Freddie Mac, the mortgage-finance company operating under U.S. conservatorship, said its pending requests to lenders for refunds on faulty mortgages rose about 19 percent in the first quarter to $3.2 billion.

The new total included 38 percent that were outstanding for more than four months, the McLean, Virginia-based company said today in a securities filing. The sum represents the unpaid balance on requests to sellers and servicers of single-family home loans, and the increase is measured from the end of 2011. The total decreased from $3.4 billion in the first quarter of last year.

Costs tied to faulty mortgages have cost the nation’s biggest banks more than $72 billion since the start of 2007, according to data compiled by Bloomberg, and lenders say the threat of more “putbacks” is deterring them from making new home loans backed by Freddie Mac and Fannie Mae.

Most banks “are actively exiting the mortgage market and have steep declines in their mortgage portfolio,” Meredith Whitney, head of the self-named advisory firm, said today in a radio interview on “Bloomberg Surveillance” with Tom Keene and Ken Prewitt. “The big issue is, do you want to be in bed with an agency that is going to come back and sue you? No.”

A Federal Reserve survey released this week asked senior loan officers to explain why they were less likely than in 2006 to originate a conventional home loan that meets standards of the so-called government-sponsored enterprises. More than half the respondents “noted the higher risk of putbacks of delinquent mortgages by the GSEs as an important factor, and that factor was listed as the most important one by the largest number of banks,” the Fed reported.

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Leo King, Computerworld IDG

The US Federal Reserve has issued a punishing court order to Morgan Stanley, as it prepares to fine the bank over the use of automated ‘robo signing’ of documents relating to foreclosures for struggling US mortgage payers. It ordered the bank to make significant process, data and systems improvements.

The issue relates to a troubled electronic mortgage registry created by a range of the largest banks, which is allegedly plagued with errors. Those that have brought claims against the banks have said access to the database was deliberately restricted by the banks, and that mortgage foreclosures were often based on incorrect data entered by the banks as they rushed to offload the loans.

The court order issued this week concerns the Saxon business, which Morgan Stanley has sold to mortgage servicing group Ocwen Financial. The Fed said Morgan Stanley retained responsibility for the impact of Saxon’s actions. Saxon had issued over 225,000 residential mortgage loans.

Robo-signing typically involves employees of mortgage servicing companies automatically signing off foreclosure papers without checking them, in the interests of fast processing the papers.

The practice was allegedly supported by the Mortgage Electronic Registration Systems (MERS), which opponents claim may have resulted in unfair foreclosures for many home buyers. The database was created in 1995 to simplify the recording of mortgage sales and to allow banks to more easily sell on loans.

According to recent complaints by New York State against a number of banks, as well as being used fraudulently, the database was also “plagued with inaccuracies and errors”. New York State Attorney General Eric Schneidermann said that employees and agents of a number of banks had used the system to “repeatedly” submit court documents on mortgage holders, “containing false and misleading information that made it appear that the foreclosing party had the authority to bring a case when in fact it may not have [had]“.

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Federal regulators are poised to crack down on eight financial firms that are not part of the recent government settlement over homeforeclosure practices involving sloppy, inaccurate or forged documents.

Last week, a senior Federal Reserve official recommended fines for these additional firms, raising questions about how deep foreclosure problems run through the banking industry.

In addition, judges, lawyers and advocates for homeowners say that people are still losing their homes despite improper documentation and other flaws in the foreclosure process often involving these firms.

The eight firms cited by the Federal Reserve — HSBC’s United States bank division, SunTrust Bank, MetLife, U.S. Bancorp, PNC Financial Services, EverBank, OneWest and Goldman Sachs — should be fined for “unsafe and unsound practices in their loan servicing and foreclosure processing,” Suzanne G. Killian, a senior associate director of the Federal Reserve’s Division of Consumer and Community Affairs, told lawmakers last month in a House Oversight Committee hearing in Brooklyn.

The recommendation is the culmination of an investigation begun nearly two years ago over accusations that bank representatives had been churning through hundreds of documents a day in foreclosure proceedings without reviewing them for accuracy, a practice known as robo-signing.

Some see the Fed’s recommendation as an attempt to push these firms to agree to the terms of the broader mortgage settlement involving the state attorneys general and federal officials. During those settlement talks, federal regulators contacted other institutions in hopes that they would also agree to the terms, according to people briefed on the negotiations.

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JPMorgan Chase & Co. and Bank of America Corp. told regulators they were straining last year to hire and keep enough qualified people who could clear a backlog of foreclosure complaints.

JPMorgan, the largest U.S. bank by assets, vowed to expand training after its review found that the mortgage-servicing unit “struggled to absorb rapid staffing growth and, in many cases, hired representatives with little or no home lending industry experience.” Bank of America, ranked second, said compliance operations were understaffed as of midyear 2011 and that some people lacked the skills or stature needed to do their jobs.

The assessments, released yesterday by the Federal Reserve, were contained in action plans submitted after U.S. banks were ordered last April to clean up foreclosures and mortgage servicing. The order followed a deluge of borrower complaints about lost paperwork, broken promises and missed deadlines that cost some of them their homes. The accord compels the 14 largest servicers to repay homeowners for any losses tied to the errors.

The documents describe how firms will strengthen communications with borrowers, limit certain foreclosures and bolster compliance programs, the Fed said in a statement.

“Examiners found unsafe and unsound processes and practices in residential mortgage loan servicing and foreclosure processing at a number of supervised institutions” during reviews from November 2010 to January 2011, the Fed said. The central bank will “closely follow” implementation of the plans to ensure deficiencies are fixed, it said.

JPMorgan’s Plan

In documents dated Dec. 8, New York-based JPMorgan (JPM) said lack of training contributed to high error rates. The bank started a new training program for its default underwriting staff, and after 2,900 employees attended an average of 8 hours of instruction, the average score on a test improved to 92.2 percent from 81.7 percent.

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Jacob Gaffney, Housing Wire

FHFA Director

As soon as the Department of Justice released a memo confirming the legality of President Obama’s decision to appoint Richard Cordray to head of the Consumer Finance Protection Bureau while Congress is in recess, speculation started that the same may happen for a new head of the Federal Housing Finance Agency.

“This gives Obama the green light to appoint a new FHFA head before his State of the Union Speech,” tweeted Mike Bergen @BergenCapital on Twitter. (The president’s annual speech to the nation is set for Jan. 24, and Congress is back in session Jan. 23.)

It’s an excellent point, and while President Obama is free to do so, it’s a move not likely to happen.

Certainly the administration wants current FHFA head Edward DeMarco gone. His aversion to principal reduction at Fannie Mae and Freddie Mac does not sit well in the housing ideology of the White House and Federal Reserve.

The upcoming departures of the government-sponsored enterprise CEOs — Mike Williams and Ed Haldeman, who are also staunch opponents of principal reduction — leave an opening for the appointment of administration-friendly replacements.

But while Obama has the green light, there are a few nagging points that make such an action unlikely.

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Dean Baker, UK Gaurdian

Two years ago, the top honchos at the Fed, Treasury and the Wall Street banks were running around like Chicken Little warning that the world was about to end. This fear-mongering, together with a big assist from the elite media (thatis, NPR, the Washington Post, the Wall Street Journal, etc), earned the banks their $700bn Troubled Asset Relief Programme (Tarp) blank cheque bailout. This money, along with even more valuable loans and loan guarantees from the Fed and FDIC, enabled them to survive the crisis they had created. As a result, the big banks are bigger and more profitable than ever.

Now, the same crew that tapped our pockets two years ago is eagerly pitching the line that their bailout was good for us. It may be the case that the history books are written by the winners, but that doesn’t prevent the rest of us from telling the truth.

Let’s step back to where we were two years ago. The huge investment bank Bear Stearns had collapsed. So had Fannie Mae and Freddie Mac, the mortgage giants. Lehman Brothers, the fourth largest investment bank had also gone down. AIG, the country’s largest insurer, had been put on life support by the government.

At this point, Merrill Lynch, Morgan Stanley and Goldman Sachs, the three remaining independent investment banks, all faced runs that would quickly sink them without government intervention. Citigroup and Bank of America, two of the three largest commercial banks, were also almost certainly insolvent. Many other banks also faced insolvency, especially if they took big losses on their loans to other institutions that were about to go bankrupt.

This was when the Wall Street boys made their mad rush for the public trough. They enlisted everyone that mattered in the effort, including Treasury secretary Henry Paulson, Federal Reserve Board chairman Ben Bernanke, and Timothy Geithner, then the head of the New York Federal Reserve Bank.

The line was that the economy would collapse if congress did not immediately rescue the banks. They were prepared to make up anything to save the banks in their hour of need. Bernanke was probably caught in the biggest fabrication when he told congress that the commercial paper market was shutting down.

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Dave Clark, Reuters

Federal Reserve Governor Sarah Bloom Raskin on Saturday said the Fed must impose monetary penalties on banks who entered into an April agreement with regulators over how to fix problems in their mortgage servicing businesses.

“The Federal Reserve and other federal regulators must impose penalties for deficiencies that resulted in unsafe and unsound practices or violations of federal law,” Raskin said in remarks to the Association of American Law Schools. “The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties.”

Raskin did not say when the penalties will be announced.

She said that “appropriately sized” penalties would “incentivize mortgage servicers to incorporate strong programs to comply with laws when they build their business models.”

Mortgage servicers, many of which are large banks, collect home loan payments and manage issues like foreclosures.

The servicing issue burst into public view last year when government agencies began investigating bank mortgage practices, including the use of “robo-signers” to sign hundreds of unread foreclosure documents a day.

In April, 14 mortgage servicers, including Bank of America (BAC.N) and JPMorgan Chase (JPM.N), entered into a settlement with the Fed, the Office of the Comptroller of the Currency and the now defunct Office of Thrift Supervision on steps that have to be taken to correct and improve their servicing practices, such as providing borrowers with a single point of contact for questions.

As part of the agreement, these mortgage servicers have hired consultants to review foreclosures that took place in 2009 and 2010 to see if any were improper.

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Jillian Berman, Huffington Post

Federal Reserve Chairman Ben Bernanke

More than four years into the housing crisis, and after millions of Americans have lost their homes, Federal Reserve Chairman Ben Bernanke is finally taking a stand.

Bernanke sent a Federal Reserve paper to the leaders of the House of Representatives’ Committee on Financial Services arguing that relying heavily on foreclosures to deal with mortgage borrowers that can’t meet their obligations is “costly and inefficient” for the housing market because they can lead to deteriorating homes and weigh on the property values in the surrounding community.

Instead, the paper encourages lenders to “aggressively” pursue loan modifications and for servicers to be given more incentives to seek alternatives to foreclosure.

Foreclosures “can result in ‘deadweight losses,’ or costs that do not benefit anyone, including the neglect and deterioration of properties that often sit vacant for months (or even years) and the associated negative effects on neighborhoods,” the paper said. “These deadweight losses compound the losses that households and creditors already bear and can result in further downward pressure on house prices.”

The Obama administration has already pursued policies aimed at encouraging lenders to modify loans, although to very limited success. The Home Affordable Modification Program, which Obama announced in February 2009, had helped fewer than 700,000 homeowners as of October, despite promises that the program would encourage banks to modify the loans of 3 to 4 million homeowners.

The paper mirrors findings from regional Fed banks indicating that foreclosures can be detrimental to more Americans than just those who are losing their homes. Properties that are occupied, but in foreclosure, drive down the surrounding property values twice as much as vacant properties, an October study from the Cleveland Federal Reserve found.

And with millions of foreclosed properties already in the pipeline, the foreclosure process is already taking longer than in recent memory — a situation that may only be exacerbated if lenders don’t take the Fed’s advice. The average foreclosure process now takes 674 days, almost triple the time necessary in 2007.

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