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RISMEDIA, April 16, 2011—(MCT)—Federal banking regulators have reached agreements with the nation’s biggest mortgage lenders to address longstanding complaints that the foreclosure process is unfair to delinquent borrowers trying to stay in their homes.

The settlements with the nation’s largest banks are aimed at correcting what consumers and consumer groups say are fundamental flaws in the repossession process.

The agreements are the result of a review of bank practices begun last year by the nation’s biggest bank enforcers—the Office of the Comptroller of the Currency, the Office of Thrift Supervision, the Federal Reserve and the Federal Deposit Insurance Corp. “The review uncovered unsafe and unsound practices, violations of law and foreclosure processes geared toward speed and quantity, instead of quality and accuracy,” the OTS said in a statement.

John Walsh, acting comptroller of the currency, said in a separate statement that the enforcement actions announced by the agencies would go far in correcting foreclosure errors.

“These comprehensive enforcement actions, coordinated among the federal banking regulators, require major reforms in mortgage servicing operations,” Walsh said. “These reforms will not only fix the problems we found in foreclosure processing, but will also correct failures in governance and the loan-modification process and address financial harm to borrowers.”

The nation’s big regulators were widely criticized and accused of failing to prevent the unsafe lending practices that led to the housing bubble over the past decade. Now, many consumer advocates feel these regulators have not gone far enough to correct errors found in foreclosure practices.

As details of the plan began to leak out, these groups criticized the proposed agreements as being watered down. A fundamental complaint was that regulators were allowing banks to draw up their own plans for correcting their problems, giving the banks 60 days to do so.

A separate group of bank enforcers—a coalition of attorneys general from all 50 states as well as the Department of Justice and other federal agencies—are also seeking to settle with lenders. The group, led by the state attorneys general have issued their own demands in a detailed, 27-page term sheet and negotiations between them and the banks remain ongoing.

Consumer groups recently urged the federal regulators to join with the attorneys general. “While homeowners and communities continue to face breached contracts, obstruction and misrepresentations from servicers, the proposed consent orders provide no new directions or standards to the financial institutions subject to your supervision,” a coalition of advocates, including the National Consumer Law Center and the Center for Responsible Lending, wrote in a letter to the federal regulators. “Rather, the proposal permits the perpetrators of these abuses to design a plan to comply with existing laws and contracts. This is insufficient to halt the abuses.”

The agreements announced by the federal regulators required the mortgage servicers to improve their communications with borrowers and to limit the extent to which they can pursue foreclosure during the loan-modification process.

The agreements require lenders to ensure foreclosures are not pursued once a mortgage has been approved for modification, and it establishes a single point of contact for borrowers throughout the loan-modification and foreclosure processes.

The settlements also require lenders to establish systems to oversee their outside companies that conduct foreclosures and related services for the banks, including outside law firms. The big banks will be required to hire an independent company to conduct a review of all foreclosures conducted between Jan. 1, 2009, and December 31, 2010.

The banks also will be required to establish a process for homeowners who believe they have been improperly foreclosed on by the banks and a way for them to get financial remedy from these institutions.

(c) 2011, Los Angeles Times.

Distributed by McClatchy-Tribune Information Services.