FDIC Chief Cites Foreclosure Mess as Reason for Securitization Restrictions

Federal Deposit Insurance Corp. (FDIC) Chairman Sheila Bair said the growing robo-signing scandal was symptomatic of the poor incentives that marred the securitization market, but she opposed a universal freeze on foreclosures.

While she continued to push for loan workouts, Bair said, “Across-the-board foreclosure moratoriums — I’m not sure that would help anyone. I think it would forestall a process that necessarily has to take place,” Bair said.

Addressing a Washington conference of the Urban Land Institute on Wednesday, Bair also hailed government efforts to improve quality of mortgage servicing, and continued her criticism of the government-sponsored enterprises.

“In hindsight, the implicit government backing enjoyed by the mortgage GSEs, where profits were privatized and the risks were socialized, was an accident waiting to happen,” she said.

Her speech, which included a question-and-answer period, came amid calls for investigations of whether banks’ poor documentation was to blame for improper foreclosures of some borrowers.

Although Bair said FDIC-supervised banks “upon initial review” do not appear to have been responsible, she called the issue a “serious matter.”

“The robo-signer situation underscores how wrong things went in the financial crisis and that there is still a lot of work to do,” she said. “Foreclosure is a costly, unpleasant and emotional process. Loan modifications should be considered whenever possible. Foreclosure should only come after careful thought, thorough analysis and good documentation.”

The revelations, she added, reflect “the poorly aligned incentives that have existed in the mortgage servicing business.”

In other foreclosure scandal news, PHH Mortgage Corp. became the latest mortgage servicer to declare it is not initiating a foreclosure moratorium.

In a statement issued this morning, Mt. Laurel, N.J.-based PHH Corp. president Jerry Selitto said that PHH Mortgage has received a number of inquiries regarding its foreclosure practices.
It is actively cooperating with its regulators, is responding to inquiries and has completed a comprehensive review of its foreclosure procedures.

Based on this review, PHH Mortgage has not halted foreclosures in any states and has no plans to initiate a foreclosure moratorium.

“PHH Mortgage takes its mortgage servicing and compliance responsibilities very seriously and is committed to treating its borrowers fairly,” Selitto said.

Meanwhile, To secure title insurance on REO sales, Bank of America has agreed to indemnify a major insuror if the title is challenged due to robo-signings and other improper foreclosure processing practices.

“Bank of America and Fidelity National Financial have reached an agreement confirming that Fidelity will provide title insurance on the sale of foreclosed properties,” said BofA spokesman Dan Frahm.

Under the agreement, Fidelity will defend the new homeowner in court if a foreclosed owner challenges the title. BofA will cover the costs and, if necessary, any damages awarded to the previous owner.

“Bank of America and Fidelity National are taking this step to facilitate the continued availability of title insurance that is vital to the marketability of foreclosed properties,” Frahm said.
The giant bank is seeking similar agreements with other title insurers.

American Land Title Association chief executive Kurt Pfotenhauer welcomed the BofA/Fidelity agreement.

“Title insurers are looking to lenders to provide appropriate indemnities,” he said. ALTA also has approached the GSE regulator about title indemnifications.

“We will continue to work with federal and state regulators, Fannie Mae, Freddie Mac and lenders to bring certainty to the marketplace,” Pfotenhauer said.