Mortgage Foreclosures
Documentation Problems Reveal Need for Ongoing Regulatory Oversight Gao ID: GAO-11-649T May 12, 2011This testimony discusses our work on mortgage servicing issues. With record numbers of borrowers in default and delinquent on their loans, mortgage servicers--entities that manage home mortgage loans--are initiating large numbers of foreclosures throughout the country. As of December 2010, an estimated 4.6 percent of the about 50 million first-lien mortgages outstanding were in foreclosure--an increase of more than 370 percent since the first quarter of 2006, when 1 percent were in foreclosure. Beginning in September 2010, several servicers announced that they were halting or reviewing their foreclosure proceedings throughout the country after allegations that the documents accompanying judicial foreclosures may have been inappropriately signed or notarized. The servicers subsequently resumed some foreclosure actions after reviewing their processes and procedures. However, following these allegations, some homeowners challenged the validity of foreclosure proceedings against them. Questions about whether documents for loans that were sold and packaged into mortgage-backed securities were properly handled prompted additional challenges. This statement focuses on (1) the extent to which federal laws address mortgage servicers' foreclosure procedures and federal agencies' authority to oversee servicers' activities and the extent of past oversight; (2) federal agencies' current oversight activities and future oversight plans; and (3) the potential impact of foreclosure documentation issues on homeowners, servicers, regulators, and investors in mortgage-backed securities. It is based on the report we issued on May 2, 2011, on foreclosure documentation problems that Congress requested.
In summary, until the problems with foreclosure documentation came to light, federal regulatory oversight of mortgage servicers had been limited, because regulators regarded servicers' activities as low risk for banking safety and soundness. However, regulators' recent examinations revealed that servicers generally failed to prepare required documentation properly and lacked effective supervision and controls over foreclosure processes. Moreover, the resulting delays in completing foreclosures and increased exposure to litigation highlight how the failure to oversee whether institutions follow sound practices can heighten the risks these entities present to the financial system and create problems for the communities in which foreclosures occur. As a result, we recommended in our report that the financial regulators take various actions, including (1) developing and coordinating plans for ongoing oversight of servicers, (2) including foreclosure practices as part of any national servicing standards that are created, and (3) assessing the risks of improper documentation for mortgage loan transfers. The regulators generally agreed with or did not comment on our recommendations, and some are taking actions to address them.
GAO-11-649T, Mortgage Foreclosures: Documentation Problems Reveal Need for Ongoing Regulatory Oversight
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United States Government Accountability Office:
GAO:
Testimony:
Before the Subcommittee on Housing, Transportation and Community
Development, Committee on Banking, Housing, and Urban Affairs, U.S.
Senate:
For Release on Delivery:
Expected at 2:00 p.m. EDT:
Thursday, May 12, 2011:
Mortgage Foreclosures:
Documentation Problems Reveal Need for Ongoing Regulatory Oversight:
Statement of A. Nicole Clowers, Acting Director:
Financial Markets and Community Investment:
GAO-11-649T:
Chairman Menendez, Ranking Member DeMint, and Members of the
Subcommittee:
Thank you for the opportunity to discuss our work on mortgage
servicing issues. With record numbers of borrowers in default and
delinquent on their loans, mortgage servicers--entities that manage
home mortgage loans--are initiating large numbers of foreclosures
throughout the country. As of December 2010, an estimated 4.6 percent
of the about 50 million first-lien mortgages outstanding were in
foreclosure--an increase of more than 370 percent since the first
quarter of 2006, when 1 percent were in foreclosure.[Footnote 1]
Beginning in September 2010, several servicers announced that they
were halting or reviewing their foreclosure proceedings throughout the
country after allegations that the documents accompanying judicial
foreclosures may have been inappropriately signed or notarized.
[Footnote 2] The servicers subsequently resumed some foreclosure
actions after reviewing their processes and procedures. However,
following these allegations, some homeowners challenged the validity
of foreclosure proceedings against them. Questions about whether
documents for loans that were sold and packaged into mortgage-backed
securities were properly handled prompted additional challenges.
[Footnote 3]
My statement today focuses on (1) the extent to which federal laws
address mortgage servicers' foreclosure procedures and federal
agencies' authority to oversee servicers' activities and the extent of
past oversight; (2) federal agencies' current oversight activities and
future oversight plans; and (3) the potential impact of foreclosure
documentation issues on homeowners, servicers, regulators, and
investors in mortgage-backed securities. It is based on the report we
issued on May 2, 2011, on foreclosure documentation problems that
Chairman Menendez, Senator Franken, and Ranking Members Conyers,
Gutierrez, and Capuano requested.[Footnote 4]
To conduct the work for our report, we reviewed relevant federal laws,
regulations, examination guidance, and other agency documents. We also
reviewed relevant literature, examples of reported court cases
involving these issues, congressional testimonies, and other relevant
publicly available documentation. In addition, we examined agency
documentation on current oversight activities, such as an examination
worksheet, checklists, and supervisory letters summarizing examination
findings. We conducted interviews with representatives of federal
agencies, including the Bureau of Consumer Financial Protection
(CFPB), Federal Deposit Insurance Corporation (FDIC), Board of
Governors of the Federal Reserve System (Federal Reserve), Office of
the Comptroller of the Currency (OCC), and Office of Thrift
Supervision (OTS). We also interviewed legal experts and
representatives of the mortgage industry, investor groups, and
consumer advocacy groups. We conducted the work for the report from
October 2010 through April 2011 in accordance with generally accepted
government auditing standards.
In summary, until the problems with foreclosure documentation came to
light, federal regulatory oversight of mortgage servicers had been
limited, because regulators regarded servicers' activities as low risk
for banking safety and soundness. However, regulators' recent
examinations revealed that servicers generally failed to prepare
required documentation properly and lacked effective supervision and
controls over foreclosure processes. Moreover, the resulting delays in
completing foreclosures and increased exposure to litigation highlight
how the failure to oversee whether institutions follow sound practices
can heighten the risks these entities present to the financial system
and create problems for the communities in which foreclosures occur.
As a result, we recommended in our report that the financial
regulators take various actions, including:
* developing and coordinating plans for ongoing oversight of servicers,
* including foreclosure practices as part of any national servicing
standards that are created, and:
* assessing the risks of improper documentation for mortgage loan
transfers.
* The regulators generally agreed with or did not comment on our
recommendations, and some are taking actions to address them.
Background:
The origination, securitization, and servicing of mortgage loans
involve multiple entities. In recent years, originating lenders
generally have sold or assigned their interest in loans to other
financial institutions to securitize the mortgages. Through
securitization, the purchasers of these mortgages then package them
into pools and issue securities for which the mortgages serve as
collateral. These mortgage-backed securities (MBS) pay interest and
principal to their investors, such as other financial institutions,
pension funds, or mutual funds. After an originator sells its loans,
another entity is usually appointed as the servicer. Servicing duties
can involve sending borrowers monthly account statements, answering
customer service inquiries, collecting mortgage payments, maintaining
escrow accounts for taxes and insurance, and forwarding payments to
the mortgage owners. If a borrower becomes delinquent on loan
payments, servicers also initiate and conduct a foreclosure in order
to obtain the proceeds from the sale of the property on behalf of the
owner of the loan. Any legal action such as foreclosure that a
servicer takes generally may be brought in the name and on behalf of
the securitization trust, which is the legal owner of record of the
mortgage loans.
Several federal agencies share responsibility for regulating
activities of the banking industry that relate to the originating and
servicing of mortgage loans (see table 1). Upon assumption of its full
authorities on July 21, 2011, CFPB also will have authority to
regulate mortgage servicers with respect to federal consumer financial
law.[Footnote 5] Other agencies also oversee certain aspects of U.S.
mortgage markets but do not have supervisory authority over mortgage
servicers.
Table 1: Federal Banking Regulators and Their Jurisdiction:
Agency: Office of the Comptroller of the Currency;
Jurisdiction[A]: Federally chartered banks.
Agency: Office of Thrift Supervision;
Jurisdiction[A]: Federally chartered savings associations (thrifts),
including mortgage operating subsidiaries, as well as savings and loan
holding companies and lenders owned by a savings and loan holding
company. Shares oversight of state-chartered savings associations with
the state regulatory authority that chartered them.
Agency: Board of Governors of the Federal Reserve System;
Jurisdiction[A]: State-chartered member banks and entities that may be
owned by federally regulated holding companies but that are not
federally insured depository institutions. Shares oversight with the
state regulatory authority that chartered the bank.
Agency: Federal Deposit Insurance Corporation;
Jurisdiction[A]: State-chartered banks that are not members of the
Federal Reserve System. Shares oversight with the state regulatory
authority that chartered the bank.
Source: GAO.
Note: OCC will assume oversight responsibility of federal savings
associations from OTS in July 2011. Concurrently, FDIC will assume
oversight responsibility of state-chartered savings associations from
OTS, and the Federal Reserve will assume oversight responsibility of
savings and loan holding companies and lenders owned by a savings and
loan holding company from OTS, according to OTS officials.
[A] 12 U.S.C. § 1813(q).
[End of table]
Federal Laws Generally Do Not Address the Foreclosure Process, and
Past Federal Oversight of Foreclosure Activities Has Been Limited and
Fragmented:
Because state laws primarily govern foreclosure, federal laws related
to mortgage lending focus on protecting consumers at mortgage
origination and during the life of a loan but not necessarily during
foreclosure. Federal consumer protection laws, such as the Truth in
Lending Act (TILA) and the Real Estate Settlement Procedures Act of
1974 (RESPA), address some aspects of servicers' interactions with
borrowers.[Footnote 6] For example, these laws require servicers to
provide certain notifications and disclosures to borrowers or respond
to certain written requests for information within specified times,
but they do not include specific requirements for servicers to follow
when executing a foreclosure. According to Federal Reserve officials,
in addition to federal bankruptcy laws, federal laws that address
foreclosure processing specifically are the Protecting Tenants at
Foreclosure Act of 2009, which protects certain tenants from immediate
eviction by new owners who acquire residential property through
foreclosure, and the Servicemembers Civil Relief Act, which restricts
foreclosure of properties owned by active duty members of the
military.[Footnote 7]
Banking regulators oversee most entities that conduct mortgage
servicing, but their oversight of foreclosure activities generally has
been limited. As part of their mission to ensure the safety and
soundness of these institutions, the regulators have the authority to
review any aspect of their activities, including mortgage servicing
and compliance with applicable state laws. However, the extent to
which regulators have reviewed the foreclosure activities of banks or
banking subsidiaries that perform mortgage servicing has been limited
because these practices generally were not considered as posing a high
risk to safety and soundness. According to OCC and Federal Reserve
staff, they conduct risk-based examinations that focus on areas of
greatest risk to their institutions' financial positions, as well as
some other areas of potential concern, such as consumer complaints.
Servicers generally manage loans that other entities own or hold, and
are not exposed to significant losses if these loans become
delinquent. Because regulators generally determined that the safety
and soundness risks from mortgage servicing were low, they have not
regularly examined servicers' foreclosure practices on a loan-level
basis.
Oversight also has been fragmented, and not all servicers have been
overseen by federal banking regulators. At the federal level, multiple
agencies--including OCC, the Federal Reserve, OTS, and FDIC--have
regulatory responsibility for most of the institutions that conduct
mortgage servicing, but until recently, some nonbank institutions have
not had a primary federal or state regulator. Many federally regulated
bank holding companies that have insured depository subsidiaries, such
as national or state-chartered banks, may have nonbank subsidiaries
such as mortgage finance companies. Under the Bank Holding Company Act
of 1956, as amended, the Federal Reserve has jurisdiction over such
bank holding companies and their nonbank subsidiaries that are not
regulated by another functional regulator.[Footnote 8] Until recently
the Federal Reserve generally had not included the nonbank
subsidiaries in its examination activity because their activities were
not considered to pose material risks to the bank holding companies.
In some cases, nonbank entities that service mortgage loans are not
affiliated with financial institutions at all, and therefore were not
subject to oversight by one of the federal banking regulators. In our
2009 report on how the U.S. financial regulatory system had not kept
pace with the major developments in recent decades, we noted that the
varying levels or lack of oversight for nonbank institutions that
originated mortgages created problems for consumers or posed risks to
regulated institutions.[Footnote 9]
While Federal Regulators Conducted Reviews in Response to Reported
Problems, Future Oversight and Servicing Standards Have Yet to Be
Determined:
In response to disclosed problems with foreclosure documentation,
banking regulators conducted coordinated on-site reviews of
foreclosure processes at 14 mortgage servicers. Generally, these
examinations revealed severe deficiencies in the preparation of
foreclosure documentation and with the oversight of internal
foreclosure processes and the activities of external third-party
vendors. Examiners generally found in the files they reviewed that
borrowers were seriously delinquent on the payments on their loans and
that the servicers had the documents necessary to demonstrate their
authority to foreclose. However, examiners or internal servicer
reviews of foreclosure loan files identified a limited number of cases
in which foreclosures should not have proceeded even though the
borrower was seriously delinquent. These cases include foreclosure
proceedings against a borrower who had received a loan modification or
against military service members on active duty, in violation of the
Servicemembers Civil Relief Act.
As a result of these reviews, the regulators issued enforcement
actions requiring servicers to improve foreclosure practices.
Regulators plan to assess compliance but have not fully developed
plans for the extent of future oversight. According to the regulators'
report on their coordinated review, they help ensure that servicers
take corrective actions and fully implement enforcement orders.
[Footnote 10] While regulatory staff recognized that additional
oversight of foreclosure activities would likely be necessary in the
future, as of April 2011 they had not determined what changes would be
made to guidance or to the extent and frequency of examinations.
Moreover, regulators with whom we spoke expressed uncertainty about
how their organizations would interact and share responsibility with
the newly created CFPB regarding oversight of mortgage servicing
activities. According to regulatory staff and the staff setting up
CFPB, the agencies intend to coordinate oversight of mortgage
servicing activities as CFPB assumes its authorities in the coming
months. CFPB staff added that supervision of mortgage servicing will
be a priority for the new agency. However, as of April 2011 CFPB's
oversight plans had not been finalized. As we stated in our report,
fragmentation among the various entities responsible for overseeing
mortgage servicers heightens the importance of coordinating plans for
future oversight. Until such plans are developed, the potential for
continued fragmentation and gaps in oversight remains. In our report,
we recommend that the regulators and CFPB develop and coordinate plans
for ongoing oversight and establish clear goals, roles, and timelines
for overseeing mortgage servicers under their respective jurisdiction.
In written comments on the report, the agencies generally agreed with
our recommendation and said that they would continue to oversee
servicers' foreclosure processes. In addition, CFPB noted that it has
already been engaged in discussions with various federal agencies to
coordinate oversight responsibilities.
As part of addressing the problems associated with mortgage servicing,
including those relating to customer service, loan modifications, and
other issues, various market participants and federal agencies have
begun calling for the creation of national servicing standards, but
the extent to which any final standards would address foreclosure
documentation and processing is unclear. A December 2010 letter from a
group of academics, industry association representatives, and others
to the financial regulators noted that such standards are needed to
ensure appropriate servicing for all loans, including in MBS issuances
and those held in portfolios of the originating institution or by
other owners. This letter outlined various areas that such standards
could address, including those requirements that servicers attest that
foreclosure processes comply with applicable laws and pursue loan
modifications whenever economically feasible.
Similarly, some regulators have stated their support of national
servicing standards. For example, OCC has developed draft standards,
and in his February 2011 testimony, the Acting Comptroller of the
Currency expressed support for such standards, noting that they should
provide the same safeguards for all consumers and should apply
uniformly to all servicers.[Footnote 11] He further stated that
standards should require servicers to have strong foreclosure
governance processes that ensure compliance with all legal standards
and documentation requirements and establish effective oversight of
third-party vendors. A member of the Board of Governors of the Federal
Reserve System testified that consideration of national standards for
mortgage servicers was warranted, and FDIC's Chairman urged servicers
and federal and state regulators in a recent speech to create national
servicing standards.[Footnote 12] Most of the regulators with whom we
spoke indicated that national servicing standards could be beneficial.
For example, staff from one of the regulators said that the standards
would create clear expectations for all servicers, including nonbank
entities not overseen by the banking regulators, and would help
establish consistency across the servicing industry. The regulators'
report on the coordinated review also states that such standards would
help promote accountability and ways of appropriately dealing with
consumers and strengthen the housing finance market.
Although various agencies have begun discussing the development of
national servicing standards, the content of such standards and how
they would be implemented is yet to be determined. According to CFPB
staff, whatever the outcome of the interagency negotiations, CFPB will
have substantial rulemaking authority over servicing and under the
Dodd-Frank Act is required to issue certain rules on servicing by
January 2013. We reported that problems involving financial
institutions and consumers could increase when activities are not
subject to consistent oversight and regulatory expectations.[Footnote
13] Including specific expectations regarding foreclosure practices in
any standards that are developed could help ensure more uniform
practices and oversight in this area. To help ensure strong and robust
oversight of all mortgage servicers, we recommended that the banking
regulators and CFPB include standards for foreclosure practices if
national servicing standards are created.
In written comments on our report, the agencies generally agreed with
this recommendation, and most provided additional details about the
ongoing interagency efforts to develop servicing standards. For
example, OCC noted that ongoing efforts to develop national servicing
standards are intended to include provisions covering both foreclosure
abeyance and foreclosure governance. OCC added that the standards,
although still a work in progress, will emphasize communication with
the borrower and compliance with legal requirements, documentation,
vendor management, and other controls. The Federal Reserve commented
that the intent of the interagency effort was to address the problems
found in the servicing industry, including in foreclosure processing,
and coordinate the efforts of the multiple regulatory agencies to
ensure that consumers will be treated properly and consistently. FDIC
noted that the agency successfully proposed the inclusion of loan
servicing standards in the proposed rules to implement the
securitization risk retention requirements of the Dodd-Frank Act. FDIC
also noted that any servicing standards should align incentives
between servicers and investors and ensure that appropriate loss
mitigation activities are considered when borrowers experience
financial difficulties. CFPB said it has effective authority to adopt
national mortgage servicing rules for all mortgage servicers,
including those for which CFPB does not have supervisory authority.
Finally, Treasury said it has been closely engaged with the
interagency group reviewing errors in mortgage servicing and that it
supports national servicing standards that align incentives and
provide clarity and consistency to borrowers and investors for their
treatment by servicers.
While Documentation Problems Likely Will Result in Delays in the
Foreclosure Process, the Impact on Financial Institutions and Others
Is Less Clear:
To date, a key impact of the problems relating to affidavits and
notarization of mortgage foreclosure documents appears to be delays in
the rate at which foreclosures proceed. Despite these initial delays,
some regulatory officials, legal academics, and industry officials we
interviewed indicated that foreclosure documentation issues were
correctable. Once servicers have revised their processes and corrected
documentation errors, most delayed foreclosures in states that require
court action likely will proceed.
The implications for borrowers could be mixed, but delays in the
foreclosure process could exacerbate the impacts of vacant properties
and affect recovery of housing prices. Borrowers whose mortgage loans
are in default may benefit from the delays if the additional time
allows them to obtain income that allows them to bring mortgage
payments current, cure the default, or work out loan modifications.
However, according to legal services attorneys we interviewed, these
delays leave borrowers unsure about how long they could remain in
their homes. And borrowers still might be subject to new foreclosure
proceedings if banks assembled the necessary paperwork and resubmitted
the cases. Communities could experience negative impacts from delayed
foreclosures as more properties might become vacant. We reported that
neighborhood and community problems stemming from vacancies include
heightened crime, blight, and declining property values, and increased
costs to local governments for policing and securing properties.
[Footnote 14] Delays in the foreclosures process, although temporary,
could exacerbate these problems. Various market observers and
regulators indicated that the delays could negatively affect the
recovery of U.S. housing prices in the long term. According to one
rating agency's analysis, market recovery could be delayed as
servicers work through the backlog of homes in foreclosure. Regulators
also reported that delays could be an impediment for communities
working to stabilize local neighborhoods and housing markets, and
could lead to extended periods of depressed home prices.
Impacts on servicers, trusts, and investors because of loan transfer
documentation problems were unclear. Some academics and others have
argued that the way that mortgage loans were transferred in connection
with some MBS issuances could affect servicers' ability to complete
foreclosures and create financial liabilities for other entities, such
as those involved in creating securities. According to these
academics, a servicer may not be able to prove its right to foreclose
on a property if the trust on whose behalf it is servicing the loan is
not specifically named in the loan transfer documentation. In
addition, we note in our report that stakeholders we interviewed said
that investors in the MBS issuance may press legal claims against the
creators of the trusts or force reimbursements, or repurchases.
Conversely, other market participants argue that mortgages were pooled
into securities using standard industry practices that were sufficient
to create legal ownership on behalf of MBS trusts. According to these
participants, the practices that were typically used to transfer loans
into private label MBS trusts comply with the Uniform Commercial Code,
which generally has been adopted in every state.[Footnote 15] As a
result, they argue that the transfers were legally sufficient to
establish the trusts' ownership. Although some courts may have
addressed transfer practices in certain contexts, the impact of the
problems likely will remain uncertain until courts issue definitive,
controlling decisions. In the near term, industry observers and
regulators noted that these cases and other weaknesses in foreclosure
processes could lead to increased litigation and servicing costs for
servicers, more foreclosure delays, and investor claims.
Although tasked with overseeing the financial safety and soundness of
institutions under their jurisdiction, the banking regulators have not
fully assessed the extent to which MBS loan transfer problems could
affect their institutions financially. According to staff at one of
the regulators, as part of the coordinated review, examiners did not
always verify that loan files included accurate documentation of all
previous note and mortgage transfers--leaving open the possibility
that transfer problems exist in the files they reviewed. The
enforcement orders resulting from the coordinated review require
servicers to retain an independent firm to assess these risks.
Regulators will more frequently monitor these servicers until they
have corrected the identified weaknesses; however, the regulators have
not definitively determined how transfer problems might financially
affect other institutions they regulate, including any of the
institutions involved in the creation of private label MBS. With
almost $1.3 trillion in private label securities outstanding as of the
end of 2010, the institutions and the overall financial system could
face significant risks.
To reduce the likelihood that problems with transfer documentation
could pose a risk to the financial system, we recommended that the
banking regulators assess the risks of potential litigation or
repurchases due to improper mortgage loan transfer documentation on
institutions under their jurisdiction and require that the
institutions act to mitigate the risks, if warranted. Completing the
risk assessments and fully ensuring that regulated institutions
proactively address the risks could reduce the potential threat to the
soundness of these institutions, the deposit insurance fund, and the
overall financial system. In written comments on a draft of our
report, the regulators generally agreed with or did not comment on
this recommendation. For example, FDIC strongly supported this
recommendation and noted its particular interest in protecting the
deposit insurance fund. In addition, the Federal Reserve said that it
has conducted a detailed evaluation of the risk of potential
litigation or repurchases to the financial institutions it supervises
and will continue to monitor these issues.
Chairman Menendez, Ranking Member DeMint, and members of the
subcommittee, this completes my prepared statement. I would be happy
to respond to any questions you may have at this time.
Contacts and Staff Acknowledgments:
If you or your staff have any questions about matters discussed in
this testimony, please contact A. Nicole Clowers at (202) 512-4010 or
clowersa@gao.gov. Other key contributors to this testimony include
Cody Goebel (Assistant Director), Beth Garcia, Jill Naamane, and Linda
Rego.
[End of section]
Footnotes:
[1] A home mortgage is an instrument by which the borrower (mortgagor)
gives the lender (mortgagee) a lien on residential property as
security for the repayment of a loan. A first-lien mortgage creates a
primary lien against real property and has priority over subsequent
mortgages, which generally are known as junior, or second, mortgages.
That is, first liens are the first to be paid when the property is
sold.
[2] State laws primarily govern the foreclosure process and treat
foreclosures differently, with some states requiring court action--
that is, judicial foreclosure.
[3] These challenges have centered on whether the paperwork
documenting transfers of loans into securities pools adequately proves
that the trust (the entity formed to hold the securitized loans)
seeking to foreclose on a property was the actual mortgage holder with
the authority to foreclose.
[4] GAO, Mortgage Foreclosures: Documentation Problems Reveal Need for
Ongoing Regulatory Oversight, [hyperlink,
http://www.gao.gov/products/GAO-11-433] (Washington, D.C.: May 2,
2011).
[5] The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank Act), enacted on July 21, 2010, establishes the Bureau of
Consumer Financial Protection (known as the Consumer Financial
Protection Bureau or CFPB) as an independent bureau within the Federal
Reserve System. Section 1066 of the Dodd-Frank Act authorized the
Secretary of the Treasury to provide administrative services necessary
to support the CFPB before the transfer date and to exercise certain
of its powers until the appointment of a CFPB Director. 12 U.S.C. §
5586. "Federal consumer financial law" is a defined term in the Dodd-
Frank Act that includes more than a dozen existing federal consumer
protection laws, including the Truth in Lending Act, the Real Estate
Settlement Procedures Act, and the Equal Credit Opportunity Act, as
well as title X of the Dodd-Frank Act itself. 12 U.S.C. § 5481(12),
(14).
[6] Much of the Truth in Lending Act addresses disclosures for
consumer credit transactions, and the Real Estate Settlement
Procedures Act of 1974 focuses primarily on the regulation and
disclosure of mortgage closing documents. Other relevant consumer
protection laws include the Fair Housing and Equal Credit Opportunity
Acts, which address granting credit and ensuring nondiscrimination in
lending; the Fair Credit Reporting Act, which addresses consumer
report information, including use of such information in connection
with mortgage lending; and the Secure and Fair Enforcement for
Mortgage Licensing Act of 2008 (SAFE Act), which requires licensing
and/or registration of mortgage loan originators. Fair Housing Act, 42
U.S.C. §§ 3601-3619; Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-
1691f; Truth in Lending Act, 15 U.S.C. §§ 1601-1667f; Real Estate
Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601-2617; Fair Credit
Reporting Act, 15 U.S.C. §§ 1681-1681x; SAFE Act, 12 U.S.C. §§ 5101-
5116.
[7] 12 U.S.C. §§ 5201 note, 5220 note. The law expires December 31,
2014. 50 U.S.C. App. §§ 501-597b.
[8] 12 U.S.C. § 1844(c)(2). "Functional regulation" refers to the
premise that risks within a diversified organization can be managed
properly through supervision focused on the individual subsidiaries
within the firm. That is, securities activities are supervised by
securities regulators, banking activities by banking regulators, and
insurance activities by insurance regulators.
[9] GAO, Financial Regulation: A Framework for Crafting and Assessing
Proposals to Modernize the Outdated U.S. Financial Regulatory System,
[hyperlink, http://www.gao.gov/products/GAO-09-216] (Washington, D.C.
Jan. 8, 2009).
[10] Federal Reserve System, Office of the Comptroller of the
Currency, and Office of Thrift Supervision, Interagency Review of
Foreclosure Policies and Practices, (Washington, D.C.: April 2011).
[11] Testimony of John Walsh, Acting Comptroller of the Currency,
Office of the Comptroller of the Currency, before the Committee on
Banking, Housing, and Urban Affairs, United States Senate, Washington,
D.C.: February 17, 2011.
[12] Statement by Daniel K. Tarullo, Member, Board of Governors of the
Federal Reserve System, before the Committee on Banking, Housing and
Urban Affairs, United States Senate, Washington, D.C.: December 1,
2010; and speech delivered by FDIC Chairman Sheila Bair at Mortgage
Bankers Association's Summit on Residential Mortgage Servicing for the
21st Century, January 19, 2011. For example, Chairman Bair has
suggested that servicers provide borrowers a single point of contact
to assist them throughout the loss mitigation and foreclosure process.
The contact would be able to put a hold on any foreclosure proceeding
while loss mitigation efforts were ongoing.
[13] [hyperlink, http://www.gao.gov/products/GAO-09-216].
[14] [hyperlink, http://www.gao.gov/products/GAO-11-93].
[15] Loans that were sold into pools and then securities issued by
entities other than the government-sponsored enterprises Federal
National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage
Corporation (Freddie Mac), or Government National Mortgage Association
(Ginnie Mae) are known as private label MBS.
[End of section]
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