Will National Foreclosure Standards be the Next Move?

The Governor of the Federal Reserve, Dan Tarullo, spoke before the Senate Banking Committee last week and urged Congress to set up national foreclosure standards. Tarullo detailed how examinations from regulators have uncovered numerous deficiencies in both the servicing and foreclosure processes. He believes the industry must make major investments to fix the current problems and fundamental changes in the current mortgage system need to be considered.

This is all stemming from the robo-signing controversy that made major headlines this Fall. Congress is being pressured by numerous consumer groups, legal agencies and other government arms to make changes to prevent such a scandal from happening again.

“While quite preliminary, the banking agencies’ findings from the supervisory review suggest significant weaknesses in risk-management, quality control, audit, and compliance practices as underlying factors contributing to the problems associated with mortgage servicing and foreclosure documentation,” Dan Tarullo said. “We have also found shortcomings in staff training, coordination among loan modification and foreclosure staff, and management and oversight of third-party service providers, including legal services.”

The problems are so widespread that he proclaimed “structural problems in the mortgage servicing industry.”

Senate Banking Committee Chairman Senator Chris Dodd was in support of establishing national foreclosure standards as were others who testified at the hearing.

Dodd instructed Tarullo and the other regulators present (FDIC Chairman Sheila Bair, Comptroller of the Currency John Walsh and Federal Housing Finance Agency Acting Director Edward DeMarco), “I would like you to submit very specific ideas…legislative ideas and language that could be part of this committee’s consideration over the next months. It would be very, very helpful.”