Wells Fargo (WFC) and Citigroup (NYSE:C) have halted the vast majority of their foreclosure sales in multiple states following the release of new guidance by the Office of the Comptroller of the Currency.
The abrupt slowdown came in response to the OCC's April release of minimum standards for foreclosure sales, which are usually the final act in the foreclosure process. The Federal Reserve issued identical guidance to the banks it oversees, making the guidelines universal for the industry.
Within two weeks of the release of the guidance, Wells Fargo, Citi and JPMorgan Chase (JPM) all but stopped foreclosure sales, which are usually the point of no return in the foreclosure process. JPMorgan has since resumed its normal volume.
The halt is most dramatic with Wells, the nation's largest mortgage originator. The bank's foreclosure sales in five Western states — California, Nevada, Arizona, Oregon and Washington — dropped from as many as 349 a day in April to fewer than 10 a day across the entire region, according to Foreclosure Radar, a California real estate monitoring firm.
"Wells Fargo has temporarily postponed certain foreclosure sales while we study the revised guidance from the OCC," a spokeswoman for the bank wrote in response to questions from American Banker. The bank expects the delay will be brief.
A spokeswoman for Citi said that the bank is "in the process of complying and following the directive." JPMorgan acknowledged that it temporarily halted foreclosure sales "out of an abundance of caution," but says it has resumed them after validating that its processes comply with the OCC guidance.
The OCC acknowledged that some banks had drastically cut back on foreclosure sales. It declined to say if its April guidance was the result of new perceived shortcomings in the industry.
"The OCC did not direct a slowdown or pausing," agency spokesman Bryan Hubbard says. "However, if servicers are not certain they are meeting these standards, pausing foreclosures is a responsible and productive step."
The significance of the banks' move is hard to gauge. New foreclosure filings continue unabated, searches of court records in California and Florida suggest.
It is not clear what — if any — specific concerns caused the banks to rein in sales. But the banks' steps are an echo of the 2010 foreclosure halt that kicked off several years of wrenching procedural scrutiny of the mortgage servicing industry.
The robo-signing debacle "was the only other time we've had a similar event where a bank slowed down significantly," says Sean O' Toole, Foreclosure Radar's founder.
Among the major largest servicers, Bank of America is the only bank which has proceeded as usual following the OCC guidance, according to Foreclosure Radar’s data. That is a reversal from 2010, when it was the first bank to halt foreclosure proceedings following allegations of documentation problems.
The OCC guidance is significant because it applies to all OCC-regulated bank servicing, rather than specific consent orders. Most of the requirements — presented in a list of 13 questions banks should ask themselves before selling a home — are remedial. Question No. 1, for example, is "Is the loan's default status accurate?" Question No. 5 asks whether borrowers are protected from foreclosure by bankruptcy. Question No. 7 asks if the borrower is in an "active trial loss mitigation plan," otherwise known as a modification.
"Failure to comply with this guidance may result in unsafe and unsound banking practices, non-compliance with foreclosure related consent orders, as applicable, and/or require rescission of completed foreclosures," the OCC warned.
Neither Wells nor the OCC identified specific areas of concern for the bank. But Wells has faced scrutiny of its foreclosure handling, most recently from New York Attorney General Eric Schneiderman. At a heavily publicized press conference earlier this month, Schneiderman alleged that Wells Fargo had "flagrantly violated" its obligations to homeowners under a 50-state mortgage servicing settlement.
"There have been problems with Wells' servicing for a long time," says Ira Rheingold, executive director of the National Association of Consumer Advocates. "Everybody focuses on Bank of America (BAC), but Wells has just as much trouble and the OCC is obviously serious about having them comply with the consent orders."
Wells has been the target of intense criticism for several years from consumer advocates, who forced CEO John Stumpf off the stage during a speech in March, protested at his home and urged the OCC to give Wells a failing Community Reinvestment Act grade based on its foreclosure practices.
Wells also has invited criticism from consumer advocates for failing to provide principal reductions and to report data on loan modifications, short sales and foreclosures based on race and income.
The bank has disputed those complaints. Wells says it should be judged on the nearly 850,000 loan modifications it has granted since 2008, which included $6.6 billion in principal forgiveness.
Joseph Smith, the independent monitor of the national mortgage settlement, is expected to issue a report in June. Many consumer advocates have criticized the top five mortgage servicers — B of A, JPMorgan Chase, Citi, Wells Fargo and Ally — for claiming to have met 304 different servicing standards and reforms as part of the $25 billion national settlement with 49 state attorneys general and federal regulators.
"It's a safe assumption that they're not meeting all the requirements and this is likely a preview, an early signal of what Joe Smith is going to find," Rheingold says.