Loan Servicer Settlement Terms Released to Public
The 27-page document that was sent to major banks last week rnby the 50-state group of attorney generals is now publicly available. </p
Thernletter outlines terms for a settlement expected to be worked out between therngroup and the banks’ mortgage servicers to stop litigation and correct flaws inrnthe system that became apparent as servicers moved from the routine handling ofrnperforming loans to managing a scenario of rapidly rising delinquencies andrnskyrocketing foreclosures. </p
The document covers a wide variety of topics relating to the relationship betweenrnservicers and borrowers, servicers and investors, and servicers and variousrnregulatory groups and is specific in its recommendations across a range ofrnconcerns. For example, servicers,rnespecially in non-judicial states where legal guidance may be lacking arernrequired to prepare affidavits and swear to their accuracy based on personalrnknowledge or review of loan documents. rnThe servicer must also correct any improper filings and notify the borrowerrnif deficiencies have been noted in any part of the document preparation. Servicers will also be required to verify thernaccuracy of a borrower’s account information and be able to properly identifyrnand document the note holder.</p
The settlement terms pay particular attention to the servicers’rnloss mitigation responsibility, calling it an “affirmative duty” andrnprohibiting a dual track where one department within a servicing facility isrnnegotiating loss mitigation while another is pursuing foreclosure. Servicers will also be required to provide borrowersrnwith a single point of contact and maintain a single electronic record of thernprocess. There are also close to a dozenrngeneral loss mitigation requirements setting out standards for staffing,rntraining, and documenting loss mitigation activities, making reports to creditrnbureaus, and communicating with borrowers. </p<pOne particular item that jumped out from the list because it has been arnsource of many borrower complaints; "Servicer’s employees shall notrninstruct, advise or recommend that borrowers go into default in order tornqualify for loss mitigation relief.” Other points addressed in the document arernfees charged to borrowers and investors’ access to information. </p
The document envisions the establishment of a third-partyrnmonitor selected by the AGs and the Consumer Finance Protection Bureau (CFPB) whichrnwill have access to records and can audit servicers’ performance. Servicers will also be required to set uprninternal corporate governance procedures to monitor compliance with thernsettlement agreement and to report regularly to both the AGs and the CFPB.</p
Penalties, not yet specified, are contemplated for violationrnof the procedures and servicers will also be expected to provide monetaryrnrelief to borrowers who have been victims of service misconduct. It is also specified that “a substantialrnportion of monetary relief shall be dedicated by Servicer to support anrnenhanced program of sustainable loan modifications including principalrnreductions.”</p
American Banker made the entire document available to the public. It can be reviewed HERE.</p
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