UPDATE 1-U.S. close to punishing banks over foreclosures

Washington, Feb16, 2011 (Reuters) - US bank regualtors are finalizing punishments against mortgage servicers after a probe found "critical deficiencies" with the industry's foreclosure processes. John Walsh, acting head of the Office of the Comptroller of the Currency, said a national probe of foreclosure paperwork and procedures found that mortgage servicers broke laws, and that a small number of homeowners were wrongly evicted. "These deficiencies have resulted in violations of state and local foreclosure laws, regulations, or rules and have had a adverse affect on the function of the mortgage markets and the US economy as a whole." Walsh did not identify any servicers but his testimony noted that the probe included Bank of America, Citibank, JPMorgan and Wells Fargo, among others. In a separate testimony David Stevens, the commissioner of the FHA saide the penalties could range from fines paid to the govenment to loan modifications to banks forgiving some of the principal balance on the loan. "There are a variety of discussions.  There are different views," Stevens told lawmakers on the House Financial Services Subcommittee on Insurance, House and Community Opportunity, noting that no final decisions have been made. Pressed on the timing of any announcement, Stevens replied: "I would say a month time frame is probably in the reasonable range if we are to reach some sort of conclusion."
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