ti, FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Robert Menendez 

United States Senate 

Washington, D.C. 20510 

Dear Senator Menendez: 

June 7, 2011 

Thank you for sharing your recommendations regarding mortgage servicer 

oversight and national servicing standards, as described in the Government 

Accountability Office (GAO) report, "Mortgage Foreclosures: Documentation Problems 

Reveal Need for Ongoing Regulatory Oversight." The Federal Deposit Insurance 

Corporation reviewed the GAO report and agrees with these recommendations. 

The FDIC directly supervises a limited portion of the mortgage servicing industry, 

covering less than four percent of residential mortgages. Foreclosure documentation 

issues such as "robo-signing" came to light in 2010. We reviewed FDIC-supervised 

banks engaged in mortgage servicing and did not identify robo-signing or other 

deficiencies that would warrant fonnal enforcement actions. The FDIC continues to 

monitor these servicers as well as institutions servicing loans through FDIC 

securitizations or resolution programs. 

The GAO report focuses on the findings of the interagency review of 14 of the 

largest mortgage servicers. Although the FDIC is not the primary federal regulator for 

these servicers, we actively participated in the reviews as back-up regulator to protect the 

interests of the Deposit Insurance Fund. The interagency review revealed significant 

deficiencies in numerous aspects of the servicers' foreclosure processing, resulting in 

Consent Orders against all 14 servicers. The Orders incorporate requirements that, if 

fully implemented, will help prevent a recurrence of the most significant problems with 

foreclosure processing. It is essential that the implementation of the Orders incorporate 

specific, measurable actions of these servicers to address the deficiencies identified in the 

interagency review. 

The FDIC agrees that oversight of mortgage foreclosure activities has been 

limited and supports the GAO's recommendation that the federal banking agencies 

develop and coordinate plans to improve oversight, and establish clear goals, roles, and 

time lines for overseeing mortgage servicers under their jurisdiction. The FDIC will 

continue to work with the federal banking agencies to promote correction of servicing 

deficiencies and prevent the recurrence of such deficiencies. 
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It also is important to note that the horizontal review did not assess allegations of 

improper treatment of borrowers, including noncompliance with applicable requirements 

associated with loan modification programs and other loss mitigation obligations imposed 

by government programs or securitization agreements. In addition to requiring 

implementation of a single point of contact, proper staffing, and compliance with laws 

such as the Servicemembers Civil Relief Act, the Orders require the servicers to 

undertake a comprehensive third-party review of risk in servicing operations and to 

reimburse borrowers injured by servicer errors. 

As the deposit insurer of most of the major servicers, we believe it is essential to 

fully and completely identify the extent of servicing errors so that needed remedial steps 

can be promptly undertaken and quantified. Given the pervasive breakdown in quality 

controls associated with most major servicers' operations, we believe the independent 

third-party review required by the Orders must cover 100 percent of foreclosures that 

involved a consumer complaint and 100 percent of those where a modification 

application was denied. Sampling may be appropriate for other categories of borrowers. 

Additionally, the work of the independent consultant should be validated through 

sampling by inter-agency teams of bank examiners. 

As recommended by the GAO, we believe any national servicing standards that 

are created should better align economic incentives for loss mitigation. In developing the 

proposed rules to implement the securitization risk-retention requirements of the DoddFrank Wall Street Reform and Consumer Protection Act, the FDIC successfully proposed 

the inclusion of loan servicing standards in the Qualified Residential Mortgage (QRM) 

requirements. The standards included as part of the QRM requirements address many of 

the most significant servicing issues associated with securitized loans .. By better aligning 

incentives, we believe the proposed standards will promote greater fairness to borrowers 

as well as safety and soundness by ensuring that appropriate loss mitigation activities, 

including loan modifications, are considered when borrowers are experiencing financial 

difficulties. 

Thank you again for sharing your recommendations for stronger mortgage 

servicing and foreclosure oversight. If you have further question lease contact me at 

§ ii,r Paul Nash, Deputy for External Affairs, at 

Sincerely, 

Sheila C. Bair 
(8 FEDERAL DEPOSIT INSURANCE CORPORATION, Washington, DC 20429 

SHEILA C. BAIR 

CHAIRMAN 

Honorable Robert Menendez 

Chainnan 

June 9, 2011 

Subcommittee on Housing, Transportation, and Community Development 

Committee on Banking, Housing, and Urban Affairs 

United States Senate 

Washington, D.C. 20510 

Dear Mr. Chairman: 

Thank you for your May 20, 2011 letter regarding the need for national mortgage 

servicing standards. Your hearing on this critical issue was timely, and we appreciate you 

providing the results to us. The Federal Deposit Insurance Corporation shares your concerns 

regarding the lack of uniform mortgage standards for loan modifications and the foreclosure 

process when a loan modification is not feasible. For example, I have strongly advocated for a 

single point of contact, which will go a long way towards eliminating the conflicts and 

miscommunications between loan modifications and foreclosures, and will provide borrowers 

assurance that their application for modification is being considered in good faith. In addition, I 

also have publicly agreed that we must tackle the second lien issue head on. To better address 

the problem with existing mortgages, one option is to require servicers to take a meaningful 

write-down of any second lien if a first mortgage loan is modified or approved for a short sale. 

As you may know, an interagency working group, including the FDIC, the U.S. 

Department of the Treasury, the Office of the Comptroller of the Currency, the Board of 

Governors of the Federal Reserve System, the Federal Housing Finance Agency, Ginnie Mae, 

and the Department of Housing and Urban Development, is exploring opportunities to establish 

national mortgage servicing and foreclosure processing standards that would promote 

accountability and appropriateness in dealing with consumers and strengthen the U.S. housing 

market. The FDIC forwarded the recommendations in your correspondence to the agency 

members of this group not addressed in your incoming letter to ensure the recommendations are 

considered as part of the group's discussions. 

As you may be aware, implementing some of your recommendations may require· 

amendments to state laws, which are outside the FDIC's statutory authority. For example, the 

recommendation for "standardizing foreclosure timelines" would require changes in state 

statutes, which can differ significantly, particularly among states that engage in a judicial versus 

a non-judicial foreclosure process. However, you have provided us with several valuable 

insights and we look forward to the continued dialogue as we try to address these critical issues. 
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our letter on this important topic. If you have an 

or Paul Nash, Deputy for External Affairs, at 

Sheila C. Bair 

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