How did the bank regulators describe robosigning?

In case you missed it, both the Treasury Secretary and the nominee for the Comptroller of the Currency, Joseph Otting, were fielding questions about their track records at OneWest Bank, and the robo-signing that happened during their time at the bank.

Both men denied that their bank, OneWest, had engaged in robo-signing, despite the fact that they both signed a 2011 consent order for doing that.

Keeping in mind that Mr. Otting has been nominated for the Comptroller of the Currency role, it’s worth considering:

What did the 3 main bank regulators say about robo-signing and the consent orders that OneWest signed, along with 13 other banks?

1) Acting Comptroller of the Currency, John Walsh:

April 2011: “While the servicers got a couple of things right, what stood
out was the pervasiveness of flaws and failings right across the
process. Robo-signing may be the image that has lodged most firmly
in our minds from news reports, but other deficiencies, beyond the
mishandling of affidavits, were equally serious,” Walsh said. “That
such routine business operations could be so badly mismanaged as to
raise safety and soundness concerns was, quite frankly,
astounding.” [1]

Sept. 2011:“First, the scope of the enforcement actions that we took in April is very broad and comprehensive, and I think that’s been poorly understood. Looking at the details of the foreclosure review, the enforcement orders tackle a large number of problems that need to be fixed. While “robo-signing” has become a shorthand for the broken process, these orders go far beyond just fixing “robo-signing” of documents. They address the entire system of controls that must be in place to ensure that those practices don’t occur in the first place.[2]

Office of the Comptroller of the Currency 2011 Audit Report: “The volume of problem mortgages overwhelmed the capacities of the larger mortgage servicers and shoddy practices like “robosigning” resulted. Bank managers failed to pay enough attention to how simple, ordinarily low-risk aspect of the business were being done. Bank servicers, including the law firms and other vendors they employed, were skipping steps in back office operations and mismanaging case files in systemic dimensions.”[3]

2) Federal Reserve (Governor Daniel K Trarullo)

December 2010:  In the first portion of my testimony, I will explain our current understanding of the nature and extent of the deficiencies in mortgage documentation that have been so apparent in the robo-signing misconduct, as well as what the banking agencies are doing in support of a broader interagency effort to develop a full picture of these problems.[4]

3) FDIC Chair Shelia Bair:

May 2011: The FDIC is especially concerned about a number of related problems with servicing and foreclosure documentation. “Robo-signing” is the use of highly-automated processes by some large servicers to generate affidavits in the foreclosure process without the affiant having thoroughly reviewed facts contained in the affidavit or having the affiant’s signature witnessed in accordance with state laws. The other problem involves some servicers’ inability to establish their legal standing to foreclose, since under current industry practices, they may not be in possession of the necessary documentation required under State law. These are not really separate issues; they are simply the most visible of a host of related, unresolved problems in the mortgage servicing industry.

As you know, even though the FDIC is not the primary federal regulator for the largest loan servicers, our examiners participated with other regulators in horizontal reviews of these servicers, as well as two companies that facilitate the loan securitization process. In these reviews, federal regulators cited “pervasive” misconduct in foreclosures and significant weaknesses in mortgage servicing processes.[5]

Sources cited:

[1] http://www.pe.com/2011/04/14/foreclosure-fix-is-messy/

[2]  Remarks By John Walsh, Acting Comptroller of the Currency Before The American Banker Regulatory Symposium

Washington, D.C. September 19, 2011  http://4closurefraud.org/2011/10/10/fraudclosure-remarks-by-john-walsh-acting-comptroller-of-the-currency-before-the-american-banker-regulatory-symposium-washington-d-c/

[3] https://www.treasury.gov/about/organizational-structure/ig/Agency%20Documents/oig12027.pdf

[4] https://www.federalreserve.gov/newsevents/testimony/tarullo20101201a.htm

[5] https://www.fdic.gov/news/news/speeches/archives/2011/spmay2611.html

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