The Office of the Comptroller of the Currency (OCC) outlines its expectations for national bank foreclosure management practices in guidance issued on June 30, 2011.

The guidance directs national banks to conduct a self-assessment of such practices no later than September 30, 2011, take immediate action to correct any weaknesses identified, and for any weaknesses that resulted in any financial harm to borrowers, provide remediation where appropriate. It also advises banks to expect the OCC to review such self-assessments, corrective actions, and determinations of financial harm and related remediation in a bank’s next quarterly review or examination.

The guidance results from OCC concerns that the servicing operations of other banks may have weaknesses similar to those found at 14 of the nation’s largest federally regulated mortgage servicers during reviews of their foreclosure governance processes. The reviews by the OCC and other federal banking agencies culminated in enforcement actions against such servicers in April 2011.

The agencies’ findings were detailed in a report, the Interagency Review of Foreclosure Policies and Practices. Through the guidance, the OCC intends to communicate  to all mortgage servicers it supervises its expectations for areas of the foreclosure governance processes in which weaknesses were found. Highlights of the guidance include the following:

  • Foreclosure process governance. To properly manage and control the operational, compliance, legal, and reputational risks associated with foreclosures, banks will generally need to have policies and procedures that provide guidance, control, and monitoring of all foreclosure-related activities, including appropriate vendor management and audit and quality-control standards.
  • Dual track processing. To reduce borrower confusion in circumstances where a bank is working with a borrower to modify the mortgage while continuing foreclosure proceedings, if allowed under the servicing contract, a bank should suspend such proceedings for a trial-period modification that is successfully performing.
  • Affidavit and notarization practices. In addition to a bank’s use of notary practices that meet state law requirements, affidavits should be truthful, accurate, and adequately supported by file documentation, and affiants should have sufficiently reviewed the documents and have adequate knowledge to make the attestations.
  • Documentation practices. A bank should maintain documents supporting foreclosure actions and a clear audit trail reconciling foreclosure filings to servicer source systems of record, and the accuracy of such records should be verified.
  • Legal compliance. A bank should comply with all foreclosure-related laws and regulations, particularly the Servicemembers Civil Relief Act and bankruptcy laws.
  • Third-party vendor management. Roles and responsibilities of third-party vendors, including outside law firms handling foreclosures, should be clearly defined and performance should be monitored. Relationships with such third parties should be properly structured and prudently managed.

The guidance does not address detailed mortgage servicing requirements or broader issues related to working with troubled borrowers. According to the OCC, it is currently working with other banking and housing agencies to develop guidance on such issues that will be released at a later date.

In guidance on prepaid access programs issued the day before the foreclosure guidance, the OCC noted that, beginning July 21, 2011, the prepaid guidance will also apply to federal savings associations. Although the foreclosure guidance does not include a similar statement, given that the OCC is currently scheduled to assume supervisory authority for federal savings associations on July 21, 2011 (the “designated transfer date”), we see no reason why the foreclosure guidance would not also apply to federal savings associations beginning July 21.

Banks should consult and involve counsel in the self-assessments, corrective actions, determinations of financial harm, and related remediation mandated by the OCC to determine how best to protect this information, which will inevitably be sought in discovery in any private litigation. Since foreclosure documentation concerns surfaced last year, several clients have retained Ballard Spahr to conduct due diligence reviews of their mortgage foreclosure procedures and files and to help them respond to regulatory inquiries. We have also been retained to represent banks and servicers when documentation issues have arisen in litigation.

Ballard Spahr’s Consumer Financial Services Group is nationally recognized for its guidance in structuring and documenting new consumer financial services products, its experience with the full range of federal and state consumer credit laws throughout the country, and its skill in litigation defense and avoidance (including pioneering work in pre-dispute arbitration programs). For more information, please contact group Chair Alan S. Kaplinsky, 215.864.8544 or; Vice Chair Jeremy T. Rosenblum, 215.864.8505 or; Martin C. Bryce, Jr., 215.864.8238 or; John L. Culhane, Jr., 215.864.8535 or; Keith R. Fisher, 202.661.2284 or; Barbara S. Mishkin, 215.864.8528 or; or Mark J. Furletti, 215.864.8138 or


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