- Bloomberg News
- FDIC Chairman Sheila Bair
The head of the Federal Deposit Insurance Corp. is warning that flaws may have “infected millions of foreclosures” and questioned whether other regulators’ inquiries into problems at the nation’s mortgage-servicing companies have been thorough enough.
“We do not yet really know the full extent of the problem,” FDIC Chairman Sheila Bair said Thursday in written remarks submitted to a hearing of the Senate Banking Committee. “Flawed mortgage-banking processes have potentially infected millions of foreclosures, and the damages to be assessed against these operations could be significant and take years to materialize.”
Federal and state officials launched numerous investigations last autumn after revelations that, to process foreclosures, banks used “robo-signers” who didn’t review documents prepared by their colleagues. Banking regulators’ have said their reviews of a sample of 2,800 foreclosure cases have found a small number of improper foreclosures.
Acting Comptroller of the Currency John Walsh said last month that the problems were limited in scope. They include cases that shouldn’t have gone forward under a law blocking foreclosures on military personnel, ones in which the borrower was in bankruptcy and cases in which borrowers were already on the verge of having their loans modified.
But Ms. Bair, who is departing her position in July, argued that other regulators likely missed homeowners who should have been provided loan assistance but who were improperly denied such help. The FDIC, she said, has found a “not insignificant” number of such cases. “There needs to be much more aggressive action,” she told lawmakers.
Under consent orders that 14 banks and thrifts reached with regulators in March, financial institutions are required to hire a consultant to review their foreclosures over the past two years to identify any borrowers who were harmed by foreclosure-processing problems.
Ms. Bair, however, questioned whether those reviews will truly be independent. Such consultants “may have other business with [banks] or future business they would like to do with them,” Ms. Bair said. “This is a huge issue.”
Federal Reserve Chairman Ben Bernanke, in response to questions from lawmakers at the hearing, didn’t address this criticism directly, but reiterated that regulators plan to fine banks as a result of the inquiry into foreclosure problems. He noted that the foreclosure crisis is “at some level” a problem of bank regulation, but noted it is “also a macroeconomic problem.”
Ms. Bair also raised the possibility that banks may be forced by government-controlled mortgage giants Fannie Mae and Freddie Mac to buy back more defaulted loans.
Fannie and Freddie have been pressing banks to do so, and numerous investors have filed lawsuits with similar demands. “A significant amount of this exposure has yet to be quantified,” she said in her prepared remarks.