We know the banks and related mortgage service organizations have been under fire for their role in the financial system’s near meltdown and ensuing foreclosure fiasco. JPMorgan Chase’s CEO Jamie Dimon reportedly owned up to taking some responsibility, saying “Some of the mistakes were egregious, and they’re embarrassing . . . but we made a mistake, and we’re going to pay for that mistake.” The 50 state attorney generals and the SEC, among others, are pushing for changes in how the banks and services operate, and there’s little doubt changes are coming.
In the interim, a report emanating from investigations by the Office of Comptroller of the Currency, Federal Reserve Board, Office of Thrift Supervision, and Federal Deposit Insurance Corporation, is expected to form a basis for a settlement where the financial institutions would make fundamental changes in operations and controls. The banks and other servicers would, for instance, have to:
- Set up a single contact point within the organization, enabling homeowners to avoid what’s often a maze of different departments
- Take steps to ensure there will be no action to foreclose while borrowers are pursuing loan modifications
- Improve training of staff handling foreclosures
- Establish more layers of management oversight over the process
- Engage an independent consultant to review foreclosures over the past two years, and compensate homeowners who were treated improperly.
One wonders why adequate business process design and basics of internal control weren’t in place long ago, even though the volume of foreclosures wasn’t anticipated. The sloppiness has caused tremendous problems for both the banks and servicers on the one hand and their customers on the other – and executives should know by now that if a large swath of consumers is damaged, then laws and regulations will surely follow.
This of course is not the end for the banks and servicers – not by a long shot. They still need to deal with the state attorney generals and other regulators, and we can expect more required changes to be forthcoming, along with large financial payments for past misdeeds. Oh, if only the risks had been identified earlier and better managed, with appropriately designed business processes, and basic and supervisory controls and compliance in place.