BLOOMBERG

The 14 largest U.S. mortgage servicers must pay back homeowners for losses from foreclosures or loans that were mishandled in the wake of the housing collapse, according to a consent decree released today.

The agreement between the servicers and U.S. regulators imposes more substantial penalties than early reports of the deal indicated. It could also help the U.S. Justice Department determine the size and scope of any future fines for the flawed practices, regulators said.

Hear No Evil, See No Evil, Speak No Evil

The banks didn’t admit or deny regulators’ findings, according to the orders.

From Fed Press Release:

The Federal Reserve will closely monitor progress at the firms in addressing these matters and will take additional enforcement actions as needed.

In addition to the actions against the banking organizations, the Federal Reserve on Wednesday announced formal enforcement actions against Lender Processing Services, Inc. (LPS), a domestic provider of default-management services and other services related to foreclosures, and against MERSCORP, Inc. (MERS), which provides services related to tracking and registering residential mortgage ownership and servicing, acts as mortgagee of record on behalf of lenders and servicers, and initiates foreclosure actions. These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance. The LPS action is being taken jointly with the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Office of Thrift Supervision, while the MERS action is being taken jointly with those agencies and the Federal Housing Finance Agency.

The Federal Reserve Board based its enforcement actions on the findings of the interagency reviews of the major mortgage servicers, LPS, and MERS. A summary of the findings from the reviews of the mortgage servicers is available in the Interagency Review of Foreclosure Policies and Practices, which is simultaneously being released by the Federal Reserve Board and the other agencies.

• Interagency Review of Foreclosure Policies and Practices (461 KB PDF)
• Consent Order for Bank of America Corp. (34 KB PDF)
• Consent Order for Citigroup Inc. and CitiFinancial Credit Co. (28 KB PDF)
• Consent Order for Ally Financial, Inc., ResCap, GMAC Mortgage, and Ally Bank (87 KB PDF)
• Consent Order for HSBC North America Holdings, Inc. and HSBC Finance Corp. (76 KB PDF)
• Consent Order for JPMorgan Chase & Co. and EMC Mtge. (39 KB PDF)
• Consent Order for MetLife, Inc. (25 KB PDF)
• Consent Order for PNC Financial Svs. Group, Inc. (25 KB PDF)
• Consent Order for SunTrust Banks, Inc., SunTrust Bank, and SunTrust Mortgage (76 KB PDF)
• Consent Order for U.S. Bancorp (25 KB PDF)
• Consent Order for Wells Fargo & Co. (25 KB PDF)
• Consent Order for LPS (47 KB PDF)
• Consent Order for MERS (48 KB PDF)

Credit Slips.org

The rule of law is not even worth 20 basis points.  That’s the ultimate message in a recent paper by Charles Calomiris, Eric Higgins, and Joseph Mason evaluating the proposed AG mortgage servicing settlement. Calomiris et al. estimate that the settlement will raise mortgage costs at least 20bps, and they think that’s too much.

Recognize what they’re really saying:  that 20-45bps is too high a price to pay for the rule of law. They value the rule of law at less than 20bps. At present conversion rates, that’s about 30 shekels of silver.

The whole Calomiris et al. document is rather strange, as it’s hard to do any serious evaluation of the settlement without knowing the terms. We’ve seen a proposed servicing standards term sheet from the AGs and we’ve seen a CFPB analysis of disgorgement of wrongful profits and the costs of potential principal reductions, but it’s way premature to attempt any sort of real evaluation of a settlement. Unless, of course, the goal is not a serious evaluation of a settlement, but an attempt to forestall a settlement. Which is what this paper is.

Full Disclosure:

Funding for this research was provided in part by the financial services industry, including entities affected by the proposed settlement.

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The Economics of the Proposed Mortgage Servicer Settlement

Charles W. Calomiris, Eric J. Higgins, and Joseph R. Mason1

[ipaper docId=52894340 access_key=key-bxx3cj688ghgdck8kt8 height=600 width=600 /]