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Interagency foreclosure report coming early 2011
WASHINGTON (11/18/10)—A full examination of financial institutions’ “policies, procedures, and internal controls related to foreclosure practices” should be released in early 2011, with federal regulators taking supervisory action and holding institutions “accountable for poor practices” as needed, Federal Reserve Board Governor Elizabeth Duke said in a prepared statement. Duke will be one of five regulators testifying later today before a House housing and community opportunity subcommittee hearing on “Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing.” Duke is expected to tell lawmakers later today that troubles in the mortgage loan servicing and foreclosure processes could “result in improper loss of a home or premature eviction” and could, at a minimum, cause consumers to “further mistrust the loan servicing process.” “For individual borrowers, uncertainty about the prospect or timing of foreclosure makes everyday decisions difficult,” and many borrowers “have little incentive to invest in or maintain” their homes due to fears that they may lose their home due to foreclosure, Duke said. The reported problems in “mortgage loan origination, securitization, and loan foreclosures,” as well as “the mishandling of documentation in foreclosure proceedings,” could also slow the overall market, Duke adds. “In cases where actual problems are found, regulators will require lenders and servicers to correct not only the faulty documents themselves but the faulty systems that allowed them to occur. Institutions with widespread problems may be subject to fines and fees in addition to the costs associated with correcting the errors,” the statement said. Duke's written testimony also said that the Fed is encouraging lenders to resolve home loan issues via loan modifications rather than “unnecessary foreclosures.” U.S. Treasury Homeownership Preservation Chief Phyllis Caldwell, Department of Housing and Urban Development Assistant Secretary David Stevens, Comptroller of the Currency John Walsh, and acting Federal Housing Finance Agency Director Edward DeMarco will also testify. The subcommittee has also asked finance industry insiders and academics to testify during the hearing. In a similar hearing held in the Senate this week, Banking Committee Chairman Christopher Dodd (D-Conn.) called for the Financial Stability Oversight Council to examine mortgage servicing as a potential systemic threat, and said that further investigation of mortgage servicers may be warranted. (See related story in Inside Washington)
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