Lawmakers challenge regulators on foreclosure documentation problems

Waters also called on the new Financial Stability Oversight Council to review whether the mishandling of mortgage documentation amid foreclosure proceedings present a systemic risk.

"There is significant evidence to suggest that the speed-driven, corner-cutting operations endemic in the mortgage servicing industry have produced systemic and damaging consequences for the nation’s homeowners and for our housing and financial markets," she said.

The Financial Stability Oversight Council was created as part of the Dodd-Frank regulatory overhaul, and is charged with monitoring the financial system as a whole and identifying potential areas of widespread systemic risk to the economy.

At the same hearing, John Walsh, the acting comptroller of the currency, said his department is heading an inter-agency examination of the Mortgage Electronic Registration System, a private company that allows lenders to electronically package and sell mortgages without having to file paperwork with country land lenders. The Federal Reserve, the Federal Deposit Insurance Corporation and the Federal Housing Finance Agency are all participating in the examination.

The Office of the Comptroller of the Currency is also examining Lender Processing Services Inc., which provides third-party foreclosure services to banks.

"Where we find errors or deficiencies, we are directing banks to take immediate corrective action, and we have an array of enforcement actions and penalties that we will not hesitate to impose if warranted," he said. "These can include civil money penalties, removals from banking, and criminal referrals."

The examinations are expected to wrap sometime next month.