Mortgage servicers likely to be hit with penaltiesby Tim Manni
Regulators 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.