The Office of the Comptroller of the Currency (OCC) is ordering servicers under its purview to stop dual tracking foreclosure proceedings and loan modifications whenever legally possible.
Lawmakers have sharply criticized servicers for pursuing both options at the same time, arguing that it confuses borrowers who are attempting to work out a modification agreement while simultaneously receiving foreclosure notices.
At a Senate Banking Committee hearing on Wednesday, John Walsh, the acting Comptroller, said that servicers should stop doing both at once, unless they are legally obligated to do so by investor agreements.
"Questions have arisen about the practice of continuing foreclosure proceedings even when a modification has been negotiated and is in force," Walsh said in his opening statement. "We agree that this dual track is unnecessarily confusing for distressed homeowners, and the OCC is directing national bank servicers to suspend foreclosure proceedings for successfully performing modifications where they have the legal ability and are not already doing so. It is important to remember, however, that [the government-sponsored enterprises] and private investors dictate the terms for non-HAMP modifications, so this option may not always be available to servicers."
The issue came up two weeks ago during a Senate Banking hearing with servicers, where representatives from Bank of America Corp. and JPMorgan Chase acknowledged they pursued foreclosures and loan modifications at the same time.
Sen. Tim Johnson, who is expected to chair the panel next year, raised concerns with such an approach, saying it was unfair.
"Foreclosure should be the last resort, and it seems illogical to begin the foreclosure process while continuing to negotiate a modification," he said.
While Barbara Desoer, the president of Bank of America Home Loans, said the bank was considering abandoning the practice, Dave Lowman, the chief executive of JPMorgan Chase Home Lending, said the bank felt it was handling the issue appropriately.
Asked if he would consider dropping the dual track system, Lowman said, "We have to be careful with that. I just believe that we have now a process inside of our company where every defaulted borrower gets linked up with a single person and there's single accountability."