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February 23rd, 2011

Mortgage servicers likely to be hit with penalties

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Ticking money bombRegulators have been threatening to penalize mortgage servicers for months now. Recent reports say they’re one step closer. Servicers have come under quite a bit of fire recently for how they’ve handled everything from loan modifications to foreclosures.

Today, Edward DeMarco, acting director of the Federal Housing Finance Agency, said Fannie and Freddie “will be moving forward with servicer penalties… in the coming weeks.”

His remarks come as regulators prepare to take action against the nation’s largest banks in reaction to revelations that they used so-called “robo-signers” to file large numbers of foreclosure documents without reviewing their contents. Several major lenders including Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. put thousands of foreclosure cases on hold last fall after the document issue became public.

Last week, John Walsh, acting head of the Office of the Comptroller of the Currency, which oversees most of the nation’s biggest banks, told lawmakers that a probe by regulators found “critical deficiencies and shortcomings” in document procedures, oversight of outside law firms and other areas.

Can’t forget about volume

While we’re certainly aware of the bitter feelings many homeowners have towards their servicers, you can’t ignore the sheer volume of business that servicers have taken on since the foreclosure crisis began.

While DeMarco certainly acknowledges the constraints servicers have faced, the bottom line, he said, is they have to improve:

“While none of us underestimate the difficulties that servicers face, mortgage servicing, especially of delinquent loans, must improve,” DeMarco said in the speech.

Compensation for mortgage servicers is now based on a minimum servicing fee that is deducted from a borrower’s interest payments. Consumer advocates and some regulators say mortgage servicers don’t have enough incentive to modify loans for troubled homeowners, which has led to poor results from loan-modification programs.

We’ll see if these penalties and the hopeful improvement regulators wish to see really improve the borrower experience or the foreclosure epidemic.

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2 Responses to “Mortgage servicers likely to be hit with penalties”

  1. Linda Daly Says: February 24th, 2011 at 10:58 pm

    It’s about time somebody took action like this! This is has been going on for years. Don’t get me wrong. I like to make money like anyone else but we have to do things the right way now.

  2. Tim Manni Says: February 25th, 2011 at 9:24 am

    Hey Linda,

    Thanks for commenting. I think your comment is especially poignant because you’re in the mortgage biz. I think when certain professionals, no matter the line of business they are in, acknowledge that their peers aren’t conducting themselves in the proper manner, I think that’s a signal that the industry stands to improve from the ground up.

    Thanks again for commenting, hope to hear from you soon,
    Tim

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HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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