Posted on Wednesday, January 12, 2011
In November after the robo-signing scandal broke, New York City Comptroller John C. Liu, on behalf of the New York City Pension Funds, called on the directors at four banks to conduct an independent audit of their mortgage and foreclosure practices.
The four banks – Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo – service more than half of the home mortgages in the United States.
This week, Liu issued a demand for the banks to immediately follow through on that request, this time backed by 11 major public pension funds from several states.
A letter was sent to each of the banks separately, and outlines the reasons for the request and asks that the bank submit a report to shareholders with findings in the company’s 2011 proxy statement.
Part of the coalition’s letter to Bank of America reads: “As major institutional investors collectively holding 97.1 million of Bank of America common shares, with a December 31 market value of $1.3 billion, we believe it is incumbent upon the Board of Directors to take immediate, independent action to restore confidence in the Company’s internal controls and compliance.”
According to a press release from Liu’s office, Federal Reserve Governor Daniel K. Tarullo testified to the Senate Banking Committee in December that the Federal Reserve’s preliminary findings on bank foreclosure procedures suggested “significant weaknesses in risk-management, quality control, audit, and compliance practices as underlying factors contributing to the problems associated with mortgage servicing and foreclosure documentation.”
The Congressional Oversight Panel estimates that banks’ potential mortgage liability could equal more than $50 billion. Banks could suffer “disabling damage” if they were forced to reabsorb troubled loans due to being found to have misrepresented the quality of securitized loans.
“The banks’ boards cannot continue to pretend the foreclosure mess is the result of technical glitches and paperwork errors,” Liu said. “There is a fundamental problem in their procedures that endangers not just homeowners, but shareholders, and local economies.”
He continued, “Given the risks involved, only a swift and unbiased audit can reassure shareholders that the pension funds of 700,000 working and retired New Yorkers are in safe hands. The boards of directors have no time to waste.”
The coalition includes the five NYC Pension Funds, as well as the Connecticut Retirement Plans and Trust Funds, the Illinois State Board of Investment, the Illinois State Universities Retirement System, the New York State Common Retirement Fund, the North Carolina Retirement Systems, and the Oregon Public Employees Retirement Fund.
The coalition has asked that the banks respond to the request by January 21. According to Liu’s office, they have been told to expect a response but have yet to receive anything significant.
The coalition has $5.7 billion invested in the four banks.
DS News, By: Joy Leopold