OCC Issues Consent Orders Against Eight Major Banks, Lender Processing Services, and MERSCORP for Foreclosure Practices

On April 13, 2011, the Office of the Comptroller of the Currency (“OCC”) announced consent orders and enforcement actions against eight national bank mortgage servicers (Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife Bank, PNC, U.S. Bank, and Wells Fargo) and two third-party servicers (Lender Processing Services and subsidiaries, and MERSCORP and subsidiaries (including MERS)). The enforcement actions require each servicer to correct claimed deficiencies identified in the OCC’s 2010 Fourth Quarter review, make improvements in servicing and foreclosure processing practices, establish oversight and control over third-party vendors (including outside legal counsel that provide default management or foreclosure services), and perform a multi-faceted review of foreclosure actions from January 1, 2009 to December 31, 2010 through an independent firm. The independent review must assess whether the servicers complied with federal and state laws regarding foreclosures and whether they caused any financial injury to borrowers. The servicers must also remedy all financial injuries to borrowers identified in the independent review. The consent orders do not preclude civil money penalties, which the OCC may assess at a future date. OCC Press Release. Interagency Review of Foreclosure Practices.

New Hampshire Court Upholds MERS’ Authority to Transfer Mortgage Interests

On February 14, 2011, the New Hampshire Superior Court upheld the authority of the Mortgage Electronic Registration Systems (“MERS”) to assign its interest in a mortgage. Plaintiffs sought injunctive relief to prevent servicer Aurora Loan Services LLC (“Aurora”) from proceeding with a foreclosure sale of Plaintiffs’ residence, arguing that MERS, as nominee, lacked the authority to assign its interest in the mortgage to Aurora, thereby invalidating Aurora’s ability to foreclose or collect on the mortgage. In denying Plaintiffs’ request for injunctive relief, the Superior Court rejected the plaintiffs’ argument that the use of MERS as nominee in and of itself was either “fraudulent or wrong.” Looking to the mortgage instrument signed by the plaintiffs, the Superior Court then found that the plaintiffs had explicitly granted MERS the authority to assign its interest, and held that MERS’ assignment to Aurora was valid. Decision.

Bair Speech on the Mortgage Industry

On January 19, FDIC Chairman Bair spoke at the Summit on Residential Mortgage Servicing for the 21st Century where she discussed, among other things: (i) establishing a fixed formula to govern treatment of first and second mortgages when the servicer owns the second mortgage, (ii) requiring banks to foreclose in their own names instead of allowing MERS to foreclose, (iii) establishing a foreclosure claims commission to be funded by servicers to address homeowner complaints from foreclosures with servicing errors, (iv) establishing incentives for loss mitigation in servicing, and (v) possible features of a definition for “qualified residential mortgages” which are exempt from risk retention requirements under the Dodd-Frank Act. FDIC Release.