Mortgage servicers are the entities that manage payment collections and other activities associated with home loans. Mortgage servicers can be large mortgage finance companies, commercial banks, or nondepository institutions. Servicing duties can involve sending borrowers monthly account statements, answering customer-service inquiries, collecting monthly mortgage payments, and maintaining escrow accounts for property taxes and insurance. In the event that a borrower becomes delinquent on loan payments, servicers also initiate and conduct foreclosures. Errors, misrepresentations, and deficiencies in foreclosure processing can result in a number of harms to borrowers ranging from inappropriate fees to untimely or wrongful foreclosure. Several federal regulators share responsibility for regulating the banking industry in relation to the origination and servicing of mortgage loans. OCC has authority to oversee nationally chartered banks and federal savings associations (including mortgage banking activities). The Federal Reserve oversees insured state-chartered banks that are members of the Federal Reserve System, bank and thrift holding companies, and entities that may be owned by federally regulated depository institution holding companies but are not federally insured depository institutions. The Federal Deposit Insurance Corporation (FDIC) oversees insured state-chartered banks that are not members of the Federal Reserve System and state-chartered savings associations. Finally, CFPB has the authority to regulate mortgage servicers with respect to federal consumer financial law.into a memorandum of understanding with prudential regulators— specifically the Federal Reserve, FDIC, OCC, and the National Credit Union Administration—that governs their responsibilities to share information and coordinate supervisory activities so as to effectively and efficiently carry out their responsibilities, decrease the risk of conflicting supervisory directives, and increase the potential for alignment of related supervisory activities. OCC designates each national bank as a large, mid-size, or community bank. The designation is based on the institution’s asset size and whether other special factors affect its risk profile, such as the extent of asset management operations, international activities, or high-risk products and services. Large banks are the largest and most complex national banks and are designated by the Senior Deputy Comptroller for Large Bank Supervision. Mid-size banks may be designated as large banks at the discretion of the Deputy Comptroller for Midsize and Credit Card Banks. responsible Federal Reserve Bank, which in turn assigns a central point of contact to each servicer. The contact leads an examination team with responsibility for continually monitoring activities, conducting discovery examinations designed to improve understanding of a particular business activity or control process, and testing whether a control process is appropriately designed and achieving its objectives. In September 2010, allegations surfaced that several servicers’ documents in support of judicial foreclosure may have been inappropriately signed or notarized. In response to this and other servicing issues, federal banking regulators—OCC, the Federal Reserve, the Office of Thrift Supervision, and FDIC—conducted a coordinated on- site review of 14 mortgage servicers to evaluate the adequacy of servicers’ controls over foreclosure processes and to assess servicers’ policies and procedures for compliance with applicable federal and state laws. Through this coordinated review, regulators found critical weaknesses in servicers’ foreclosure governance processes; foreclosure documentation preparation processes; and oversight and monitoring of third-party vendors, including foreclosure attorneys. On the basis of their findings from the coordinated review, OCC, the Office of Thrift Supervision, and the Federal Reserve issued in April 2011 formal consent orders against 14 servicers under their supervision (see fig. 1). Subsequently, the Federal Reserve issued similar consent orders against two additional servicers. These consent orders were intended to ensure safe and sound mortgage-servicing and foreclosure-processing activities and help address weaknesses with mortgage servicing identified during the reviews. To comply with the consent orders, each of the 16 servicers is required to, among other things, enhance its vendor management, training programs and processes, and compliance with all applicable federal and state laws, rules, regulations, court orders, and servicing guidelines. In addition, as a result of the consent orders, the Federal Reserve issued civil money penalties against some of the servicers and provided that the penalty amounts could be remitted by federal payments made and borrower assistance provided under the National Mortgage Settlement or by providing funding to housing counseling organizations.OCC also considered civil money penalties against the servicers it regulates, and for four servicers that were also party to the National Mortgage Settlement, OCC reached an agreement that civil money penalties would be assessed if the servicer did not satisfy the requirements of the formal consent orders or their respective obligations under the National Mortgage Settlement. The consent orders also required each servicer to retain an independent consultant to review certain foreclosure actions on primary residences from January 1, 2009, to December 31, 2010, to identify borrowers who suffered financial injury as a result of errors, misrepresentations, or other deficiencies in foreclosure actions, and to recommend remediation for borrowers, as appropriate. In general, the consent orders identified seven areas for consultants to review: 1. whether the servicer had proper documentation of ownership of the 2. whether the foreclosure was in accordance with applicable state and 3. whether a foreclosure sale occurred while a loan modification was 4. whether nonjudicial foreclosures followed the terms of the loan and state law requirements;5. whether fees charged to the borrower were permissible, reasonable, 6. whether loss-mitigation activities were handled in accordance with program requirements and policies; and 7. whether any errors, misrepresentations, or other deficiencies resulted in financial injury to the borrower. To review these areas, consultants generally segmented their file review activities to test for each area of potential error separately. As a result, a borrower’s loan file might have undergone multiple reviews for different potential errors before the results of each of the review segments were compiled and the file review was considered complete. Loans were identified for review through a process by which eligible borrowers could request a review of their particular circumstances (referred to as the request-for-review process) and through a review of categories of files considered at high risk for errors (referred to as the look-back review). Regulators required servicers to establish an outreach process for eligible borrowers who believed they might have been harmed due to errors in the foreclosure process to request a review of their particular circumstances. Consultants were expected to review all of the loans received through the request-for-review process. For the look-back review, regulators required consultants to review 100 percent of all files in three categories—borrowers in bankruptcy in which a completed foreclosure took place, loans potentially subject to the protections provided by the Servicemembers Civil Relief Act (SCRA), and agency- referred foreclosure cases—that were identified as at high risk for servicing or foreclosure-related errors during the regulators’ 2010 coordinated reviews. Consultants for Federal Reserve-regulated servicers were also required to review 100 percent of files in two other categories determined to be high risk—borrowers with pending modification requests and borrowers current on a trial or permanent modification. In addition, as each servicer had a unique borrower population and servicing systems, consultants, with examination teams’ input, were expected to identify various high-risk loan categories appropriate to their servicer—such as loans in certain states or loans associated with certain foreclosure law firms—that could be associated with a higher likelihood of servicing or foreclosure-related errors and review a sample of those loans. Beginning in January 2013, OCC and the Federal Reserve announced that they had reached agreements with 15 of the 16 servicing companies to terminate the foreclosure reviews and replace the reviews with a payment agreement (as previously shown in fig. 1). Under these agreements, servicers agreed to provide compensation totaling approximately $10 billion, including $4 billion in cash payments to eligible borrowers and $6 billion in foreclosure prevention actions. These amounts were generally divided among the 15 participating servicers according to the number of borrowers who were eligible for the foreclosure review at the time the amended orders were negotiated such that the total per-servicer amount ranged from $16 million to $2.9 billion (see table 1). For the majority of servicers, the amended consent orders ended an approximately 20-month file review process. Although consultants were at various stages of completing the reviews when the work was discontinued, the amended consent orders underlined that regulators retained the right to obtain and access all material, records, or information generated by the servicer or the consultant in connection with the file review process. The amended consent orders did not affect the other aspects of the original consent orders—such as required improvements to borrower communication, operation of management information systems, and management of third-party vendors for foreclosure-related functions—and work to oversee servicer compliance with these other aspects continues. According to regulatory staff and documents, the estimated time it would take for borrowers to receive remediation and mounting costs of completing the file reviews motivated the decision to amend the consent orders. As of December 2012, OCC staff estimated that remediation payments to borrowers would not start for many months and that completing the file review process could take, at a minimum, an additional 1 to 2 years, based on the number of files still to be reviewed and the extent of the work to be completed. The mounting costs of the file reviews also motivated the decision to terminate the file reviews for most servicers. As of August 2012, the collective costs for the consultants had reached $1.7 billion, according to OCC’s decision memorandum. Based on the results of the reviews conducted by consultants through December 2012, regulators estimated that borrower remediation amounts would likely be small while the consultant costs to complete the reviews would be significant. As a result, OCC and Federal Reserve staff determined that completing the reviews to determine precisely which borrowers had compensable errors due to harm would have resulted in long delays in providing remediation payments to harmed borrowers.