WASHINGTON (

TheStreet

) -- Saying that "we must restore integrity to the mortgage servicing system,"

Federal Deposit Insurance Corp.

Chairman Sheila Bair on Wednesday described a myriad of loan servicing problems to the Senate committee on Banking, Housing, and Urban Affairs.

Bair said that "the

robo-signing

and foreclosure documentation issues are the natural result of the misaligned incentives that pervade the entire mortgage process," adding that compensation to loan servicers has been "wholly inadequate to cover the expenses required to implement high-touch and specialized servicing on the scale needed in recent years."

According to data provided by SNL Financial for holding companies required to file regulatory statements with the

Federal Reserve

, the bank holding company with the highest volume of mortgage loans serviced for others as of September 30 was

Bank of America

(BAC) - Get Report

, with $1.7 trillion in one-to-four family mortgage loans serviced for others, followed by

Wells Fargo

(WFC) - Get Report

with $1.4 trillion,

JPMorgan Chase

(JPM) - Get Report

with $990 billion and

Citigroup

(C) - Get Report

with $501 billion.

Bank of America was also in the lead with $95.7 billion mortgages serviced for others that were in the process of foreclosure as of September 30, but JPMorgan was in second place with $55.3 billion, followed by Wells Fargo with $36 billion, and Citigroup with "only" $11.9 billion.

Other holding companies servicing over $100 billion in mortgages for others included

U.S. Bancorp

(USB) - Get Report

, with $166 billion serviced for others and $2.5 billion in foreclosure as of September 30,

SunTrust

(STI) - Get Report

with $142 billion serviced for others and $5 billion in foreclosure and

PNC Financial Services

(PNC) - Get Report

, with $140 billion in mortgages serviced for others and $6.7 billion of those loans in foreclosure.

Bair said a complete moratorium on foreclosures was "ill-advised," and that she hoped the new Financial Stability Oversight Council would propose "a sensible and broad-based approach to reforming mortgage servicer processes" to restore "legal certainty to the foreclosure process."

The FDIC chairman went on to describe problems with robo-signing and challenges in "demonstrating the chain of title required to foreclose," because the securitization of mortgages often lead to multiple transfers of title through the Mortgage Electronic Registration System, or MERS.

Bair said that two-thirds of mortgages currently outstanding have been securitized either by government sponsored enterprise including Fannie Mae and Freddie Mac, or by private issuers, and that the "typical servicing fee" of 25 basis points a year on outstanding balances is sufficient for servicers to turn a profit when foreclosure volume is low, it has lead to a "perverse incentives to automate critical servicing activities and cut costs at the expense of the accuracy, reliability and currency of loan documents and information" now that foreclosure volume is high.

The FDIC believes that new rules based on the Dodd-Frank banking reform legislation should provide compensation incentives to servicers for loss-mitigation efforts that "benefit of all investors rather than the benefit of any particular class of investors," establish a pre-defined foreclosure process and require disclosure of the servicer of any other loans secured by the same property.

RELATED STORIES:

Revenge of the Robo-signers >>

FDIC: U.S. Banks Earned $14.5 Billion in Q3>>

FDIC Issues Final Overdraft Rule >>

FDIC Revises Insurance Premiums >>

--

Written by Philip van Doorn in Jupiter, Fla.

To contact the writer, click here:

Philip van Doorn

.

To follow the writer on Twitter, go to

http://twitter.com/PhilipvanDoorn

.

To submit a news tip, send an email to:

tips@thestreet.com

.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.