WASHINGTON (CN) – Housing and Urban Development Secretary Shaun Donovan said Wednesday that a federal probe of the nation’s five largest mortgage servicers shows no evidence of systemic issues in foreclosure processes, though it is yielding concerns that some servicers have not met federal requirements to help keep borrowers in their homes.
“This is getting the highest attention from the president and the White House,” Donovan said at the White House, saying top administration officials have concerns that “stopping the sale of foreclosed properties has the potential to impact local [housing] markets, particularly those markets that have been hardest hit.” He said the administration was trying to reach a conclusion, and a solution, “as quickly as possible.”
Foreclosed properties account for a quarter of home sales in the nation, and between one-third and one-half of sales in states hardest hit by the housing crisis.
Donovan said while the recent moratoria on foreclosures focuses on mistakes made late in the foreclosure process, the Federal Housing Administration, a division of HUD, is looking at whether or not servicers are complying with federal regulations throughout the entire foreclosure process, including helping borrowers take early steps to avoid foreclosure.
“At that point we have many homes that are vacant. It is enormously difficult that late in the process to help borrowers stay in their homes,” Donovan said. “We have to make sure that we are focusing farther upstream.”
While some of the top five servicers have met federal regulations, “others appear not to have met their obligations to borrowers or the FHA,” Donovan said. He refused to name specific firms.
Some servicers are failing to meet federal “loss mitigation” standards, which require servicers to contact delinquent borrowers early on and offer them options, such as a loan modification or payment plan, that would allow them to stay in their home, minimizing taxpayer losses over the long term.
“We have not found any evidence at this point of systemic issues in the underlying legal or other documents,” Donovan said, but emphasized that the review is ongoing.
Donovan said the full federal probe, which involves 11 agencies and 50 states’ attorneys general, will be completed by the end of December.
“They should not wait for us to finish our reviews or investigations to change their processes,” Donovan said.
If the FHA finds violations, it will present servicers with a notice of violation and give them 30 days to respond. The FHA can impose fines on servicers, require changes in servicing processes, or ban lenders from participating in FHA program, Donovan said.
Servicers may also be charged with criminal violations if they are found to have intentionally defrauded borrowers, or face civil claims for breach of contract, he said.
“We will take every action we can to ensure that these processes are corrected, that servicers rights are protected, and that we ensure that banks make these homeowners whole,” Donovan said.
“What everyone needs…is clarity.”