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Banks That Failed to Fix Mortgage Services Face Restrictions

A home in Riverside, Calif. Mortgage divisions at Wells Fargo and HSBC will not be allowed to purchase mortgage servicing rights from other lenders.Credit...Emily Berl for The New York Times

JPMorgan Chase, Wells Fargo and four other large banks have failed to make long-promised improvements to their mortgage operations, a federal regulator said on Wednesday.

The six banks, and several others, had agreed in 2011 to make dozens of changes to the way they issue and service mortgages after being accused of wrongly foreclosing on homeowners after the financial crisis. Homeowners had faced problems including bungled loan modifications, deficient paperwork, excessive fees and wrongful evictions that stemmed from the sprawling mortgage issues.

As a result of their failure to comply with the 2011 agreement, the banks will now have new restrictions on their mortgage divisions, the Office of the Comptroller of the Currency said on Wednesday.

The agency, which is one of primary federal regulators of financial institutions, said that the six banks cited would also face additional fines and restrictions in the coming months that would vary based on the degree of the continuing problems.

The announcement underscored just how long it has taken the banks to correct the problems that were turned up during the crisis. Back in 2011, regulators initially gave the banks 120 days to make improvements in a number of areas. While the banks were later given extensions, few expected the issues to persist into 2015.

The O.C.C. found that HSBC had the most continuing problems; it did not make 45 of the 98 changes it had agreed to in the 2011 consent order and an amended agreement in 2013. Wells Fargo, the largest mortgage lender in the country last year, failed to put in place 15 of the 98 changes.

Wells Fargo did not, among other things, take adequate steps to deal properly with customers in bankruptcy, and did not have the proper processes in place “to ensure that all fees, expenses and other charges imposed on the borrower are assessed in accordance with the terms of the underlying mortgage note,” the new consent order said.

Because of the extent of their problems, HSBC and Wells Fargo will be barred from acquiring any new mortgage servicing rights from other banks.

JPMorgan, Santander, U.S. Bank and EverBank will be able to acquire new rights only with advance approval of regulators. None of the banks will face any restrictions on mortgages they issue themselves.

The mortgage servicing arms of the banks manage the direct relationship with borrowers and deal with homeowners when they fall behind on their payments. Banks often buy the right to service mortgages issued by other institutions. Wells Fargo and JPMorgan currently have the largest servicing portfolios in the country.

The president of Wells Fargo Home Mortgage, Mike Heid, said in a statement on Wednesday that the bank had “implemented significant changes to our mortgage servicing operations and achieved compliance with major elements of the original consent order.”

Mr. Heid said that Wells Fargo would fully comply with the expectations of regulators “in the coming months.”

A spokesman for HSBC said the bank would “actively address the remaining issues.”

The stubbornly persistent problems called out by the O.C.C. this week are only the latest complications in the messy federal investigation into how the nation’s largest banks handled foreclosures after the financial crisis.

Regulators were initially spurred into action by accusations that the banks had been hastily processing foreclosures as the housing market collapsed, using a process known as robosigning that often meant the banks did not adequately check on the accuracy of the documentation.

Fourteen banks agreed with regulators in 2011 to a comprehensive review of all the foreclosures in 2009 and 2010. But the reviews were overseen by outside consultants with close ties to the banks, and it soon emerged that the consultants were collecting billions of dollars in fees while making slow progress in identifying wronged homeowners.

The comptroller’s office ultimately called off the reviews and reached an agreement with the banks in 2013 on a $10 billion settlement. Part of that money was set to be distributed to all four million homeowners who had faced foreclosure.

The office has paid more than $2.7 billion to more than 3.2 million borrowers, the agency said on Wednesday. The agency has tried to send another $280 million to eligible homeowners, but those checks have not been cashed. That money will be sent to states for the homeowners to claim.

The banks had agreed to make changes to their mortgage businesses back in the 2011 consent order.

The comptroller’s office said that three of the banks that signed onto the original consent order — Bank of America, Citi and PNC Financial — fulfilled all of their obligations and were no longer operating under restrictions.

JPMorgan Chase, the second-largest mortgage lender last year, still needs to adopt 10 of the 98 improvements it agreed to previously, according to a new consent order.

JPMorgan’s new agreement said that, among other things, the bank still did not have adequate measures in place to ensure that it had accurate records for all mortgages it serviced, and was not setting “appropriate deadlines for responses to borrower communications.”

A spokeswoman for JPMorgan, Amy Bonitatibus, said “we believe we’re in a position to complete our remaining items by the end of the summer.”

A version of this article appears in print on  , Section B, Page 5 of the New York edition with the headline: Banks That Failed to Fix Mortgage Services Face Restrictions. Order Reprints | Today’s Paper | Subscribe

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