Federal banking regulators Wednesday afternoon dropped their regulatory "bomb" on the nation's largest residential servicers — and two of their top outside vendors — accusing the firms of a "pattern of negligence and misconduct" tied to the processing of loans.

Among the nation's top ranked servicers, no one was spared. Formal charges were filed against Bank of America ($2.1 trillion in receivables/market share of 21.57%); Wells Fargo & Co. ($1.8 trillion in MSRs); JPMorgan Chase ($1.2 billion); CitiMortgage ($601 billion); and Ally Financial/Residential Capital Corp. ($384 billion).

In total, the Federal Reserve announced enforcement actions requiring 10 banking organizations to address their conduct, saying their "deficiencies represent significant and pervasive compliance failures and unsafe and unsound practices at these institutions."

The Fed said it is taking action to ensure that firms under its jurisdiction "promptly initiate steps to establish mortgage loan servicing and foreclosure processes that treat customers fairly, are fully compliant with all applicable law, and are safe and sound."

Others that were slapped with consent orders include: HSBC North America Holdings; MetLife; The PNC Financial Services Group; SunTrust Banks; and U.S. Bancorp.

The Office of the Comptroller of the Currency (OCC) and Office of Thrift Supervision (OTS) filed consent orders at the same time. OTS filed enforcement actions against four servicers for "weaknesses" in their foreclosure processes: Aurora Bank, EverBank, OneWest Bank and Sovereign Bank.

"The orders require swift and comprehensive action to remedy the widespread and significant deficiencies," OTS said. "The enforcement orders require each of the servicers to hire an independent firm to conduct another comprehensive review, overseen by the OTS, of foreclosure actions pending at any time in 2009 and 2010," the thrift regulator said.

The Fed also filed charges against servicing vendors Lender Processing Services (LPS), a provider of default-management services, and against MERSCORP. which provides services related to tracking and registering residential mortgage ownership and servicing rights.

The Fed said, "These actions address significant compliance failures and unsafe and unsound practices at LPS and its subsidiaries, and at MERS and its subsidiary. The action requires LPS to address deficient practices related primarily to the document execution services that LPS, through its subsidiaries DocX, LLC, and LPS Default Solutions, Inc., provided to servicers in connection with foreclosures. MERS is required to address significant weaknesses in, among other things, oversight, management supervision, and corporate governance."

The LPS action is being taken jointly with the OCC, the Federal Deposit Insurance Corporation, and the OTS, while the MERS action is being taken jointly with those agencies and the Federal Housing Finance Agency.

At press time, only one firm had issued a statement about the charges, Citigroup. The bank said, "Our first priority is to keep families in their homes…Unfortunately, that is not always possible, and some cases proceed to foreclosure. In 2009, we self-identified needed changes in our foreclosure processes and proactively undertook corrective actions to enhance our policies and controls and the effectiveness of our processes."

Subscribe Now

Access to a full range of industry content, analysis and expert commentary.

30-Day Free Trial

No credit card required. Access coverage of the securitization marketplace, including breaking news updated throughout the day.