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United States Government Accountability Office: 
GAO: 

Testimony: 

Before the Subcommittee on Housing, Transportation and Community 
Development, Committee on Banking, Housing, and Urban Affairs, U.S. 
Senate: 

For Release on Delivery: 
Expected at 2:00 p.m. EDT:
Thursday, May 12, 2011: 

Mortgage Foreclosures: 

Documentation Problems Reveal Need for Ongoing Regulatory Oversight: 

Statement of A. Nicole Clowers, Acting Director: 
Financial Markets and Community Investment: 

GAO-11-649T: 

Chairman Menendez, Ranking Member DeMint, and Members of the 
Subcommittee: 

Thank you for the opportunity to discuss our work on mortgage 
servicing issues. With record numbers of borrowers in default and 
delinquent on their loans, mortgage servicers--entities that manage 
home mortgage loans--are initiating large numbers of foreclosures 
throughout the country. As of December 2010, an estimated 4.6 percent 
of the about 50 million first-lien mortgages outstanding were in 
foreclosure--an increase of more than 370 percent since the first 
quarter of 2006, when 1 percent were in foreclosure.[Footnote 1] 
Beginning in September 2010, several servicers announced that they 
were halting or reviewing their foreclosure proceedings throughout the 
country after allegations that the documents accompanying judicial 
foreclosures may have been inappropriately signed or notarized. 
[Footnote 2] The servicers subsequently resumed some foreclosure 
actions after reviewing their processes and procedures. However, 
following these allegations, some homeowners challenged the validity 
of foreclosure proceedings against them. Questions about whether 
documents for loans that were sold and packaged into mortgage-backed 
securities were properly handled prompted additional challenges. 
[Footnote 3] 

My statement today focuses on (1) the extent to which federal laws 
address mortgage servicers' foreclosure procedures and federal 
agencies' authority to oversee servicers' activities and the extent of 
past oversight; (2) federal agencies' current oversight activities and 
future oversight plans; and (3) the potential impact of foreclosure 
documentation issues on homeowners, servicers, regulators, and 
investors in mortgage-backed securities. It is based on the report we 
issued on May 2, 2011, on foreclosure documentation problems that 
Chairman Menendez, Senator Franken, and Ranking Members Conyers, 
Gutierrez, and Capuano requested.[Footnote 4] 

To conduct the work for our report, we reviewed relevant federal laws, 
regulations, examination guidance, and other agency documents. We also 
reviewed relevant literature, examples of reported court cases 
involving these issues, congressional testimonies, and other relevant 
publicly available documentation. In addition, we examined agency 
documentation on current oversight activities, such as an examination 
worksheet, checklists, and supervisory letters summarizing examination 
findings. We conducted interviews with representatives of federal 
agencies, including the Bureau of Consumer Financial Protection 
(CFPB), Federal Deposit Insurance Corporation (FDIC), Board of 
Governors of the Federal Reserve System (Federal Reserve), Office of 
the Comptroller of the Currency (OCC), and Office of Thrift 
Supervision (OTS). We also interviewed legal experts and 
representatives of the mortgage industry, investor groups, and 
consumer advocacy groups. We conducted the work for the report from 
October 2010 through April 2011 in accordance with generally accepted 
government auditing standards. 

In summary, until the problems with foreclosure documentation came to 
light, federal regulatory oversight of mortgage servicers had been 
limited, because regulators regarded servicers' activities as low risk 
for banking safety and soundness. However, regulators' recent 
examinations revealed that servicers generally failed to prepare 
required documentation properly and lacked effective supervision and 
controls over foreclosure processes. Moreover, the resulting delays in 
completing foreclosures and increased exposure to litigation highlight 
how the failure to oversee whether institutions follow sound practices 
can heighten the risks these entities present to the financial system 
and create problems for the communities in which foreclosures occur. 
As a result, we recommended in our report that the financial 
regulators take various actions, including: 

* developing and coordinating plans for ongoing oversight of servicers, 

* including foreclosure practices as part of any national servicing 
standards that are created, and: 

* assessing the risks of improper documentation for mortgage loan 
transfers. 

* The regulators generally agreed with or did not comment on our 
recommendations, and some are taking actions to address them. 

Background: 

The origination, securitization, and servicing of mortgage loans 
involve multiple entities. In recent years, originating lenders 
generally have sold or assigned their interest in loans to other 
financial institutions to securitize the mortgages. Through 
securitization, the purchasers of these mortgages then package them 
into pools and issue securities for which the mortgages serve as 
collateral. These mortgage-backed securities (MBS) pay interest and 
principal to their investors, such as other financial institutions, 
pension funds, or mutual funds. After an originator sells its loans, 
another entity is usually appointed as the servicer. Servicing duties 
can involve sending borrowers monthly account statements, answering 
customer service inquiries, collecting mortgage payments, maintaining 
escrow accounts for taxes and insurance, and forwarding payments to 
the mortgage owners. If a borrower becomes delinquent on loan 
payments, servicers also initiate and conduct a foreclosure in order 
to obtain the proceeds from the sale of the property on behalf of the 
owner of the loan. Any legal action such as foreclosure that a 
servicer takes generally may be brought in the name and on behalf of 
the securitization trust, which is the legal owner of record of the 
mortgage loans. 

Several federal agencies share responsibility for regulating 
activities of the banking industry that relate to the originating and 
servicing of mortgage loans (see table 1). Upon assumption of its full 
authorities on July 21, 2011, CFPB also will have authority to 
regulate mortgage servicers with respect to federal consumer financial 
law.[Footnote 5] Other agencies also oversee certain aspects of U.S. 
mortgage markets but do not have supervisory authority over mortgage 
servicers. 

Table 1: Federal Banking Regulators and Their Jurisdiction: 

Agency: Office of the Comptroller of the Currency; 
Jurisdiction[A]: Federally chartered banks. 

Agency: Office of Thrift Supervision; 
Jurisdiction[A]: Federally chartered savings associations (thrifts), 
including mortgage operating subsidiaries, as well as savings and loan 
holding companies and lenders owned by a savings and loan holding 
company. Shares oversight of state-chartered savings associations with 
the state regulatory authority that chartered them. 

Agency: Board of Governors of the Federal Reserve System; 
Jurisdiction[A]: State-chartered member banks and entities that may be 
owned by federally regulated holding companies but that are not 
federally insured depository institutions. Shares oversight with the 
state regulatory authority that chartered the bank. 

Agency: Federal Deposit Insurance Corporation; 
Jurisdiction[A]: State-chartered banks that are not members of the 
Federal Reserve System. Shares oversight with the state regulatory 
authority that chartered the bank. 

Source: GAO. 

Note: OCC will assume oversight responsibility of federal savings 
associations from OTS in July 2011. Concurrently, FDIC will assume 
oversight responsibility of state-chartered savings associations from 
OTS, and the Federal Reserve will assume oversight responsibility of 
savings and loan holding companies and lenders owned by a savings and 
loan holding company from OTS, according to OTS officials. 

[A] 12 U.S.C. § 1813(q). 

[End of table] 

Federal Laws Generally Do Not Address the Foreclosure Process, and 
Past Federal Oversight of Foreclosure Activities Has Been Limited and 
Fragmented: 

Because state laws primarily govern foreclosure, federal laws related 
to mortgage lending focus on protecting consumers at mortgage 
origination and during the life of a loan but not necessarily during 
foreclosure. Federal consumer protection laws, such as the Truth in 
Lending Act (TILA) and the Real Estate Settlement Procedures Act of 
1974 (RESPA), address some aspects of servicers' interactions with 
borrowers.[Footnote 6] For example, these laws require servicers to 
provide certain notifications and disclosures to borrowers or respond 
to certain written requests for information within specified times, 
but they do not include specific requirements for servicers to follow 
when executing a foreclosure. According to Federal Reserve officials, 
in addition to federal bankruptcy laws, federal laws that address 
foreclosure processing specifically are the Protecting Tenants at 
Foreclosure Act of 2009, which protects certain tenants from immediate 
eviction by new owners who acquire residential property through 
foreclosure, and the Servicemembers Civil Relief Act, which restricts 
foreclosure of properties owned by active duty members of the 
military.[Footnote 7] 

Banking regulators oversee most entities that conduct mortgage 
servicing, but their oversight of foreclosure activities generally has 
been limited. As part of their mission to ensure the safety and 
soundness of these institutions, the regulators have the authority to 
review any aspect of their activities, including mortgage servicing 
and compliance with applicable state laws. However, the extent to 
which regulators have reviewed the foreclosure activities of banks or 
banking subsidiaries that perform mortgage servicing has been limited 
because these practices generally were not considered as posing a high 
risk to safety and soundness. According to OCC and Federal Reserve 
staff, they conduct risk-based examinations that focus on areas of 
greatest risk to their institutions' financial positions, as well as 
some other areas of potential concern, such as consumer complaints. 
Servicers generally manage loans that other entities own or hold, and 
are not exposed to significant losses if these loans become 
delinquent. Because regulators generally determined that the safety 
and soundness risks from mortgage servicing were low, they have not 
regularly examined servicers' foreclosure practices on a loan-level 
basis. 

Oversight also has been fragmented, and not all servicers have been 
overseen by federal banking regulators. At the federal level, multiple 
agencies--including OCC, the Federal Reserve, OTS, and FDIC--have 
regulatory responsibility for most of the institutions that conduct 
mortgage servicing, but until recently, some nonbank institutions have 
not had a primary federal or state regulator. Many federally regulated 
bank holding companies that have insured depository subsidiaries, such 
as national or state-chartered banks, may have nonbank subsidiaries 
such as mortgage finance companies. Under the Bank Holding Company Act 
of 1956, as amended, the Federal Reserve has jurisdiction over such 
bank holding companies and their nonbank subsidiaries that are not 
regulated by another functional regulator.[Footnote 8] Until recently 
the Federal Reserve generally had not included the nonbank 
subsidiaries in its examination activity because their activities were 
not considered to pose material risks to the bank holding companies. 
In some cases, nonbank entities that service mortgage loans are not 
affiliated with financial institutions at all, and therefore were not 
subject to oversight by one of the federal banking regulators. In our 
2009 report on how the U.S. financial regulatory system had not kept 
pace with the major developments in recent decades, we noted that the 
varying levels or lack of oversight for nonbank institutions that 
originated mortgages created problems for consumers or posed risks to 
regulated institutions.[Footnote 9] 

While Federal Regulators Conducted Reviews in Response to Reported 
Problems, Future Oversight and Servicing Standards Have Yet to Be 
Determined: 

In response to disclosed problems with foreclosure documentation, 
banking regulators conducted coordinated on-site reviews of 
foreclosure processes at 14 mortgage servicers. Generally, these 
examinations revealed severe deficiencies in the preparation of 
foreclosure documentation and with the oversight of internal 
foreclosure processes and the activities of external third-party 
vendors. Examiners generally found in the files they reviewed that 
borrowers were seriously delinquent on the payments on their loans and 
that the servicers had the documents necessary to demonstrate their 
authority to foreclose. However, examiners or internal servicer 
reviews of foreclosure loan files identified a limited number of cases 
in which foreclosures should not have proceeded even though the 
borrower was seriously delinquent. These cases include foreclosure 
proceedings against a borrower who had received a loan modification or 
against military service members on active duty, in violation of the 
Servicemembers Civil Relief Act. 

As a result of these reviews, the regulators issued enforcement 
actions requiring servicers to improve foreclosure practices. 
Regulators plan to assess compliance but have not fully developed 
plans for the extent of future oversight. According to the regulators' 
report on their coordinated review, they help ensure that servicers 
take corrective actions and fully implement enforcement orders. 
[Footnote 10] While regulatory staff recognized that additional 
oversight of foreclosure activities would likely be necessary in the 
future, as of April 2011 they had not determined what changes would be 
made to guidance or to the extent and frequency of examinations. 
Moreover, regulators with whom we spoke expressed uncertainty about 
how their organizations would interact and share responsibility with 
the newly created CFPB regarding oversight of mortgage servicing 
activities. According to regulatory staff and the staff setting up 
CFPB, the agencies intend to coordinate oversight of mortgage 
servicing activities as CFPB assumes its authorities in the coming 
months. CFPB staff added that supervision of mortgage servicing will 
be a priority for the new agency. However, as of April 2011 CFPB's 
oversight plans had not been finalized. As we stated in our report, 
fragmentation among the various entities responsible for overseeing 
mortgage servicers heightens the importance of coordinating plans for 
future oversight. Until such plans are developed, the potential for 
continued fragmentation and gaps in oversight remains. In our report, 
we recommend that the regulators and CFPB develop and coordinate plans 
for ongoing oversight and establish clear goals, roles, and timelines 
for overseeing mortgage servicers under their respective jurisdiction. 
In written comments on the report, the agencies generally agreed with 
our recommendation and said that they would continue to oversee 
servicers' foreclosure processes. In addition, CFPB noted that it has 
already been engaged in discussions with various federal agencies to 
coordinate oversight responsibilities. 

As part of addressing the problems associated with mortgage servicing, 
including those relating to customer service, loan modifications, and 
other issues, various market participants and federal agencies have 
begun calling for the creation of national servicing standards, but 
the extent to which any final standards would address foreclosure 
documentation and processing is unclear. A December 2010 letter from a 
group of academics, industry association representatives, and others 
to the financial regulators noted that such standards are needed to 
ensure appropriate servicing for all loans, including in MBS issuances 
and those held in portfolios of the originating institution or by 
other owners. This letter outlined various areas that such standards 
could address, including those requirements that servicers attest that 
foreclosure processes comply with applicable laws and pursue loan 
modifications whenever economically feasible. 

Similarly, some regulators have stated their support of national 
servicing standards. For example, OCC has developed draft standards, 
and in his February 2011 testimony, the Acting Comptroller of the 
Currency expressed support for such standards, noting that they should 
provide the same safeguards for all consumers and should apply 
uniformly to all servicers.[Footnote 11] He further stated that 
standards should require servicers to have strong foreclosure 
governance processes that ensure compliance with all legal standards 
and documentation requirements and establish effective oversight of 
third-party vendors. A member of the Board of Governors of the Federal 
Reserve System testified that consideration of national standards for 
mortgage servicers was warranted, and FDIC's Chairman urged servicers 
and federal and state regulators in a recent speech to create national 
servicing standards.[Footnote 12] Most of the regulators with whom we 
spoke indicated that national servicing standards could be beneficial. 
For example, staff from one of the regulators said that the standards 
would create clear expectations for all servicers, including nonbank 
entities not overseen by the banking regulators, and would help 
establish consistency across the servicing industry. The regulators' 
report on the coordinated review also states that such standards would 
help promote accountability and ways of appropriately dealing with 
consumers and strengthen the housing finance market. 

Although various agencies have begun discussing the development of 
national servicing standards, the content of such standards and how 
they would be implemented is yet to be determined. According to CFPB 
staff, whatever the outcome of the interagency negotiations, CFPB will 
have substantial rulemaking authority over servicing and under the 
Dodd-Frank Act is required to issue certain rules on servicing by 
January 2013. We reported that problems involving financial 
institutions and consumers could increase when activities are not 
subject to consistent oversight and regulatory expectations.[Footnote 
13] Including specific expectations regarding foreclosure practices in 
any standards that are developed could help ensure more uniform 
practices and oversight in this area. To help ensure strong and robust 
oversight of all mortgage servicers, we recommended that the banking 
regulators and CFPB include standards for foreclosure practices if 
national servicing standards are created. 

In written comments on our report, the agencies generally agreed with 
this recommendation, and most provided additional details about the 
ongoing interagency efforts to develop servicing standards. For 
example, OCC noted that ongoing efforts to develop national servicing 
standards are intended to include provisions covering both foreclosure 
abeyance and foreclosure governance. OCC added that the standards, 
although still a work in progress, will emphasize communication with 
the borrower and compliance with legal requirements, documentation, 
vendor management, and other controls. The Federal Reserve commented 
that the intent of the interagency effort was to address the problems 
found in the servicing industry, including in foreclosure processing, 
and coordinate the efforts of the multiple regulatory agencies to 
ensure that consumers will be treated properly and consistently. FDIC 
noted that the agency successfully proposed the inclusion of loan 
servicing standards in the proposed rules to implement the 
securitization risk retention requirements of the Dodd-Frank Act. FDIC 
also noted that any servicing standards should align incentives 
between servicers and investors and ensure that appropriate loss 
mitigation activities are considered when borrowers experience 
financial difficulties. CFPB said it has effective authority to adopt 
national mortgage servicing rules for all mortgage servicers, 
including those for which CFPB does not have supervisory authority. 
Finally, Treasury said it has been closely engaged with the 
interagency group reviewing errors in mortgage servicing and that it 
supports national servicing standards that align incentives and 
provide clarity and consistency to borrowers and investors for their 
treatment by servicers. 

While Documentation Problems Likely Will Result in Delays in the 
Foreclosure Process, the Impact on Financial Institutions and Others 
Is Less Clear: 

To date, a key impact of the problems relating to affidavits and 
notarization of mortgage foreclosure documents appears to be delays in 
the rate at which foreclosures proceed. Despite these initial delays, 
some regulatory officials, legal academics, and industry officials we 
interviewed indicated that foreclosure documentation issues were 
correctable. Once servicers have revised their processes and corrected 
documentation errors, most delayed foreclosures in states that require 
court action likely will proceed. 

The implications for borrowers could be mixed, but delays in the 
foreclosure process could exacerbate the impacts of vacant properties 
and affect recovery of housing prices. Borrowers whose mortgage loans 
are in default may benefit from the delays if the additional time 
allows them to obtain income that allows them to bring mortgage 
payments current, cure the default, or work out loan modifications. 
However, according to legal services attorneys we interviewed, these 
delays leave borrowers unsure about how long they could remain in 
their homes. And borrowers still might be subject to new foreclosure 
proceedings if banks assembled the necessary paperwork and resubmitted 
the cases. Communities could experience negative impacts from delayed 
foreclosures as more properties might become vacant. We reported that 
neighborhood and community problems stemming from vacancies include 
heightened crime, blight, and declining property values, and increased 
costs to local governments for policing and securing properties. 
[Footnote 14] Delays in the foreclosures process, although temporary, 
could exacerbate these problems. Various market observers and 
regulators indicated that the delays could negatively affect the 
recovery of U.S. housing prices in the long term. According to one 
rating agency's analysis, market recovery could be delayed as 
servicers work through the backlog of homes in foreclosure. Regulators 
also reported that delays could be an impediment for communities 
working to stabilize local neighborhoods and housing markets, and 
could lead to extended periods of depressed home prices. 

Impacts on servicers, trusts, and investors because of loan transfer 
documentation problems were unclear. Some academics and others have 
argued that the way that mortgage loans were transferred in connection 
with some MBS issuances could affect servicers' ability to complete 
foreclosures and create financial liabilities for other entities, such 
as those involved in creating securities. According to these 
academics, a servicer may not be able to prove its right to foreclose 
on a property if the trust on whose behalf it is servicing the loan is 
not specifically named in the loan transfer documentation. In 
addition, we note in our report that stakeholders we interviewed said 
that investors in the MBS issuance may press legal claims against the 
creators of the trusts or force reimbursements, or repurchases. 
Conversely, other market participants argue that mortgages were pooled 
into securities using standard industry practices that were sufficient 
to create legal ownership on behalf of MBS trusts. According to these 
participants, the practices that were typically used to transfer loans 
into private label MBS trusts comply with the Uniform Commercial Code, 
which generally has been adopted in every state.[Footnote 15] As a 
result, they argue that the transfers were legally sufficient to 
establish the trusts' ownership. Although some courts may have 
addressed transfer practices in certain contexts, the impact of the 
problems likely will remain uncertain until courts issue definitive, 
controlling decisions. In the near term, industry observers and 
regulators noted that these cases and other weaknesses in foreclosure 
processes could lead to increased litigation and servicing costs for 
servicers, more foreclosure delays, and investor claims. 

Although tasked with overseeing the financial safety and soundness of 
institutions under their jurisdiction, the banking regulators have not 
fully assessed the extent to which MBS loan transfer problems could 
affect their institutions financially. According to staff at one of 
the regulators, as part of the coordinated review, examiners did not 
always verify that loan files included accurate documentation of all 
previous note and mortgage transfers--leaving open the possibility 
that transfer problems exist in the files they reviewed. The 
enforcement orders resulting from the coordinated review require 
servicers to retain an independent firm to assess these risks. 
Regulators will more frequently monitor these servicers until they 
have corrected the identified weaknesses; however, the regulators have 
not definitively determined how transfer problems might financially 
affect other institutions they regulate, including any of the 
institutions involved in the creation of private label MBS. With 
almost $1.3 trillion in private label securities outstanding as of the 
end of 2010, the institutions and the overall financial system could 
face significant risks. 

To reduce the likelihood that problems with transfer documentation 
could pose a risk to the financial system, we recommended that the 
banking regulators assess the risks of potential litigation or 
repurchases due to improper mortgage loan transfer documentation on 
institutions under their jurisdiction and require that the 
institutions act to mitigate the risks, if warranted. Completing the 
risk assessments and fully ensuring that regulated institutions 
proactively address the risks could reduce the potential threat to the 
soundness of these institutions, the deposit insurance fund, and the 
overall financial system. In written comments on a draft of our 
report, the regulators generally agreed with or did not comment on 
this recommendation. For example, FDIC strongly supported this 
recommendation and noted its particular interest in protecting the 
deposit insurance fund. In addition, the Federal Reserve said that it 
has conducted a detailed evaluation of the risk of potential 
litigation or repurchases to the financial institutions it supervises 
and will continue to monitor these issues. 

Chairman Menendez, Ranking Member DeMint, and members of the 
subcommittee, this completes my prepared statement. I would be happy 
to respond to any questions you may have at this time. 

Contacts and Staff Acknowledgments: 

If you or your staff have any questions about matters discussed in 
this testimony, please contact A. Nicole Clowers at (202) 512-4010 or 
clowersa@gao.gov. Other key contributors to this testimony include 
Cody Goebel (Assistant Director), Beth Garcia, Jill Naamane, and Linda 
Rego. 

[End of section] 

Footnotes: 

[1] A home mortgage is an instrument by which the borrower (mortgagor) 
gives the lender (mortgagee) a lien on residential property as 
security for the repayment of a loan. A first-lien mortgage creates a 
primary lien against real property and has priority over subsequent 
mortgages, which generally are known as junior, or second, mortgages. 
That is, first liens are the first to be paid when the property is 
sold. 

[2] State laws primarily govern the foreclosure process and treat 
foreclosures differently, with some states requiring court action--
that is, judicial foreclosure. 

[3] These challenges have centered on whether the paperwork 
documenting transfers of loans into securities pools adequately proves 
that the trust (the entity formed to hold the securitized loans) 
seeking to foreclose on a property was the actual mortgage holder with 
the authority to foreclose. 

[4] GAO, Mortgage Foreclosures: Documentation Problems Reveal Need for 
Ongoing Regulatory Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-11-433] (Washington, D.C.: May 2, 
2011). 

[5] The Dodd-Frank Wall Street Reform and Consumer Protection Act 
(Dodd-Frank Act), enacted on July 21, 2010, establishes the Bureau of 
Consumer Financial Protection (known as the Consumer Financial 
Protection Bureau or CFPB) as an independent bureau within the Federal 
Reserve System. Section 1066 of the Dodd-Frank Act authorized the 
Secretary of the Treasury to provide administrative services necessary 
to support the CFPB before the transfer date and to exercise certain 
of its powers until the appointment of a CFPB Director. 12 U.S.C. § 
5586. "Federal consumer financial law" is a defined term in the Dodd-
Frank Act that includes more than a dozen existing federal consumer 
protection laws, including the Truth in Lending Act, the Real Estate 
Settlement Procedures Act, and the Equal Credit Opportunity Act, as 
well as title X of the Dodd-Frank Act itself. 12 U.S.C. § 5481(12), 
(14). 

[6] Much of the Truth in Lending Act addresses disclosures for 
consumer credit transactions, and the Real Estate Settlement 
Procedures Act of 1974 focuses primarily on the regulation and 
disclosure of mortgage closing documents. Other relevant consumer 
protection laws include the Fair Housing and Equal Credit Opportunity 
Acts, which address granting credit and ensuring nondiscrimination in 
lending; the Fair Credit Reporting Act, which addresses consumer 
report information, including use of such information in connection 
with mortgage lending; and the Secure and Fair Enforcement for 
Mortgage Licensing Act of 2008 (SAFE Act), which requires licensing 
and/or registration of mortgage loan originators. Fair Housing Act, 42 
U.S.C. §§ 3601-3619; Equal Credit Opportunity Act, 15 U.S.C. §§ 1691-
1691f; Truth in Lending Act, 15 U.S.C. §§ 1601-1667f; Real Estate 
Settlement Procedures Act of 1974, 12 U.S.C. §§ 2601-2617; Fair Credit 
Reporting Act, 15 U.S.C. §§ 1681-1681x; SAFE Act, 12 U.S.C. §§ 5101-
5116. 

[7] 12 U.S.C. §§ 5201 note, 5220 note. The law expires December 31, 
2014. 50 U.S.C. App. §§ 501-597b. 

[8] 12 U.S.C. § 1844(c)(2). "Functional regulation" refers to the 
premise that risks within a diversified organization can be managed 
properly through supervision focused on the individual subsidiaries 
within the firm. That is, securities activities are supervised by 
securities regulators, banking activities by banking regulators, and 
insurance activities by insurance regulators. 

[9] GAO, Financial Regulation: A Framework for Crafting and Assessing 
Proposals to Modernize the Outdated U.S. Financial Regulatory System, 
[hyperlink, http://www.gao.gov/products/GAO-09-216] (Washington, D.C. 
Jan. 8, 2009). 

[10] Federal Reserve System, Office of the Comptroller of the 
Currency, and Office of Thrift Supervision, Interagency Review of 
Foreclosure Policies and Practices, (Washington, D.C.: April 2011). 

[11] Testimony of John Walsh, Acting Comptroller of the Currency, 
Office of the Comptroller of the Currency, before the Committee on 
Banking, Housing, and Urban Affairs, United States Senate, Washington, 
D.C.: February 17, 2011. 

[12] Statement by Daniel K. Tarullo, Member, Board of Governors of the 
Federal Reserve System, before the Committee on Banking, Housing and 
Urban Affairs, United States Senate, Washington, D.C.: December 1, 
2010; and speech delivered by FDIC Chairman Sheila Bair at Mortgage 
Bankers Association's Summit on Residential Mortgage Servicing for the 
21st Century, January 19, 2011. For example, Chairman Bair has 
suggested that servicers provide borrowers a single point of contact 
to assist them throughout the loss mitigation and foreclosure process. 
The contact would be able to put a hold on any foreclosure proceeding 
while loss mitigation efforts were ongoing. 

[13] [hyperlink, http://www.gao.gov/products/GAO-09-216]. 

[14] [hyperlink, http://www.gao.gov/products/GAO-11-93]. 

[15] Loans that were sold into pools and then securities issued by 
entities other than the government-sponsored enterprises Federal 
National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage 
Corporation (Freddie Mac), or Government National Mortgage Association 
(Ginnie Mae) are known as private label MBS. 

[End of section] 

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U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: