Zach Carter, Huffington Post

Top policymakers at the Federal Reserve are fighting efforts to rein in widely reported bank abuses, sparking an inter-agency feud with the FDIC and the Treasury Department. The Fed, along with the more bank-friendly Office of the Comptroller of the Currency, is resisting moves to craft rules cracking down on banks that charge illegal fees and carry out improper foreclosures. The FDIC supports such rules, according to an FDIC official involved in the dispute.

The new regulations would rein in debt collection, loan modification and foreclosure proceedings at bank divisions called “mortgage servicers.” Servicers have committed widespread fraud in the foreclosure process. While the recent robo-signing of fraudulent documents has received the most attention, consumer advocates have complained about improper fees and servicer mistakes that lead to foreclosure for years.

“Given that we’ve seen a massive failure in servicing practices and a massive failure to address servicing in an honest way, I think this is important,” says Joshua Rosner, a managing director at Graham Fisher & Co., and longtime critic of the U.S. mortgage system.

Last week, the National Consumer Law Center and the National Association of Consumer Advocates published a survey of 96 foreclosure attorneys from around the country, attesting that servicers have pushed 2,500 of their clients into the foreclosure process, even as the borrowers were negotiating loan modifications with the same servicers.

Banks have also been extremely slow to permit and process loan modifications for troubled homeowners. With housing prices down dramatically from their bubble-level peaks, mortgage investors usually limit their losses by reducing a borrower’s debt burden instead of foreclosing. But servicers– who are supposed to operate in the best interests of investors– have been reluctant to grant mortgage modifications, particularly modifications that actually reduce the outstanding balance on the loan.

Servicers have also failed to live up to the rules proposed by the Treasury Department under President Obama’s Home Affordable Modification Plan. According to a recent report by the Congressional Oversight Panel, a full 29,000 borrowers have been in temporary payment plans for more than a year without being granted permanent relief. The temporary modifications are supposed to last just three months under Treasury Department rules.

Regulators at all federal banking agencies are aware of the problems. On December 8, community outreach officials from the OCC and the Fed met with dozens of housing counselors from around the country and acknowledged that complaints about mortgage servicing abuses have been coming to their offices for years. Nevertheless, at a recent hearing, Comptroller of the Currency John Walsh said his agency didn’t know about the outright fraud being committed by servicers until press reports emerged this fall.

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