Bloomberg News

Auditor Uncovers Failures in Bank Foreclosure Practices

March 13, 2012

An audit of foreclosure practices at the Federal Housing Administration’s five largest mortgage servicers uncovered widespread failures to ensure the banks had proper legal documents.

According to reports released today by the inspector general of the Department of Housing and Urban Development, banks including Bank of America Corp. and Wells Fargo & Co. (WFC) violated the federal False Claims Act when they improperly foreclosed on homes insured by the FHA.

The audits, spurred by revelations in 2010 that mortgage servicers were seizing homes using improper paperwork, were forwarded to the Department of Justice last year. They formed part of the basis for a $25 billion settlement with five banks filed in U.S. court in Washington yesterday.

“I believe the reports we just released will leave the reader asking one question: How could so many people have participated in this conduct?” the inspector general, David Montoya, said in a statement accompanying the reports. “The answer: simple greed.’”

Other banks included in the review were Ally Financial Inc. (ALLY), Citigroup Inc. (C), and JPMorgan Chase & Co. (JPM)

Ally Financial regrets the deficiencies in the foreclosure process, said Gina Proia, a spokeswoman for the lender. Still, she said, “there was no evidence of someone being foreclosed on without being in significant default of their loan.”

Efforts to Improve

Mark Rodgers, spokesman for Citigroup, said the bank had already improved its procedures and “is making every effort to ensure that no foreclosure goes forward based on an inaccurate or defective affidavit.”

Spokesmen for Bank of America and Wells Fargo noted that the audit focused on activities that took place several years ago. Wells Fargo has made “significant strides” in improving its procedures, said Vickee J. Adams, a spokeswoman for the bank.

“We do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable,” said Bank of America spokesman Richard G. Simon.

Patrick Linehan, a spokesman for JP Morgan, said the bank had no comment.

Servicers failed to ensure that their employees and contractors verified the content of affidavits before signing them as they churned through thousands of foreclosures, the review found. The banks also eliminated quality control departments.

The inspector general will issue recommendations to correct the problems once the settlement agreements are approved by the court, the reports said.

To contact the reporter on this story: Clea Benson in Washington at lwoellert@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net


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