Government orders lenders to pay back homeowners for improper foreclosures

"The Board is taking these actions to ensure that firms under its jurisdiction promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound," the statement said. 

Senate Banking Chairman Tim Johnson (D-S.D.) called the decision "a step towards addressing the improper and fraudulent practices to which many of the country’s largest mortgage servicers have admitted."

"These servicers disregarded laws and left American homeowners, including many active duty military personnel, in jeopardy of losing their homes through wrongful foreclosure," Johnson said in a statement. 

The investigations started at federal and state levels last fall when reports of "robo-signing" emerged — where managers would sign-off on foreclosure paperwork without checking it for inaccuracies — leading several large lenders to voluntarily suspend repossession actions. 

Besides the Fed, the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS) and the Federal Deposit Insurance Corp. (FDIC) announced the actions. 

Before the announcement, two House Democrats — Rep. Elijah Cummings (Md.), ranking member of the House Committee on Oversight and Government Reform, and Rep. Brad Miller (N.C.) — as well as Sen. Jack Reed (D-R.I.) touted legislation that also would end the dual-track process, create an appeals process and provide more details for homeowners who are denied loan modifications, place limits on foreclosure-related fees and require servicers to prove they have taken every step with homeowners to avoid foreclosure. 

Cummings said the OCC has agreed to sit down and brief him on the investigation after he sent the agency a letter requesting more details. 

Reed, a senior member of the Banking Committee and sponsor of the Senate version of the bill, said Wednesday's decision "comes off as too little, too late." 

“The vague and toothless remedies outlined by the OCC’s consent orders merely require banks to do what they should have already been doing," Reed said. 

"These banks deserve more than a slap on the wrist, and I hope the regulators will eventually exercise the discretion it has left themselves in these consent orders to act and regulate more vigorously."

Reed added that he was pleased to see that the agreement doesn't preclude state attorneys general from aggressively pursuing a financial settlement against banks that broke the law.

The legislation would put oversight of the foreclosure process into the hands of the Bureau of Consumer Financial Protection and would give states' attorneys general more power to oversee the process, the lawmakers said. 

The regulators announced orders against JPMorgan Chase, Wells Fargo, Bank of America Corp., Citigroup, the GMAC unit of Ally Financial Inc., Aurora Bank, EverBank Financial, HSBC North America Holdings, OneWest, MetLife Inc., PNC, Sovereign Bank, SunTrust Banks and U.S. Bancorp. 

Those financial firms represent 65 percent of the servicing industry and hold nearly $6.8 trillion in mortgage balances. 

Regulators also named two companies used by banks to manage various types of loan documents. Mortgage Electronic Registration Systems and Lender Processing Services were ordered to improve their internal controls and corporate governance.

In addition, the enforcement actions order the banking organizations that have servicing entities regulated by the Federal Reserve — Ally Financial, SunTrust and HSBC — to promptly correct the many deficiencies in residential mortgage loan servicing and foreclosure processing, which were identified by examiners during reviews conducted from November 2010 to January 2011.

The enforcement actions complement the actions under consideration by the federal and state regulatory and law enforcement agencies, and do not preclude those agencies from taking additional enforcement action, the Fed said. The central bank said it will continue working with other federal and state authorities to resolve these matters and will monitor progress at the firms and "will take additional enforcement actions as needed."