HUD Probe Reveals Foreclosure Woes on FHA Loans

by Kyle Colona on March 14, 2012

Just when the big banks were wrapping up the robo-signing settlement with the Feds and state attorneys general, a probe of foreclosure practices concerning FHA guaranteed loans is coming to light.

As in the other robo snafu this case involves the five money center banks, Ally Bank, Bank of America, Citigroup, JP Morgan Chase and Wells Fargo. The shoddy practices uncovered indicate “widespread failures to ensure the banks had proper legal documents,” according to Bloomberg News.

While the story has not been widely reported on, the banks knew this would surface since the matter has been folded in to the other case. But the pleadings filed earlier this week with the Federal Court with jurisdiction to approve the settlement revealed the FHA angle.

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

The inspector general intends to issue recommendations to correct the administrative flaws once the deal is approved.  Meanwhile, in a related story, the Huffington Post is saying that the banks “consistently hindered a government watchdog’s investigation into those practices.” But this really is a reiteration of what has already been widely reported.

In sum, bank employees used facsimile signature in signing thousands of “legal documents a day without reviewing the accuracy of the foreclosure information.” The HUD pleading also “describes a pattern of misconduct that appears widespread” But the long and short of it is that banks should pay close attention to ensure that their administrative and back office operations with respect to residential lending aspire to a level of “best practices.”

In failing to do so, these players are now hit with another $25 billion in write downs as well as the black eyes that will continue to tarnish their brand in the eyes of the public, especially in light of the fall presidential election where this matter will probably become a talking point for politicos on both sides of the political divide.

Kyle Colona is a New York based freelance writer and a Feature Writer for the Compliance Exchange and Wall Street Job Report. He has an extensive background in legal and regulatory affairs in the financial services sector and his work has appeared in a variety of print and on-line publications.

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