Banks did a poor job of handling the flood of foreclosures over the last several years, in some cases even moving ahead with evictions when they clearly should not have, according to a long-awaited report released Wednesday by federal regulators.
In response to the problems detailed in the report, 14 mortgage servicers have now signed consent agreements promising changes, including new oversight procedures.
Regulators said the enforcement actions were tough measures that would make the banks accountable. “The banks are going to have to do substantial work, bear substantial expense, to fix the problem,” the acting comptroller of the currency, John Walsh, told reporters in a conference call.
JPMorgan Chase, one of the servicers signing the agreement, said that it was adding as many as 3,000 employees to meet the new regulatory demands. Jamie Dimon, its chief executive, called it “a lot of intensive manpower and talent to fix the problems of the past.”
Other servicers who signed agreements included Bank of America, Citigroup and GMAC. Two firms that handle aspects of the foreclosure process, Lender Processing Services and Mortgage Electronic Registration Systems, also signed consent agreements. But consumer activists were unimpressed, saying the reforms let the banks police themselves.
“The banks who caused the economic crisis and received government bailouts are getting a free pass while homeowners still struggle to save their homes,” said Alys Cohen of the National Consumer Law Center, a nonprofit consumer advocacy group.
The other regulatory bodies involved in the examination and the enforcement actions were the Federal Reserve and the Office of Thrift Supervision. The Federal Deposit Insurance Corporation played a more limited role.
Problems at the servicers were “significant and pervasive” adding up to “a pattern of misconduct and negligence,” the Federal Reserve said. The Fed said it planned to announce monetary penalties for the servicers it regulates at a later date.
Mr. Walsh also said the comptroller would impose penalties. “The question is timing and amount,” he said.
One enforcement action requires servicers to hire an outside consultant who will review complaints by borrowers who say that their homes were improperly foreclosed. If the consultant agrees with the claim, the servicer might need to pay restitution.
During their review, the examiners said they saw an unspecified number of cases “in which foreclosures should not have proceeded due to an intervening event or condition.” Those circumstances included families in bankruptcy or borrowers who were either qualified for or in the middle of doing a trial loan modification.
Mortgage servicers will be required to offer families fighting foreclosure a single point of contact, but that does not require the same caseworker. Many families have complained that the servicers routinely lost documents and had trouble keeping track of individual cases.
The report said that mortgage servicing units of the banks did not properly oversee their own or third-party employees at law firms, had inadequate and poorly trained staffs and improperly submitted material to the courts.
The report and enforcement actions came six months after the problems of the way foreclosures were handled became public. Some of the issues included bank employees who acted as “robo-signers,” blindly processing thousands of foreclosure affidavits. The servicers, under pressure from lawyers representing homeowners, admitted to lapses last fall and imposed brief foreclosure moratoriums.
Details of the enforcement actions, which have leaked out over the last two weeks, have been widely criticized by politicians, consumer and housing groups.
“Vague and toothless,” said Senator Jack Reed, a Rhode Island Democrat who has already introduced legislation to improve the foreclosure process. Democrats introduced the legislation in the House on Wednesday.
State attorneys general, who started a separate investigation, are still working with the Obama administration to change the foreclosure process in a more fundamental way. Two administration officials interrupted negotiations with the banks on Wednesday to stress they were actively working toward a settlement, although they declined to give any details.
“This process is going to take some time,” said Thomas J. Perrelli, an associate attorney general for the United States.
About two million households are in foreclosure and another two million near it. Several million home buyers have already lost their homes to foreclosure, often after attempts at loan modifications went nowhere.
Michael D. Calhoun of the Center for Responsible Lending said that the regulators’ report made it clear why so many loan modifications failed: the servicers were inept.
“If the guys couldn’t get the basic paperwork right, what were the chances we were going to get the more complicated modifications right?” Mr. Calhoun said.