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FIGHT GOES ON

Federal regulators have reached an initial settlement with the nation’s largest banks, but the deal will not stop a 50-state coalition of attorneys general from pursuing answers and possible penalties relating to a wave of flawed foreclosures that swept the country last fall, says Iowa Attorney General Tom Miller, leader of the AGs coalition.

Mississippi delinquent mortgage rates began climbing as it became a national leader in sub-prime mortgage borrowing. Tardy mortgage payment rates declined after Katrina, a period in which lenders granted borrowers more forbearance than usual.

The settlement does not impose financial penalties but does have agreements from the banks that they will be more diligent in monitoring their foreclosure processing and procedures. Many of the flawed foreclosures stemmed from “robo” signing of foreclosure documents and a failure of the mortgage servicers to show they actually owned the homes on which they were foreclosing.

Miller said he and other coalition members are reviewing the settlement the Office of the Comptroller of the Currency reached earlier this month with eight national bank mortgage servicers and two third-party servicer providers for unsafe and unsound practices. “Their actions will not impact our investigation of the nation’s largest servicers and pursuit of a joint settlement,” Lewis said in a press statement.

He said state attorneys general, in conjunction with the U.S. Department of Justice, Treasury, FTC and HUD, are seeking “comprehensive and substantive changes to a dysfunctional mortgage servicing and foreclosure system.”

In Mississippi, Attorney General Jim Hood said the coalition is “not restricted by anything that the OCC is doing.”

Mississippi Banking Commissioner John Allison said a coalition of state banking regulators will continue its investigation, as well. “I don’t think it lessens what we state supervisors in conjunction with the AGs are doing, as well,” he said of the OCC settlement.

Allison said he does not think much will change in the foreclosure process “until they get some sort of severe monetary penalty.”

Financial penalties could be on the horizon, according to OCC spokesman Dean DeBuck. “I think there are still money penalties to be assigned.”

Last month, a draft settlement purported to purpose a $20-billion payment by the big banks to help writedown underwater mortgages. About 27 percent of U.S. mortgage holders were underwater at the end of the year, meaning they owed more than their homes were worth, Bloomberg reported.

The eight servicers  in the OCC settlement re Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo. The two service providers are Lender Processing Services (LPS) and its subsidiaries DocX, LLC, and LPD Default Solutions Inc.; and MERSCORP and its wholly owned subsidiary, Mortgage Electronic Registration Systems Inc.

Acting Comptroller of the Currency John Walsh insisted reforms contained in the settlement will fix the problems found in foreclosure processing and also correct failures in governance and the loan modification process and address financial harm to borrowers. “Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward,” he said.

The enforcement actions require the servicers to promptly correct deficiencies in residential mortgage loan servicing and foreclosure practices that examiners identified in reviews conducted during the fourth quarter of 2010. The actions require the servicers to make significant improvements in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and dual-tracking, which occurs when servicers continue to pursue foreclosure during the loan modification process.

The enforcement actions require the servicers to ensure that foreclosures are not pursued once a mortgage has been approved for modification and to establish a single point of contact for borrowers throughout the loan modification and foreclosure processes. In addition, the actions require servicers to establish robust oversight and controls pertaining to their third-party vendors, including outside legal counsel, that provide default management or foreclosure services.

The OCC’s actions also require each servicer to engage an independent firm to conduct a multi-faceted review of foreclosure actions between Jan. 1, 2009, and Dec. 31, 2010.

This requirement, the OCC says, includes a comprehensive “look back” to assess whether foreclosures complied with federal and state laws, whether foreclosures occurred when grounds for foreclosure were not present, such as when loans were performing, and whether any errors, misrepresentations or other deficiencies resulted in financial injury to borrowers.

The actions also require each servicer to establish a process for borrowers who believe they have been financially harmed by such deficiencies to make submissions to be considered for remediation. Each servicer must also submit a plan to remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies identified in the independent consultant’s findings, the OCC says.

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