"I believe that serious and sustained
reform is needed to address the larger
problems in mortgage servicing"
By Ros Krasny
(Reuters) - With no quick fix in sight for the crisis in mortgage servicing, the outlook for foreclosures remains "grim" for the next couple of years, newly appointed Federal Reserve Governor Sarah Bloom Raskin said.
"I believe that serious and sustained reform is needed to address the larger problems in mortgage servicing," Raskin said on Friday in remarks prepared for a National Consumer Law Center conference, her first public comments since confirmed to her post by the Senate in late September.
"Too many accounts of shoddy operating procedures -- lost paperwork, slow response times, and sloppy record keeping -- cast a dark shadow on this part of the industry that links mortgage borrowers and lenders," she added.
In strongly worded remarks, the former bank regulator from Maryland said the problem of "robo-signers" in mortgage servicing "shone a harsh spotlight on other long-standing procedural flaws" in the mortgage servicing industry.
"Many may view these procedural flaws as trivial, technical or inconsequential, but I consider them to be part of a deeper, systemic problem and am gravely concerned," she said.
U.S. mortgage foreclosures could be about 2.25 million in 2010 and the same number in 2011, followed by about 2 million in 2012, Raskin said.
Servicers created lean systems that were fine to handle routine aspects of the business but could not cope with a "serious down cycle". Deferred maintenance and investment by the industry on a significant scale is now coming home to roost, she said.
The Federal Reserve and other agencies are now examining foreclosures procedures at the latest banks.
When that review is finished, "we will have more information about the extent and significance of these very troubling practices, as well as an understanding of what must be done to prevent them in the future," she said.
In the meantime, certain firms have been asked to complete self assessments of policies and procedures they use for determining whether to foreclose on a residential mortgage loan.
Raskin said actions by servicers are key to the effectiveness of efforts to stabilize neighborhoods. That is especially true in poor communities at "a time of persistent decline in home values and in fragile markets already weakened by a glut of vacant and abandoned properties," she said.