FDIC Chair Whacks Mortgage Servicers For ‘Foreclosure Practices That Sow Confusion And Fear’

2010 was an ugly year when it came to foreclosures and the housing market. More than one million homes were foreclosed upon, loads of homeowners were booted from federal foreclosure prevention programs without receiving a sustainable loan modification, and it came to light that mortgage companies were, through the use of “robo-signers,” short-circuiting the legal process for finalizing a foreclosure. Just this week, JP Morgan Chase was forced to pay out $2 million after realizing that it had improperly overcharged and foreclosed upon military families.

At this point, it seems that the housing market is going to be a drag on the economy for a very long time. But it didn’t have to be this way. As the Center for American Progress has argued time and again, real help for troubled homeowners would have been beneficial not only to those individual families, but to the wider economy. However, foreclosure prevention efforts have been hampered by mortgage servicers (like Bank of America, Wells Fargo, and CitiMortgage) dragging their feet, fighting against common-sense proposals to help homeowners, and then employing review processes (like those used by the robo-signers) biased in favor of foreclosure.

In a fiery speech today, Federal Deposit Insurance Corp. Chair Sheila Bair took mortgage servicers to task for their inability to help troubled borrowers, outright blaming them for the housing market’s continued woes:

Throughout the mortgage crisis, from the earliest days of the subprime credit problem to the current robo-signing controversy, the most persistent adversary has been inertia in the servicing and foreclosure practices applied to problem loans. Prompt action to modify unaffordable subprime loans in 2007 could have helped to limit the crisis in its early stages. Instead, we saw one and a half million foreclosures that year, contributing to a decline in average home prices that eventually totaled about one-third. Mortgage servicers have remained behind the curve as the problem has evolved to include underwater mortgages and, now, foreclosure practices that sow confusion and fear on the part of homeowners and fail to fully conform to state and local legal requirements.

“The bottom line is that we need more modifications and fewer foreclosures,” Bair said.

Yesterday, Sen. Jeff Merkley (D-OR) introduced a foreclosure prevention plan with some excellent ideas in it, including ending the “dual track” practice of foreclosing on a homeowner who is under review for a modification and allowing bankruptcy judges to modify primary mortgages (which is a provision that has come up time and again in Congress, only to get defeated each time by the banking industry).