U.S. Bank, Wells Fargo Must Address Bad Foreclosures

Federal regulators are requiring more than a dozen banks across the country to determine the number of homeowners who could have avoided foreclosure in 2009 and 2010 and reimburse those who were improperly foreclosed upon.

U.S. Bancorp and Wells Fargo & Company are among more than a dozen institutions being forced to change the way they conduct residential mortgage loan servicing and process foreclosures-and reimburse homeowners who were improperly foreclosed upon.

A joint report issued Wednesday by the Federal Reserve, the Office of Thrift Supervision, and the Office of the Comptroller of the Currency accused the banks of “unsafe and unsound practices.” The regulators are requiring them to assess the number of homeowners who could have avoided foreclosure in 2009 and 2010 and repay them for financial injuries they incurred. No minimum or maximum dollar amount is specified.

Formal enforcement actions were issued to each institution, and the specific weaknesses identified by regulators were slightly different for each one. Minneapolis-based U.S. Bank was accused of filing court affidavits that weren't based on a proper review of records and/or weren't properly notarized, failing to provide proper oversight of foreclosure processes, and failing to properly oversee outside counsel and other third-party providers that handled foreclosure-related services.

In a statement e-mailed on Thursday, U.S. Bank responded to the allegations by saying: “U.S. Bank sets a very high standard for fair and ethical business practices. We are a relatively small participant in the mortgage servicing market (approximately 2 percent) and have long been committed to sound modification and foreclosure practices. We have always regarded foreclosure as the last resort.”

In addition to U.S. Bancorp and San Francisco-based Wells Fargo, which has a major Minnesota presence, other banks that received enforcement actions include Bank of America, Citibank, and JPMorgan Chase.

“These reforms will not only fix the problems we found in foreclosure processing but will also correct failures in governance and the loan modification process and address financial harm to borrowers,” Acting Comptroller of the Currency John Walsh said in a statement. “Our enforcement actions are intended to fix what is broken, identify and compensate borrowers who suffered financial harm, and ensure a fair and orderly mortgage servicing process going forward.”

The actions require the institutions to ensure that foreclosures are not pursued after a mortgage has been approved for modification and to establish a single point of contact for borrowers through the loan modification and foreclosure processes. Each mortgage servicer also must establish “robust” oversight and controls for third-party vendors that provide default management or foreclosure services.

Each institution also must hire an independent firm to review foreclosure actions between January 1, 2009 and December 31, 2010. The firm must assess whether foreclosures complied with federal and state laws, whether they occurred when appropriate grounds were not present-including when loans were performing, and whether any errors or misrepresentations financially harmed borrowers. Each servicer must then establish a process for such borrowers to submit claims for remediation and to be compensated as appropriate.

“Any recommendations by our regulators for improvements to our processes are always taken very seriously, and we are committed to working with the regulators to quickly resolve any outstanding issues,” U.S. Bank said in a statement.

U.S. Bancorp is Minnesota's largest bank-holding company. It had $308 billion in assets as of December 31, 2010.

With about 20,000 Minnesota employees, Wells Fargo is among the state's 10-largest employers.

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