Did the OCC finally agree that the costs of the foreclosure look-back process overwhelmed its benefits, or was the government simply under-staffed and over-budgeted? It appears to be the financial world’s equivalent to the chicken or the egg question. Nonetheless, the OCC announced this week that it and the Federal Reserve had reached a deal with the ten mortgage servicing companies subject to enforcement actions for deficient practices in mortgage loan servicing and foreclosure processing. Pursuant to the deal, the participating servicers are allowed to cease the Independent Foreclosure Reviews of individual foreclosure files, and replace the process with a “broader framework.”
The OCC did not provide details about the agreed upon “broader framework,” other than advising that the deal requires the mortgage servicers to pay $3.3 billion in payments to eligible borrowers and $5.2 billion in other assistance, such as loan modifications and forgiveness of deficiency judgments. Eligible borrowers will not need to take further action, and are not required to have previously filed a request for review. A payment agent will be appointed to administer the payments and to contact the eligible borrowers. The OCC’s press release claims that eligible borrowers are expected to receive compensation ranging from hundreds of dollars up to $125,000, depending on the type of possible servicer error. Moreover, the borrowers are not required to waive any of their potential legal claims against their respective servicer in order to receive payment.
The OCC defended its decision to accept the deal, stating it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process. The OCC further explained that the agreement ensures that more than 3.8 millions borrowers whose homes were in foreclosure in 2009 and 2010 with the participating servicers will receive cash compensation in a timely manner.
From a broader perspective, this deal provides the benefit of allowing the borrowers and servicers to move on and focus on the future—a future that will hopefully be more positive for both the servicers and the borrowers.
Today, the Office of the Comptroller of the Currency (OCC) announced a $500 million penalty against a national bank, HSBC Bank USA, N.A. The OCC’s penalty was based upon its determination that HSBC had violated the Bank Secrecy Act. Separately, the OCC announced that it had issued a cease and desist order to HSBC to address deficiencies in the bank’s compliance program.
The Comptroller of the Currency, Thomas J. Curry, stated that the penalty is the largest penalty the OCC has ever assessed. Comptroller Curry advised that the penalty reflects the severity and duration of the violation and demonstrates the OCC’s resolve to take firm action when warranted to ensure compliance with the law and to hold banks accountable when they fail to live up to those standards.
In other words, this appears to be the OCC’s shot across the bow of the industry to show that the OCC has not lost its ability to flex its muscles when needed to keep banks in line. The OCC’s enforcement action is part of a larger coordinated effort with the Department of Justice, the Federal Reserve, the Financial Crimes Enforcement Network, the Office of Foreign Assets Control, and the New York County District Attorney’s Office. Thus, the size of the penalty leaves one to wonder whether the OCC was flexing its muscles to get the collective attention of the national banks, or to prove to its sister agencies and state agencies that it is quite capable of doing its job. The penalty also leaves one to wonder whether the OCC’s strong statement is an indication of the current administrations intent to bring an increased number of enforcement actions.
In addition to the OCC’s penalty, the bank entered into an agreement with the Department of Justice which requires the bank to forfeit $1.256 billion to the government. The Board of Governors and the Federal Reserve further jointly assessed a $165 million civil money penalty against the Bank and its subsidiary.
Cynically speaking, with penalties this size, the agencies may not have to issue budget cuts as severe as feared if the legislature can’t stop the bus from driving off the fiscal cliff. No matter the motives of the OCC in levying the heavy penalty, it is clear that each actor in the financial services industry must ensure that it has a robust compliance program that is monitored and updated frequently.