Senator Criticizes OCC's Guidance on Foreclosed Properties

One Ohio congressman is taking the plight of homeowners in his foreclosure-ravaged state straight to federal regulators.

Sen. Sherrod Brown (D-Ohio) says guidance issued to mortgage servicers last month by the Office of the Comptroller of the Currency (OCC) amounts to “a free pass for banks to abandon foreclosed homes,” a practice Brown says undermines neighborhoods and property values and leaves local taxpayers on the hook for maintenance and cleanup costs.
In a letter to the OCC’s John Walsh, Brown pointedly states, “[Y]our guidance implicitly approves of the practice of having lenders ‘release a lien securing a defaulted loan rather than foreclose on the residential property.’”
The regulator’s guidelines explain that such a decision is based on financial considerations when the costs to foreclose, rehabilitate, and sell a property exceed its current fair-market value.
But Brown argues there’s more than financials to consider. In 2009, Brown called for a federal investigation into these so-called “bank walkaways.” The Government Account-
ability Office (GAO) responded and concluded that bank walkaways, though not a common practice nationwide, are focused in economically struggling areas and pose significant health, safety, and financial concerns.
Such a practice, according to Brown, should not be supported by the federal government.
“Too many Wall Street banks are walking away from too many Ohio Main Street communities,” Brown said. “And when they do, they leave behind homes that are often vandalized and left to crumble.”
Brown says responsible homeowners are seeing their property values plummet as abandoned homes in their neighborhood are left to decay. He cites a study by the Federal Reserve Bank of Cleveland which found that each vacant property in Cleveland could decrease the sales price of homes within 500 feet by about 3.1 percent.
Brown says the OCC’s guidance only serves to legitimize a practice that is unfair to homeowners and local communities. He’s calling for the agency to adopt important reforms to mitigate the damage caused by homes abandoned prior to foreclosure.
Where foreclosure is initiated on a property that the bank ultimately decides to release, Brown asserts the OCC should require servicers to complete the foreclosure and finance the cost of demolishing the home, or they should be required to transfer title of abandoned properties to governmental or nonprofit entities, such as land banks.
“Strong standards from the OCC will send a message that Wall Street must share in the responsibility to end the foreclosure crisis,” Brown wrote to Walsh.
The senator says preventing banks from walking away from properties will give servicers greater incentive to avoid unnecessary foreclosures and act in the best interest of the nation’s communities.