Offering a cautionary tale to banks, the Board of Governors of the Federal Reserve fined a national bank $8.6 million for the improper execution of residential mortgage-related documents while a 2011 Consent Order was in place.
The Consent Order required the financial institution and its subsidiary to specifically address their deficiencies related to mortgage servicing and the failure to comply with the order—coupled with conduct that constituted unsafe or unsound banking practices under the Federal Deposit Insurance (FDI) Act—resulted in the multimillion-dollar fine.
What happened
The problems for the national bank began in 2010, when a review of major residential mortgage services revealed that the financial institution had not adequately assessed the risks associated with residential mortgage loan servicing, foreclosure activities and related functions.
Based on these failures, the Board of Governors issued a Consent Order relating to mortgage servicing and requiring the bank and its subsidiary to take specific measures to address the deficiencies, which ran afoul of the FDI Act. In the second half of 2014, the bank began taking steps to exit the mortgage servicing business.
However, the Federal Reserve Board found that the entities failed to comply with the Consent Order (and in turn, the FDI Act) with regard to mortgage-related affidavits regarding the ownership of the mortgage note. Specifically, employees represented that the assertions in the affidavits were based on personal knowledge or on a review by the affiant of the relevant books and records when, in certain cases, the signer was not in a position to have personal knowledge or to review the relevant books and records, the agency said.
Further, some of the affidavits were not properly notarized because they were not signed or affirmed in the presence of a notary, the Federal Reserve added.
As this conduct violated the 2011 Consent Order and the FDI Act, the Federal Reserve Board assessed a civil monetary penalty against the bank. The agency reached the amount of $8.6 million based on multiple factors.
The bank took steps to address the problem, explaining that the relevant affidavits have since been replaced with “properly executed and notarized affidavits before being used, in courts or otherwise, to make assertions regarding the ownership of lost mortgage notes.” And as of September 15, 2017, the financial institution has completed the exit of the mortgage servicing business.
Further, based on evidence of “sustainable improvements,” the Federal Reserve Board announced that it would terminate the 2011 enforcement action against the national bank and its subsidiary related to residential mortgage loan servicing.
To read the Federal Reserve Order, click here.
Why it matters: The civil monetary penalty serves as a lesson for banks in what not to do and the importance of complying with the terms of a consent order with regulators or face additional penalties—in this case, an $8.6 million fine.