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Fed to investigate foreclosure mess to see if lenders broke rules

WASHINGTON — Raising pressure on banks, the Federal Reserve is wading into the investigation of whether mortgage lenders cut corners and used flawed documents to foreclose on homes.

Major banks are already under investigation by state officials with subpoena power, who could force them to detail how they handled hundreds of thousands of foreclosure cases.

Federal Reserve Chairman Ben Bernanke added weight to those efforts Monday by saying the central bank would look "intensively" at policies and procedures that might have allowed banks to seize homes improperly.

"We take violation of proper procedures very seriously," Bernanke said.

The Fed is working with the Treasury Department's Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. They have a range of options. They include ordering companies to stop certain practices, imposing fines and working with lenders to come up with a fix. Bernanke provided no details in his speech about any penalties being weighed.

According to two officials familiar with the joint federal inquiry who requested not to be identified, the banking agencies are looking into whether companies had controls in place when foreclosure documents were signed and whether employees involved in the foreclosure process were adequately trained.

Ultimately, the mess will probably be settled by the states. "They can move more quickly than the Fed, and I think they have more leverage over banks to get them to quickly settle," said Mark Williams, a former bank examiner at the Fed and now a lecturer at Boston University.

Some analysts suggested the Fed is trying to send the message that it's helping to manage the foreclosure controversy. The central bank shared blame with other federal regulators for failing to head off the 2008 financial crisis.

"The Fed is already late to the crime scene," Williams said.

Fed to investigate foreclosure mess to see if lenders broke rules 10/25/10 [Last modified: Monday, October 25, 2010 9:12pm]
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