Federal Reserve Gov. Sarah Bloom Raskin has criticized the mortgage servicing industry for ‘sloppy and deceptive practices’ and urged the Fed to impose new fines on the nation's largest servicers.
In a speech delivered Saturday in Washington, D.C., before the annual meeting of the Association of American Law Schools, Raskin ran a list of problems relating to how the servicing industry has handled the foreclosure crisis in the aftermath of the recession.
‘Throughout the successive waves in foreclosures that have occurred since 2007, problems in mortgage servicing have emerged and persisted,’ she said. ‘These problems have included critical weaknesses in mortgage servicers' foreclosure governance processes, foreclosure document preparation processes, and oversight and monitoring of third-party law firms and other vendors. Collectively, these problems have hampered the ability of the courts and the markets to work through the foreclosure inventory in an efficient manner.’
Raskin noted enforcement actions have already taken place against the nation's 14 largest servicing operations, adding that these were ‘only a start in a comprehensive enforcement response to the foreclosure crisis.’
‘Monetary penalties for the deficient practices in mortgage loan servicing and foreclosure processing also must be imposed against the 14 institutions,’ she stated. ‘The Federal Reserve and other federal regulators must impose penalties for deficiencies that resulted in unsafe and unsound practices or violations of federal law, just as state banking commissioners and state attorneys general impose penalties for violations of state law. The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties.’
Raskin defended the concept of new fines by claiming they would offer an incentive for servicers to ‘incorporate strong programs to comply with laws when they build their business models.’
‘Financial institutions need to understand that they are responsible for assessing the effects their actions will have on consumers and the country as a whole, and factor those considerations into their business decisions,’ she said. ‘We should not forget that effective enforcement of our laws can animate our efforts as policymakers, regulators, business innovators, legal educators and lawyers in creating the conditions that must exist for the emergence of an improved mortgage-servicing model that hinders neither economic growth nor homeowners' legal security. If a law is worth having, the law is worth enforcing.’