Financial Institutions: Penalty and Settlement Payments for Mortgage-Related Violations in Selected Cases

What GAO Found

GAO reviewed nine selected cases involving alleged mortgage-related violations—violations related to mortgage origination, mortgage servicing, and the packaging or sale of residential mortgage-backed securities—finalized from February 2012 through April 2016. GAO found that the eight federal agencies that played key roles in these cases—the Department of Justice, Department of Housing and Urban Development; Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau; Securities and Exchange Commission, and other agencies —all had their own processes for collecting payments made by financial institutions as a result of civil money penalties or settlement agreements. The funds collected by these agencies in the nine selected cases were eventually deposited into various accounts, depending on the agencies involved, the laws governing where agencies may deposit funds, and the terms of the specific settlement agreements. In the nine cases GAO reviewed, financial institutions were required to pay a total of almost $25 billion in penalties, settlement amounts, and consumer relief. Of the $25 billion, the eight agencies in the nine selected cases were responsible for collecting about half. These funds were largely used to support general government services, provide redress to affected harmed consumers, aid in civil debt collection activities, or provide damages to failed credit unions and banks.

Why GAO Did This Study

Over the last few years, federal agencies have collected billions of dollars in settlement payments and penalties from financial institutions for violations alleged to have been committed during the mortgage origination process, the servicing of mortgages, and in the packaging and sale of residential mortgage-backed securities. Depending on the nature and severity of the alleged violation, federal agencies—including the Department of Justice; Department of Housing and Urban Development; Bureau of Consumer Financial Protection, also known as the Consumer Financial Protection Bureau; Securities and Exchange Commission, and other agencies—may take various actions against financial institutions for the mortgage-related violations they commit. Specifically, these agencies can take enforcement actions, reach settlement agreements, and assess civil money penalties, among other actions. GAO was to review the collection and use of funds that federal agencies have collected from financial institutions for different types of violations. This is GAO’s second report in response to this request. In GAO’s first report issued in March 2016, GAO reviewed the amounts federal agencies collected from financial institutions for violations of Bank Secrecy Act, Foreign Corrupt Practices Act, and sanctions requirements (see GAO-16-297). In this report, GAO reviewed the collection and use of funds from financial institutions for mortgage-related violations. This report describes (1) the process for collecting these funds and the purposes for which they are used, and (2) the penalties and settlement amounts financial institutions have paid to the federal government for selected cases involving alleged mortgage-related violations. To conduct this work, GAO selected a sample of cases where federal agencies either reached settlements with or assessed penalties against financial institutions for mortgage-related violations. For the selected cases, GAO reviewed relevant documentation such as agency enforcement orders, payments agencies collected, and documentation on authorized or allowed expenditures from the accounts into which the collected payments were deposited.

For more information, contact Lawrance Evans, Jr. at 202-512-8678 or evansl@gao.gov or Diana C. Maurer at 202-512-9627 or maurerd@gao.gov.