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Foreclosure Crisis Pushing Bank Limits: FDIC

 

WASHINGTON (TheStreet) – The Federal Deposit Insurance Corp. says that many mortgage servicers have “lax foreclosure documentation, ineffective controls over foreclosure procedures, and deficient loss mitigation procedures and controls”

In its “Special Foreclosure Edition” of its Supervisory Insights issued Wednesday, the FDIC added that many players are failing to commit the necessary resources to handle “the rapidly growing volume of mortgage loans in default or at risk of default.”

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The deficiencies in foreclosure procedures highlighted by the FDIC included “inadequate organization and staffing” of loan servicing staffs, the signing and notarization of documents by staff members who didn’t review the materials, and the failure to “conform to state legal requirements.” Examiners also found that with sloppy recordkeeping, the large servicers were “undercharging fees as frequently as overcharging them.”

The FDIC said the foreclosure processing deficiencies led to “widespread unsafe or unsound operational practices, including missing documents, execution of documents by unauthorized persons, failure to notarize documents in accordance with local law, inaccurate affidavits, and affidavits signed by persons lacking sufficient knowledge of the underlying mortgage loan transaction.”

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The regulators also reviewed Lender Processing Services (LPS_), which provides foreclosure document services to loan servicers and Mortgage Electronic Registration Systems, or MERS, which “acts as the nominee of original lenders on mortgages and the lenders’ successors,” and executed consent orders against both, based on “unsafe and unsound practices” that exposed the mortgage servicers to “unacceptable operational, compliance, legal, and reputational risks.”

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Finally, the FDIC reminded lenders making foreclosure filings to have possession of the original note and either a recorded mortgage or recorded assignment of mortgage before initiation the foreclosure process, and that “lost-note affidavits should be used only after a good faith effort to locate the note.”

– Written by Philip van Doorn in Jupiter, Fla. for TheStreet

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Update: 4ClosureFraud has a related article and formal FDIC Report: http://4closurefraud.org/2011/05/04/fdic-report/

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Findings from FDIC Examinations of State Non-member Banks

In its role as the primary federal regulator of a large number of state non-member banks, which collectively service less than four percent of residential mortgages, the FDIC has been reviewing and conducting targeted exams to determine whether any of these institutions have engaged in the types of practices identified at the major servicers. To date, the review has not identified “robo-signing” orany other deficiencies that would warrant formal enforcement actions.The FDIC will continue to monitor these servicers, as well as the performance of institutions servicing loans through FDIC securitizations or resolution programs.
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