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Board Report:  September 28, 2012

Audit of the Board's Actions to Analyze Mortgage Foreclosure Processing Risks


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In fall 2010, issues surfaced regarding documentation deficiencies and irregularities in foreclosure processing. In response, the Board, the Office of the Comptroller of the Currency, the FDIC, and the Office of Thrift Supervision initiated an interagency review of the foreclosure policies and practices of selected federally regulated mortgage servicers. Personnel from several Board divisions were engaged in this review, including the Division of Consumer and Community Affairs (DCCA) and the Division of Banking Supervision and Regulation (BS&R). Our audit objective was to assess the Board's activities in response to potential risks related to mortgage foreclosures.

Overall, we found that the Board was able to develop approaches and perform activities to assess the foreclosure processing risks. The Board did, however, experience challenges in executing the interagency foreclosure review. DCCA and BS&R faced challenges with managing the review's resource demands and timeline, which delayed other scheduled supervisory activities. The examiners who participated on the interagency foreclosure review were challenged to quickly develop an understanding of the complex legal issues related to foreclosures and to examine a third-party service provider's foreclosure processing activities, with which examiners lacked prior experience. DCCA and BS&R were challenged with identifying staff who had the necessary expertise to perform the interagency foreclosure review.

Our report contained two recommendations focused on improving the Board's processes for responding to future risks. We recommended that BS&R and DCCA conduct a lessons-learned exercise to evaluate insights gained from the interagency foreclosure review. We also recommended that BS&R assess whether the current processes and tools used to identify staff with specialized skills and competencies are adequate and define a frequency for the periodic review of skill and competency categories.

In comments on a draft of our report, the Directors of BS&R and DCCA stated that staff have conducted an informal assessment of the interagency foreclosure review initiative, which can be leveraged to satisfy the intent of our first recommendation. Regarding our second recommendation, they stated that they agree that an opportunity exists to assess whether the processes used to identify skills and competencies outside of those needed for basic supervision can be enhanced.