Sens. Brown, Harkin, Boxer, Stabenow, Whitehouse, Begich Send Letter to Administration Over Widespread Foreclosure Errors

More than 200,000 Foreclosures Suspended Due to Mistakes; Senators Urge Administration to Take Action on Emerging Crisis

WASHINGTON, DC— U.S. Sens. Sherrod Brown (D-OH), Tom Harkin (D-IA), Barbara Boxer (D-CA), Debbie Stabenow (D-MI), Sheldon Whitehouse (D-RI) and Mark Begich (D-AK) today sent a letter to Obama Administration officials, including Treasury Secretary Tim Geithner and Fed Chairman Ben Bernanke, urging action following recent news reports of widespread improprieties and mistakes in the foreclosure processes employed by mortgage servicers.

 “There have been attempts to dismiss the reported violations as minor technical paperwork errors, and to employ the defense that these were harmless errors because the homeowners were in foreclosure and would have lost their houses anyway.  These are not technicalities, they are not isolated cases – it is likely that over 200,000 foreclosures have now been suspended – and these improprieties cast doubt on the foreclosures in question,” the senators wrote.

 “The systemic problems that are being uncovered in the current mortgage market are remarkably similar to the predatory practices employed during the subprime mortgage crisis,” the senators continued. “Your agencies have tools at your disposal to address the substantial challenges facing homeowners in the mortgage market, and you are able to respond more nimbly than Congress to this emerging crisis.  The ample record of homeowner abuse should compel you to act expeditiously in the best interest of homeowners and investors.”

 “I’ve heard from too many Ohioans about bad behavior on the part of servicers and so-called ‘foreclosure mill’ law firms,” Brown said. “These company policies, designed to speed through foreclosures at the expense of homeowners, are reminiscent of some of the questionable lending practices that led to the financial crisis. Regulators ignored red flags in the subprime mortgage industry—and they should not make the same mistake with the mortgage servicing industry.”

 “The emerging details of mortgage servicers’ abusive and fraudulent practices are just one more example of large financial institutions taking advantage of hardworking families who are trying to make ends meet.  I encourage the Administration to use its authority to stamp out these abuses and to do all it can to protect American families from these kinds of abuses,” said Harkin.

 “Families living in neighborhoods across Michigan continue to suffer from the economic downturn, declining home values and foreclosures,” said Stabenow. “I am concerned that too many Michigan families are losing their homes as a result of flawed foreclosure policies by mortgage servicers, and I urge banking agencies to use the tools at their disposal to take immediate action and make sure homeowner’s are being treated fairly.”

 “My state of Rhode Island leads our region in foreclosures, and I have seen firsthand the devastation that losing a home brings a family,” said Whitehouse.  “We owe these families a fair chance to stay in their homes and a humane, logical, and orderly foreclosure process if all else fails.”

 “At a time when Alaska families and others across this country are struggling to keep their jobs and stay in their homes, sloppy work and these types of errors in the foreclosure process are simply unacceptable,” said Begich. “The administration has to take action, to make sure there is some guarantee that these practices won’t continue and homeowners will be protected.”

 

The full text of the letter is below.

October 14, 2010

The Honorable Timothy Geithner

Secretary

United States Department of the Treasury

1500 Pennsylvania Avenue, N.W.

Washington, D.C.  20220

The Honorable Shaun Donovan

Secretary

United States Department of Housing and Urban Development

451 7th Street, S.W.

Washington, D.C.  20410

The Honorable Benjamin Bernanke

Chairman

Board of Governors of the Federal Reserve

Washington, D.C.  20551

The Honorable Jon Leibowitz

Chairman

Federal Trade Commission

600 Pennsylvania Avenue, N.W.

Washington, D.C.  20580

Mr. John Walsh

Acting Comptroller of the Currency

Administrator of National Banks

Washington, D.C.  20219

Mr. Edward DeMarco

Acting Director

Federal Housing Finance Administration

1700 G Street, N.W., 4th Floor

Washington, D.C.  20552

Dear Secretary Geithner, Secretary Donovan, Chairman Bernanke, Chairman Leibowitz, Mr. Walsh, and Mr. DeMarco:

You are no doubt aware of the recently reported improprieties in the foreclosure processes employed by some of our nation’s largest mortgage servicers.  Unfortunately, these reports are consistent with complaints that we have heard from our constituents alleging behavior on the part of servicers and foreclosure law firms, popularly referred to as “foreclosure mills,” that would constitute bad faith at best, outright abuse at worst.  All of these practices raise serious questions

about the integrity of mortgage servicers’ loss mitigation and foreclosure processes, from their modification procedures to their foreclosure pleadings. 

There have been attempts to dismiss the reported violations as minor technical paperwork errors, and to employ the defense that these were harmless errors because the homeowners were in foreclosure and would have lost their houses anyway.  These are not technicalities, they are not isolated cases – it is likely that over 200,000 foreclosures have now been suspended – and these improprieties cast doubt on the foreclosures in question. 

Rather than a few rogue employees disregarding company policy, the policies themselves were flawed, indicating that there is a systemic problem with the manner in which loss mitigation and foreclosure operations are being conducted by most, if not all, mortgage servicers.  This pattern of behavior has undermined the integrity of the housing market, creating uncertainty for home sales and the availability of title insurance. 

The systemic problems that are being uncovered in the current mortgage market are remarkably similar to the predatory practices employed during the subprime mortgage crisis.  These difficulties stem from the fact that servicers lack the proper oversight and incentives to follow basic procedures required either by mortgage contracts, pooling and servicing agreements, or state and federal laws.  Homeowners have no leverage in the modification process and federal agencies (including the Treasury Department) have yet to impose meaningful penalties for noncompliance.  It is time for the government to restore some sanity and oversight to the housing market.  Your agencies are in a unique position to address this problem because your agencies have various authorities over, or relationships with, bank and non-bank mortgage servicers.

First, you can require loss mitigation prior to foreclosure to eligible homeowners facing hardship, where consistent with investor interests, subject to meaningful penalties.  Such a requirement would focus servicers’ efforts to assist homeowners.  It would also establish clear repercussions for servicers who fail to participate in loss mitigation in good faith.

Second, your agencies have the ability to impose your own tailored moratoriums on foreclosures for certain identified lenders, pending assurances that such lender’s paperwork complies with state and federal requirements; proper ownership documentation is in order; and all contracts and loss mitigation requirements under those contracts have been followed.  The banks are focusing solely on their affidavit processes, but a more comprehensive review is required.  Failures to comply with all of these requirements should be penalized.

Finally, your agencies have the authority to review and reform the financial incentives for servicers and foreclosure mills.  Mortgage servicers have been accused of imposing unfair fee arrangements in modification contracts and foreclosure pleadings, and foreclosure mills are paid on a per-case fee basis.  These arrangements benefit the mortgage companies to the detriment of homeowners.

Congress has a role to play in addressing this crisis as well.  But your agencies have tools at your disposal to address the substantial challenges facing homeowners in the mortgage market, and you are able to respond more nimbly than Congress to this emerging crisis.  The ample record of homeowner abuse should compel you to act expeditiously in the best interest of homeowners and investors.

Thank you for considering our views.  We await your response to the ongoing developments of the foreclosure crisis.

Sincerely,

_________________________

Sherrod Brown

United States Senator

__________________________

Barbara Boxer

United States Senator




_________________________

Sheldon Whitehouse

United States Senator

__________________________

Mark Begich

United States Senator

__________________________

Debbie Stabenow

United States Senator

__________________________

Tom Harkin

United States Senator

Cc: Mr. David Stevens, Commissioner, Federal Housing Administration

Ms. Elizabeth Warren, Assistant to the President and Special Advisor to the Secretary of the Treasury on the Consumer Financial Protection Bureau

Mr. Timothy Massad, Chief Counsel, Office of Financial Stability, United States Department of the Treasury

Press Contact

Brown:

(202) 224-3978

Harkin:

(202) 224-3254

Boxer:

(202) 224-8120

Stabenow:

(202) 224-1437

Whitehouse:

202-228-6293

Begich:

(907) 258-9304