Posted on Friday, March 18, 2011
The settlement terms prompted by robo-signing investigations and presented to servicers by government agencies and attorneys general last week feature 27 pages of rules and regulations for the handling of loans on owner occupied primary residences.
Though the details of the settlement have been released to the public, they are in no way final and will go through many rounds of negotiations before government officials and servicers can come to an agreement that works for everyone.
The document was posted on American Banker’s site.
There is speculation that reaching a final resolution will be a daunting task, as many of the settlement terms impose strict procedural regulations on servicers and there are still talks of a multi-billion dollar fine or perhaps mandatory principal write downs for delinquent or underwater borrowers.
Iowa Attorney General Tom Miller says he expects negotiations to be completed in the next two months.
An analysis released Tuesday by Barclays Capital says the new suggestions regarding foreclosure procedures would increase the foreclosure timelines, even in non-judicial states.
“There are … some efforts to streamline the process of modification by putting limits on how much time servicers would have to respond to each part of the process,” the analysis acknowledged, but continued, “however, we think that the sheer magnitude of new processes/work required by servicers to implement this would mean that foreclosure timelines would be extended.”
In a section titled “Loss Mitigation Requirements,” the settlement states servicers must thoroughly evaluate borrowers for all available loss mitigation options prior to foreclosure referral. The servicer must also offer and facilitate loan modifications over foreclosure when the modifications result in a greater net present value.
Servicers are also not allowed to refer or initiate a foreclosure while a modification program is pending. The servicer must wait until the borrower has been denied from all possible modification options and received written notification of the denials before proceeding with foreclosure.
Also mandated in the settlement is that a servicer must provide a borrower with an e-mail and direct phone number of a single point of contact. That designated employee will have the primary responsibility to handle all loss mitigation communications with the borrower.
Efforts to prevent instances of robo-signing are outlined in the “Foreclosure and Bankruptcy Information and Documentation” section.
The settlement reads, “Servicers shall not use incentives that encourage robo-signing, undue haste, or lack of due diligence by employees or third-party agents or trustees.”
In addition, “Servicer shall be required, at servicer’s expense, to take appropriate action, consistent with state law and court procedure, to correct robo-signed or other improper filings or documents presented in a judicial foreclosure proceeding or bankruptcy court proceeding.”
Under the settlement, servicers have specific duties to borrowers and certain conduct is prohibited.
It is the servicer’s responsibility to make sure vacant, abandoned, REO, and charged-off properties do not become blighted. The servicer has a general duty of good faith and fair dealings in its communications, transactions, and course of dealing with each borrower.
The servicer is prohibited from engaging in unfair or deceptive business practices or misrepresenting or omitting any material information in connection with the loan. The servicer must provide monetary relief as compensation or penalties for unlawful conduct, to settle claims owed to the government, and even to fund programs to help homeowners avoid foreclosure.
While recent reports regarding the settlement have suggested that banks will believe the terms are too harsh, one community organization believes the settlement is not harsh enough, and plans to hold a street protest during the spring meeting of the National Association of Attorneys General in Washington, D.C.
According to a press release by the Iowa Citizens for Community Improvement, the settlement “is not nearly good enough” and furthermore, a settlement in any amount less than in the hundreds of billions of dollars would not be enough either.
By: Joy Leopold DS News