After a probe found "critical deficiencies" with the industry's foreclosure processes, mortgage servicers are about to be punished by U.S. bank regulators and it could happen in as little as a month.
The acting head of the Office of the Comptroller of the Currency John Walsh said that a national probe of foreclosure paperwork and procedures found that mortgage servicers broke laws, and as a result some homeowners were wrongly evicted from their homes.
Walsh said in congressional testimony, "These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had an adverse affect on the functioning of the mortgage markets and the U.S. economy as a whole."
Despite the fact that Walsh did not identify any particular servicers, his testimony did note that the probe included Citibank, Bank of America, Wells Fargo, JPMorgan, and others.
The commissioner of the Federal Housing Administration, David Stevens, in separate testimony on Wednesday, said the penalties could range from fines paid to the government to loan modifications to banks forgiving some of the principal balance on the loan.
Stevens declined to comment when he was asked if the magnitude of the potential penalties could reach the range of billions or even tens of billions of dollars.
However he did say, "What are the potential costs that each individual agency and state attorney general could ultimately assess against these institutions? We need to understand what that total potential estimation could be, and off of that, that is what we will have to work on to determine if there is a way we can come together and make this less disruptive in the market."
Some of the biggest U.S. mortgage servicers have been accused of possibly taking illegal shortcuts in some of their foreclosure proceedings which has included the use of "robo-signers" to sign hundreds of unread documents each day and advancing foreclosures without proof that they even held the mortgages.