is to establish guidelines for coordination and cooperation between CFPB and the banking regulators on scheduling examinations and the roles of each agency in conducting examinations of supervised activities, including servicing.
Federal Deposit Insurance Corporation 4. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should develop and coordinate plans to provide ongoing oversight and establish clear goals, roles, and timelines for overseeing mortgage servicers under their respective jurisdiction.
Closed - Implemented
In May 2012, the Federal Deposit Insurance Corporation, Bureau of Consumer Financial Protection, and the other banking regulators entered into a Memorandum of Understanding on supervisory coordination. The objective of the memo is to establish guidelines for coordination and cooperation between CFPB and the banking regulators on scheduling examinations and the roles of each agency in conducting examinations of supervised activities, including servicing.
Office of Thrift Supervision 5. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should, if national servicing standards are created, include standards for foreclosure practices.
Closed - Implemented
As of July 2011, regulatory responsibility for federal savings associations was transferred to the Office of the Comptroller of the Currency. This recommendation is closed via action taken in January 2014 when rules from the Bureau of Consumer Financial Protection on national mortgage servicing standards became effective. These rules, among other things, restrict dual tracking of loss mitigation and foreclosure processes and establish policies, procedures, and requirements that servicers provide accurate and timely information to courts and facilitate the transfer of information during servicing transfers. In addition, servicers are required to maintain certain documents and information for each mortgage loan in a manner that enables them to compile it into a servicing file within five days. In addition, in April 2013, OCC issued guidance applicable to large and midsize national banks and federal savings associations that requires mortgage servicers to review foreclosures prior to their completion to ensure the servicer is complying with applicable laws and regulations and that appropriate foreclosure prevention efforts have been made. These actions take the place of previous interagency discussions to create national servicing standards.
Office of the Comptroller of the Currency 6. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should, if national servicing standards are created, include standards for foreclosure practices.
Closed - Implemented
In January 2014, rules from the Bureau of Consumer Financial Protection on national mortgage servicing standards became effective. These rules, among other things, restrict dual tracking of loss mitigation and foreclosure processes and establish policies, procedures, and requirements that servicers provide accurate and timely information to courts and facilitate the transfer of information during servicing transfers. In addition, servicers are required to maintain certain documents and information for each mortgage loan in a manner that enables them to compile it into a servicing file within five days. In addition, in April 2013 OCC issued guidance applicable to large and midsize national banks and federal savings associations that requires mortgage servicers to review foreclosures prior to their completion to ensure the servicer is complying with applicable laws and regulations and that appropriate foreclosure prevention efforts have been made. These actions take the place of previous interagency discussions to create national servicing standards.
Federal Deposit Insurance Corporation 7. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should, if national servicing standards are created, include standards for foreclosure practices.
Closed - Implemented
In January 2014, rules from the Bureau of Consumer Financial Protection on national mortgage servicing standards became effective. These rules, among other things, restrict dual tracking of loss mitigation and foreclosure processes and establish policies, procedures, and requirements that servicers provide accurate and timely information to courts and facilitate the transfer of information during servicing transfers. In addition, servicers are required to maintain certain documents and information for each mortgage loan in a manner that enables them to compile it into a servicing file within five days. These rules take the place of previous interagency discussions to create national servicing standards.
Board of Governors 8. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should, if national servicing standards are created, include standards for foreclosure practices.
Closed - Implemented
In January 2014, a final Bureau of Consumer Financial Protection rule on national mortgage servicing standards went into effect. The rule among other things, restricts dual tracking of loss mitigation and foreclosure processes and establishes policies, procedures, and requirements that that servicers provide accurate and timely information to courts and facilitate the transfer of information during servicing transfers. In addition, servicers are required to maintain certain documents and information for each mortgage loan in a manner that enables the servicers to compile it into a servicing file within five days. In addition, in April 2013 the Federal Reserve issued guidance applicable to all state member banks, bank and savings and loan holding companies (including their non-bank subsidiaries), and U.S. branches and agencies of foreign banking organizations that service residential mortgage loans requiring them to review foreclosures prior to their completion to ensure compliance with applicable laws and regulations and that appropriate foreclosure prevention efforts have been made. These actions take the place of previous interagency discussions to create national servicing standards.
Office of the Comptroller of the Currency 9. To reduce the likelihood that problems with mortgage transfer documentation problems could pose a risk to the financial system, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, and the Chairman of the Federal Deposit Insurance Corporation should assess the risks of potential litigation or repurchases due to improper mortgage loan transfer documentation on institutions under their jurisdiction and require that the institutions take action to mitigate the risks, if warranted.
Closed - Implemented
In February 2014, the Office of the Comptroller of the Currency (OCC) issued a revised examination handbook for Mortgage Banking. The handbook includes a "Core Examination Procedure" on determining whether a bank has sufficient policies, procedures, and staff to comply with all servicing standards prescribed by federal, state, and investor requirements. According to the handbook, a bank should pay particular attention to practices surrounding disclosures, servicing transfers, escrow management, error resolution procedures, borrower information requests, force-placed insurance, default management, and continuity of contact practices. Consistent with guidance included in the Mortgage Banking Handbook, OCC reports that examiners are reviewing the loan transfer process, including documentation standards, and its potential impacts on the bank's legal and reputation risks.
Board of Governors 10. To reduce the likelihood that problems with mortgage transfer documentation problems could pose a risk to the financial system, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, and the Chairman of the Federal Deposit Insurance Corporation should assess the risks of potential litigation or repurchases due to improper mortgage loan transfer documentation on institutions under their jurisdiction and require that the institutions take action to mitigate the risks, if warranted.
Closed - Implemented
The Federal Reserve has conducted an extensive review of the risk of repurchases to the institutions it supervises and communicated concerns resulting from those reviews to the institutions. Furthermore, beginning in 2011 and each year subsequently, the Federal Reserve has reviewed mortgage repurchase risk as part of the Comprehensive Capital Assessment and Review process (CCAR). This process addresses the potential impact of repurchases on an institution's capital as well as an institution's ability to assess its risk as part of its capital planning process.
Office of Thrift Supervision 11. To reduce the likelihood that problems with mortgage transfer documentation problems could pose a risk to the financial system, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, and the Chairman of the Federal Deposit Insurance Corporation should assess the risks of potential litigation or repurchases due to improper mortgage loan transfer documentation on institutions under their jurisdiction and require that the institutions take action to mitigate the risks, if warranted.
Closed - Implemented
As of July 2011, regulatory responsibility for federal savings associations was transferred to the Office of the Comptroller of the Currency (OCC). This recommendation is closed via action OCC took in February 2014, when it issued a revised examination handbook for Mortgage Banking. The handbook includes a "Core Examination Procedure" on determining whether a bank has sufficient policies, procedures, and staff to comply with all servicing standards prescribed by federal, state, and investor requirements. According to the handbook, a bank should pay particular attention to practices surrounding disclosures, servicing transfers, escrow management, error resolution procedures, borrower information requests, force-placed insurance, default management, and continuity of contact practices. Consistent with guidance included in the Mortgage Banking Handbook, OCC reports that examiners are reviewing the loan transfer process, including documentation standards, and its potential impacts on the bank's legal and reputation risks.
Consumer Financial Protection Bureau 12. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should develop and coordinate plans to provide ongoing oversight and establish clear goals, roles, and timelines for overseeing mortgage servicers under their respective jurisdiction.
Closed - Implemented
In May 2012, the Bureau of Consumer Financial Protection and the other banking regulators entered into a Memorandum of Understanding on supervisory coordination. The objective of the memo is to establish guidelines for coordination and cooperation between CFPB and the banking regulators on scheduling examinations and the roles of each agency in conducting examinations of supervised activities, including servicing.
Consumer Financial Protection Bureau 13. To help ensure strong and robust oversight of all mortgage servicers, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, the Chairman of the Federal Deposit Insurance Corporation, and the Bureau of Consumer Financial Protection should, if national servicing standards are created, include standards for foreclosure practices.
Closed - Implemented
In January 2014, final rules from the Bureau of Consumer Financial Protection on national mortgage servicing standards became effective. These rules, among other things, restrict dual tracking of loss mitigation and foreclosure processes and to establish policies, procedures, and requirements that that ensure providing accurate and timely information to courts and facilitate the transfer of information during servicing transfers. In addition, servicers are required to maintain certain documents and information for each mortgage loan in a manner that enables the servicers to complie it into a servicing file within five days.
Federal Deposit Insurance Corporation 14. To reduce the likelihood that problems with mortgage transfer documentation problems could pose a risk to the financial system, the Comptroller of the Currency, the Chairman of the Board of Governors of the Federal Reserve System, the Director of the Office of Thrift Supervision, and the Chairman of the Federal Deposit Insurance Corporation should assess the risks of potential litigation or repurchases due to improper mortgage loan transfer documentation on institutions under their jurisdiction and require that the institutions take action to mitigate the risks, if warranted.
Closed - Implemented
FDIC officials stated that the risk of litigation from mortgage documentation was minimal for most of the institutions under their jurisdiction because servicing mortgages is not a primary activity for these institutions. In addition, they noted that institutions that do service mortgages do not have high rates of delinquencies or foreclosures. However, FDIC took steps to assess and raise awareness among examiners of institutions' foreclosure documentation practices. For example, the officials said that examiners incorporated elements related to foreclosure documentation in the scope of their exams and looked at the risk of repurchases at institutions with larger concentrations of mortgage activity. In addition, in May 2011, FDIC issued a supervisory journal describing lessons learned from the interagency review of foreclosure practices and implications of the findings for community banks.

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