WASHINGTON — The Federal Reserve has reversed its opposition to new rules reining in foreclosure abuses, and will support stronger regulations on the nation’s largest banks, according to a source familiar with the matter.
The Wall Street reform legislation signed into law by President Obama in July 2010 required federal regulators to write new rules governing the broken market for mortgage bonds. Problems in the packaging and sale of mortgage bonds helped inflate the housing bubble and facilitated the sale of predatory loans nationwide. Since banks could push mortgages on borrowers and then sell them to investors, critics say that banks lacked serious incentives to ensure those loans could be repaid.
The FDIC has been pushing hard to ensure that new regulations on the mortgage bond market include clear instructions for how banks handle mortgages– and under what circumstances they can evict delinquent borrowers. The bank divisions that collect payments from borrowers and implement the foreclosure process– known as “mortgage servicers”– have been plagued by rampant problems with fraudulent documentation. This fraud has resulted in everything from illegal fees charged to borrowers to improper evictions.