The U.S. Department of Housing and Urban Development (HUD), Office of Inspector General (OIG) completed its nationwide effort to review the foreclosure practices of the five largest Federal Housing Administration (FHA) mortgage servicers (Ally Financial, Incorporated, Bank of America, CitiMortgage, JPMorgan Chase, and Wells Fargo Bank). We performed these reviews due to reported allegations made in the fall of 2010 that national mortgage servicing lenders were engaged in widespread questionable foreclosure practices involving the use of foreclosure “mills” and a practice known as “robosigning”. On March 12, 2012, we issued separate memorandums to HUD, which detailed our results for each of the five reviews (2012-PH-1801, 2012-FW-1802, 2012-KC-1801, 2012-CH-1801, and 2012-AT-1801).

In February 2012, DOJ and the State attorneys general announced their proposed joint settlement agreement totaling $25 billion with the five mortgage servicers for their reported violations of State and Federal foreclosure requirements. On March 12, 2012, DOJ and the State attorneys general filed consent judgments with the court. The consent judgments provided details of the servicers’ financial obligations under the agreement, such as payments to borrowers whose properties were foreclosed upon and the Federal and State governments. They also included more than $20 billion in consumer relief activities. The Federal settlement payment amount of more than $684 million would be used for (1) losses incurred to FHA’s capital reserve account and the Veterans Housing Benefit Program Fund or as otherwise directed by the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture’s Rural Housing Service, and (2) the resolution of qui tam actions. Of the $684 million, as of July 15, 2012, more than $315.2 million had been deposited into FHA’s account.

We recommend that HUD (1) consult with its Office of General Counsel to determine the changes needed to FHA’s servicing and foreclosure policies based on the consent judgments. Once determined, ensure that the servicers incorporate the necessary changes into their procedures for servicing FHA-insured loans; (2) ensure that the servicers establish or implement adequate procedures and controls to address the control deficiencies cited in the five issued memorandums, including but not limited to, the withholding of claims for insurance benefits, and the retention of appropriate legal documentation supporting the appropriateness of the foreclosure for all FHA-insured properties for the life of the loans; and (3) pursue appropriate administrative sanctions against attorneys who may have violated professional obligations related to the foreclosure of FHA-insured properties.