Earlier this week, the FDIC released a report on the foreclosure crisis “Regulatory Actions Related to Foreclosure Activities by Large Servicers and Practical Implications for Community Banks“. The report covers some pretty well-trod territory, but is worth taking a look at nonetheless.
The report says that foreclosure processes of the servicers were “underdeveloped and insufficient“. The problems included, but were not limited to:
- inadequate policies and procedures for all aspects of the foreclosure process
- inadequate monitoring to oversee foreclosure
- insufficient auditing
- insufficient quality control and auditing to ensure compliance with the law
- inadequate identification of financial and legal risks
Other problems included robo-signing, inadequate staffing, failure to notarize documents, and just general errors. Again, none of this information is new, but is damning nonetheless. What I found to be both interesting and telling, was that small and community banks were found to be far superior to large lenders. The top fourteen servicers were deemed to be responsible for the “vast majority of foreclosures”. Servicing errors are also more common at big banks. Part of this is likely due to the sheer volume of foreclosures and mortgages issued by these lenders, but much of it can also be traced to the hubris that continues to be demonstrated by institutions that have been deemed “too-big-to-fail”. After all, if you are too-big-to-fail, why bother to do things properly? As the report notes:
“Community banks fared far better than larger institutions in terms of delinquency rates on residential mortgage loans and have undertaken far fewer foreclosures.”
This type of institutional sloppiness is totally unacceptable. Although I am not optimistic that it will happen, it is time to end TBTF once and for all. This report should be just one more nail in the TBTF coffin.
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