US survey criticizes loan management

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WASHINGTON – A four-month survey by the Obama administration of five of the nation’s largest mortgage managers found “significant variation” between their operations, with some managers “significantly worse than others” in how they manage home loans, the US housing secretary said. and Urban Development Shaun Donovan said in an interview.

Mr Donovan declined to identify companies behind in the HUD review, but said the administration planned to release the results of its investigation in the coming weeks.

The White House Financial Fraud Task Force, which includes the Justice Department, is in the early stages of investigating how mortgage companies have handled their documents. On Tuesday, Securities and Exchange Commission Chairman Mary Schapiro confirmed her agency was looking into related disclosure issues. The White House has attempted to hold meetings to coordinate the government’s response, but investigations appear to vary in pace and intensity.

The review was prompted by allegations that mortgage company employees signed hundreds of documents a day without verifying the underlying information, but has since broadened to a general review of how banks operate. mortgages and foreclosures.

The surveys rekindled criticism from Wall Street at a time when several of the nation’s largest financial firms appeared to be on firmer footing, posting strong third-quarter earnings. Bankers said many of the service issues were technical in nature and did not lead to unwarranted foreclosures. But the growing number of inquiries could put pressure on them to reach a settlement.

Secretary Shaun Donovan, Department of Housing and Urban Development, last year in Washington. The HUD investigation found “significant variation” among loan officer operations, but has yet to name names.

Agence France Presse / Getty Images

“If the banks want to solve it and fix these problems, it will be difficult to put everyone in the same room,” said Ronald Glancz, partner at the law firm Venable LLP, which represents the banks. “You’re never going to get a blanket settlement, which the banks want, unless you can get all the investigators in the room. It only drags on and prolongs the agony. “

Fifty state attorneys general have launched a joint investigation into allegations that banks mishandled foreclosure documents known as affidavits. In addition to the SEC and the Department of Justice, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, has demanded reviews from major banks, as has the Office of the U.S. Currency Comptroller. SEC Chairman Mary Schapiro said on Tuesday her agency was looking into “issues of disclosure, misrepresentation or omissions.”

Mr Donovan said the problems uncovered by his agency’s review go beyond the technical aspects of the foreclosures.

“The issues we’ve seen around the affidavit process are potentially symptomatic of issues in other parts of the process as well, and we want to make sure we look more broadly at ‘how the industry works,’ he said. he declares.

The outcry over the inappropriate affidavits, which has led some banks to suspend foreclosures, underscores the delicate relationship between the Obama administration and the banks. The administration wants banks to correct mistakes and opposes calls for a general moratorium on foreclosures. But if he appears to be lenient with the banks, he will face criticism from the left and could trigger legislation that the administration says could prolong the housing crisis.

Rep. Maxine Waters (D., California) lambasted Bank of America on Tuesday Corp.

and GMAC Mortgage, a unit of Ally Financial Inc.,

for their foreclosure recovery plans. “Regulators should undertake a comprehensive review of [these companies] and other service agents because we can’t let the banks control themselves, ”Ms. Waters said.

Mortgage agents play a key role in how banks interact with borrowers. They collect money, help modify loans, and ultimately handle foreclosures. As the number of foreclosures has skyrocketed in recent years, service officers have faced increasing pressure to help borrowers rework mortgages that were in default.

HUD’s survey focuses on companies that handle a large number of Federal Housing Administration-guaranteed loans from HUD, including Bank of America, JP Morgan Chase & Co., and Citigroup. Inc.

HUD has the power to impose fines or sanction banks.

A Citigroup spokesperson said the company “would defer to Secretary Donovan for any expansion on his comments.” A representative from JP Morgan declined to comment and a representative from Bank of America did not respond to calls for comment.

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Bank of America officials said they decided to file new foreclosure documents in 23 states and resume some foreclosure sales after a review of the company found no errors in their procedures.

Ally officials have said they will resume foreclosures in cases where they have reviewed documents processed by “bot signers” and resubmitted documents with new signatures.

U.S. officials have stressed they will demand changes from banks if there is evidence to suggest owners have been wrongfully evicted.

“No one should lose their home by mistake,” said HUD’s Donovan. “Even though it’s a person, it’s a shame … No matter how widespread it is, it’s wrong.”

Responding to suggestions that flaws in foreclosure affidavits point to a broader problem that could mar the legal foundations of all kinds of mortgages and mortgage-backed securities, Donovan said he had until now now seen no evidence of “underlying structural flaws that would call into question our larger mortgage system.”

Mr. Donovan and other administration officials were due to meet at the White House on Tuesday to review the inquiries and other responses. On Wednesday, he calls the latest in a series of meetings of regulators and other relevant officials.

Write to Damian Paletta at damian.paletta@wsj.com and David Wessel at capital@wsj.com

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