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The Obama administration favors creating a national standard for mortgage servicers such as Bank of America Corp (BAC.N) and JPMorgan Chase & Co (JPM.N) that have been accused of botching home foreclosure procedures.
In unveiling its plan to overhaul the housing finance system, the White House said on Friday it supports reforms to correct problems in the mortgage servicing and foreclosure process.
Influential banking regulators have already called for one standard after allegations surfaced that banks used “robo-signers” to sign hundreds of unread documents a day to advance foreclosures without proof they held mortgages.
Bank regulators are considering a federal servicing standard but may need Congress to act to establish a national registry, for example, for first and second mortgage loans on residential properties.
The Federal Deposit Insurance Corp has been pushing hard to include servicing standards in a risk retention rule regulators are drafting. Other banking regulators, however, have questioned whether there is the legal authority to use it as a vehicle for cracking down on servicers, and it remains unclear how or when new standards will be moved.
There is general agreement, however, something needs to be done.
The draft standard from the Office of the Comptroller of the Currency would require banks and other mortgage servicers to safeguard and account for borrowers’ funds.
Servicers would also be required, among other things, to provide borrowers with full and accurate information about their accounts and payment records, according to the OCC’s draft.
In Friday’s housing proposal, the Obama administration said that mortgage documents should disclose second liens or second mortgages and define the process for modifying it if the first loan becomes delinquent.
Critics argue the four biggest banks own the bulk of the second liens and have been reluctant to take write-downs when modifying terms of the first mortgage loan.
FDIC Chairman Sheila Bair has zeroed in on second-lien mortgages and has suggested that banks should be required to take a “meaningful” write-down on the loan when a first-lien is modified.
“As part of any resolution of claims regarding large servicers, a fixed formula should be established to govern the treatment of first and second mortgages when the servicer or its affiliate owns the second lien,” Bair has said.