Posted on Monday, October 18, 2010
The Federal Housing Finance Agency (FHFA), which oversees the nation’s two largest mortgage financiers, has issued a directive outlining specific steps servicers should take to identify and correct potential deficiencies in foreclosure paperwork.
Recent widespread reports of so-called robo-signers shuffling foreclosure cases out the door without following procedure threatens to derail the already tenuous housing recovery.
Evidence of overburdened, often careless, servicing staff cutting corners to process foreclosures quickly has stirred an angry chorus of lawmakers, consumer advocates, and the entire general public – all screaming for an immediate moratorium on foreclosures. But FHFA says bringing the process to a complete halt is not the answer.
“Delays in foreclosures add cost and other burdens for communities, investors, and taxpayers,” said Edward J. DeMarco, FHFA’s acting director. “For Enterprise [Fannie Mae and Freddie Mac] loans, delay means that taxpayers must continue to support the Enterprises’ financing of mortgages without the benefit of payment and neighborhoods are left with more vacant properties.”
DeMarco’s policy statement issued Wednesday is aligned with White House officials’ declared stance regarding a nationwide freeze on foreclosures.
“In the absence of identified process problems, foreclosures on mortgages for which the borrower has stopped payment, and for which foreclosure alternatives have been unsuccessful, should proceed without delay,” DeMarco said.
DeMarco has ordered Fannie Mae and Freddie Mac to implement a new policy framework with their mortgage servicers that outlines specific steps to detect and correct foreclosure paperwork errors.
“This framework envisions an orderly and expeditious resolution of foreclosure process issues that will provide greater certainty to homeowners, lenders, investors, and communities alike,” DeMarco said.
The GSEs’ new policy for addressing potential documentation deficiencies in foreclosure actions says mortgage servicers must review their processes and procedures and verify that all documents, including affidavits and verifications, are completed in compliance with legal requirements.
At all stages of the process – pre-judgment, prior to foreclosure sale, post-sale eviction, REO sale, as well as in bankruptcy cases – servicers are instructed to confirm that the information contained in affidavits for the foreclosure proceeding was correct and that the affidavits were completed in compliance with applicable law.
If any documentation is found to be lacking, servicers must work with a foreclosure counsel to take the appropriate action to correct the issue, whether that’s preparing and filing a “replacement affidavit,” ratifying the court’s previous judgment, or ensuring title insurance is available on subject properties.
“The country’s housing finance system remains fragile and I intend to maintain our focus on addressing this issue in a manner that is fair to delinquent households, but also fair to servicers, mortgage investors, neighborhoods and most of all, is in the best interest of taxpayers and housing markets,” DeMarco said.
Both Fannie Mae and Freddie Mac have issued their own statements in full support of DeMarco’s directive.
“These principles will further protect borrowers’ rights and help rebuild the integrity of the foreclosure process,” said Bruce Witherell, Freddie’s COO. “It is critical that servicers quickly identify and remedy process problems in order to avoid costly delays and help restore public confidence in the housing market.”
DSNews Carrie Bay