FDIC: US Trying to Assess Foreclosure Crisis Scope

WASHINGTON (Reuters) - U.S. financial regulators are trying to gauge the scope of improper processing of foreclosures while banks need to assess their level of risk exposure, banking regulator Sheila Bair said Sunday.

Federal Deposit Insurance Corp Chairman Sheila Bair said in an interview on C-SPAN's "Newsmakers" that the problems with processing foreclosures appeared to be an industry-wide practice, at least with larger loan servicers.

"I think this is really a symptom of size. It's very unfortunate," she said. "So in our backup supervisory capacity we are working with our regulatory colleagues. I think it is necessary for the regulators to go in and verify."

Last week, attorneys general from all 50 states said they were looking at allegations some banks did not properly review files or submitted false statements to evict delinquent borrowers from their homes. They are investigating accusations that lenders and banks employed "robo-signers" to sign hundreds of affidavits each day without vetting all the information.

"We have been told that this is a process issue - that all of the information is in the file, the problem is the person who needed to sign the affidavit had not been looking at the file before they'd done so. So we need to independently verify that," Bair said.

"Foreclosure is a very serious thing and it should only being undertaken after loan modification efforts are not feasible. And that the files are fully documented."

In addition, Bair urged banks to do "rigorous internal analysis" about the range of possible risk exposures.

"We need to get a full handle on all of these issues," she said. "If it turns out this is just a process issue then I don't anticipate the exposures to be significant.

"If it turns out to be something more fundamental then we'll have to deal with that. But I think we need to get all the information before we jump to any conclusions."