Posted on Thursday, March 17, 2011
More backlash from the 27-page proposed servicer settlement developed on Wednesday when five representatives from the House Financial Services Committee voiced their disapproval and concern in a letter to Treasury Secretary Timothy Geithner.
The letter, signed by committee chairman Spencer Bachus, and members Scott Garrett, Randy Neugebauer, Patrick McHenry, and Pete Sessions, was obtained by DS News on Thursday.
“If the terms of the draft settlement are implemented as proposed, the settlement would transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers, and investors,” said the letter.
Additionally, the letter claims “the breadth and scope of the draft settlement proposal raise significant concerns about its effect on the financial system, as well as concerns that the administration and state agencies are attempting to legislate through litigation.”
The representatives believe the settlement is going above and beyond typical remedies imposed by federal banking regulators. Instead of asking for compensation for victims who were specifically harmed by misconduct of some sort, or demanding improvements in internal operations, the representatives say this settlement is attempting to revamp the whole system.
One specific issue the group has with the settlement is its mention of using Home Affordable Modification Program (HAMP) guidelines and procedures, because the House Financial Services Committee sent a bill to terminate HAMP to the House on Wednesday.
The group also points out that the House and Senate have both rejected efforts to enforce principal write-downs in the past.
In the list of questions, the five representatives ask, “What standards will govern the process by which servicers select which borrowers receive a principal write-down?”
And if write-downs are to be given to borrowers who fall behind on payments, “Will forcing servicers to fund principal reductions for underwater loans they service affect the incentive of mortgagors to stay current on their loans?”
In the settlement, there is a mandate that monetary penalties be collected from servicers to support mortgage modifications and to fund programs used to help borrowers avoid foreclosure. The group asks, “What is the legal basis for using funds collected in an enforcement action to benefit parties who have not been harmed by the purported wrongdoing?”
The group requests detailed answers to these and other questions by March 18.
By: Joy Leopold DS NEWS