Law Suits & Courts

The latest on the Attorney General servicer settlement

Posted on Friday, March 18, 2011

The latest on the Attorney General servicer settlement news can be found here:PostAGServicer[http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1104871779075&s=6013&e=001XoJ2389h64umIjsfiB-i9lGEjohAzRzFXKhOL1gjsF6P7dN6_Xlxj1ZAgQe6yKM6uR4wyC1dmgPjhrY9BvXbdvSZlsWy8CkVUkA3WACK6Mi41zbEXbAK8IoWPK2ikrjQUx6UDsa18xpp19iPQkBvHhHk1lva8KaXOtEvlNUScIPpz9QykYVT_YaPGrhzeLeK03hmVGcaxuWjQ7nOnTpla_3jgIZohwzA1QM_NpXT1gM1LNinayx2BNMQo2rgBlKRbAYKpScZtAM=].Kate Berry, of American Banker, has been following the mortgage servicer foreclosuresettlement negotiations. In a recent article she mentioned that "mortgage servicersare fuming" as it appears that the draft of the agreement is unfair and impracticable.But servicers are facing an uphill battle given the negative press on foreclosuresand robo-signing scandals. "Servicers are chafing at the idea of paying out billionsin a settlement with regulators because they claim very few borrowers have been wrongly foreclosed upon or were harmed by last year's robo-signing scandal. Servicersdelayed tens of thousands of foreclosures in the 23 states where the process is handled in court. They argue that the vast majority of borrowers in these cases had stopped paying their mortgages, were in default on their loan and had been livingin the home for free during the foreclosure process. While servicers have admittedthere was procedural misconduct in the shoddy paperwork submitted to courts, theyclaim the proposed penalty of upwards of $20 billion is disproportionate to the alleged crime."Berry's article continues. "Lawyers for the servicers maintain that the proposaldoes not distinguish between loans a bank services for itself and a loan it servicesfor others. And servicers insist they don't have the authority under the poolingand servicing agreements governing securitizations to do a great deal of what theproposal calls for them to do. The servicers say they are not authorized by PSAsto make principal reductions on loans held in private-label securities, as the draft settlement calls for them to do, so the companies argue it is unclear if aproposed government settlement would override such contracts." Obviously banks,servicers and investors do not want to take the losses, and did not set up reservesto handle the principal reductions.SIFMA (a securities industry trade organization) expressed "strong reservations"about the 27 page AG proposed settlement. "The draft proposal could lead to unintendedconsequences for the housing market and potentially harm investors in mortgage backedsecurities. The figure being bantered about is north of $20 billion. SIFMA [http://r20.rs6.net/tn.jsp?llr=zy6u9cdab&et=1104871779075&s=6013&e=001XoJ2389h64tq5w6wUJqnNNMYjsciDNY1fkMyhuQ2dBGjH-PiIliWePNC9mMLnGisVrmcZ-EuVXR7kcYH4izQdixIDpYVBEK7EDDsL_HSi7-j9YqpJ_NNopdMfDL-oQXZ4Vf4V9Iy46DBjuhSPucczuQAcCk0el2cDr2-U7u9Uc0hluBYrT37jmJHBkcfT-ErA2f4m3lNeVWgGpfvph_orSJRr5YNmdEN].Crisman


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