Mortgage servicing violations perpetrated by Bank of America, Wells Fargo, JPMorgan Chase and Citibank (collectively known as the Big Banks) and other smaller mortgage servicers have prompted the federal Office of the Comptroller of the Currency (OCC) to issue formal enforcement actions against the violators. Each violating bank is required to sign a consent order promising to bring their foreclosure procedures into compliance with existing law.

Among the actions which are required of the violating Big Bank servicers are:

  • establishing compliance programs;
  • retaining independent firms to review foreclosure actions between January 1, 2009 and December 31, 2010;
  • ensuring correct communication with borrowers in foreclosure;
  • establishing procedures to deal with outsourced servicing providers, such as the Mortgage Electronic Registration System (MERS); and
  • retaining independent firms to conduct assessments of each servicer’s progress in complying with existing law.

Opponents in Congress point out these measures are merely a reiteration of tactics which did not work in the first place: namely, putting the servicers in charge of their own compliance.

Nor has the public tongue-lashing the OCC and other regulatory agencies given the Big Banks resulted in any civil monetary penalties. These remain in limbo, as the battle for restitution continues to be fought out between the banks and the states’ attorneys general (AGs). [For more criticism of the continuing lack of lender accountability, see the April 2011 first tuesday article, Retribution deferred: lenders prove too powerful to be prosecuted.]

first tuesday take: The banks, so obviously caught out in their disobedience, will continue to wage their war of legal shenanigans and tattered rhetoric and hope it will shield them from having to – insert collective gasp here – actually follow the law.

But that’s old hat: lenders will always skirt the law if they are given the chance. No; the dismay here stems from the utter lack of bite in regulation meant to nudge lenders away from their own wrongdoing. In any other context, the idea of the transgressors policing themselves is absurd.

Instead of having the Big Banks sign agreements promising to conform to the existing rules, the regulators must be there to craft them. The hiring of independent firms to review compliance must be done by the regulators, and not the Big Banks (but paid for by those banks). Most importantly, the penalties for failing to adhere to the letter of the law must be met with a penalty which will diminish a violating bank’s position in the market. There must be no more of this limp wrist-slapping in hopes that the blatant recalcitrance of years past does not again resurface. Lenders love all this, as they feared much worse just a year ago.

Re:Foreclosure Rules Met With More Criticism” from the New York Times and “OCC Takes Enforcement Action Against Eight Servicers for Unsafe and Unsound Foreclosure Practices” from the Office of the Comptroller of the Currency