SIFMA Knocks Loan Servicer Settlement Terms

Callingrnthe document “unprecedented in its scope and prescriptiveness,” the SecuritiesrnIndustry and Financial Markets Association (SIFMA) hasrncriticized the so-called settlement agreement with mortgage servicers issued byrnthe 50 state attorneys general in early March. It also rather pointedly requested arnseat at the negotiation table.  </p

RandyrnSnook, executive vice president, business policies and practices at SIFMA said that, while the grouprnrecognized that the term sheet was only a draft,rn”it requires a careful legal and market impact analysis, particularly forrnunintended consequences.”  Snookrnsaid that any reform of mortgage servicing standards must reflect the interestsrnof the consumer, the housing market, and the broader economy as we continue tornaddress foreclosure issues. </p

The settlement agreement which was sent to the five largest loan servicers (Bank ofrnAmerica, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial),  arose after anrninvestigation of mortgage servicing abuses by the attorneys general.  The document covers a number of topicsrnrelating to servicing and the relationships among servicers and customers,rninvestors, and regulators and sets out specific recommendations for correctingrnperceived abuses in managing loan modifications, setting fees, handling loanrndocuments, and pursuing foreclosures.</p

The SIFMA statement notes that any settlement agreement that sets outrnsuch terms “will likely be viewed as new industry standards, and thereforernhave a broad impact beyond those firms. We therefore express initial concernrnthat such critically important and consequential mortgage servicing reforms arernbeing contemplated in a closed process.” After laying out the specific criticismsrnof the settlement as summarized below, the statement says, “Given thernbroad impact of this reform, we firmly believe the process of developing broadrnservicing standards should be open to input from a range of stakeholders.”rn</p

According to SIFMA, the proposed terms would put at risk investors in mortgage-backedrnsecurities (MBS) who stand to absorb the losses from significantly extendedrnforeclosure timelines due to the implementation challenges of the prescriptivernterms of the settlement.”  The endrnresult, SIFMA says, would be to further hurt investor confidence inrnprivate-label securitization markets “that are so vital to the nascentrneconomic recovery.” Extending thosernforeclosure timelines would also adversely impact communities with largerninventories of vacant buildings.  Inrnaddition, the terms are so broad they could increase the price of mortgages tornconsumers.   </p

SIFMA states that it bringsrntogether the shared interests of hundreds of securities firms, banks and assetrnmanagers.  Its stated mission is to support a strong financial industry,rninvestor opportunity, capital formation, job creation and economic growth,rnwhile building trust and confidence in the financial markets. 

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