Loan Servicer Code of Conduct Proposed by State Officials and DOJ

According to the Wall Street Journal, the 50-state alliance of attorney generals whornare working with federal agencies to investigate and reform mortgage servicingrnhave sent their first list of demands to the nation’s leading banks. </p

The WSJ article, written by Nick Timiraos and Ruth Simon, claims the group sent arn27-page proposal to the banks last Thursday outlining a proposed code ofrnconduct for its servicing operations. The WSJ<iappears not to have had access to the actual document and was relying onrn”sources familiar with it.”  Shortlyrnbefore the article appeared the Associationrnof Mortgage Investors’ released a comment on the Attorneys General investigation,rnurging Congress in particular to “respect the process.”  </p

Accordingrnto the WSJ, the letter was drafted by state attorney generals, the U.S. Department of Justicernand three other federal agencies and comes on the heels of separate enforcementrnactions submitted by bank regulators. The document outlines a number of standards forrnreforming mortgage servicing.</p<ul class="unIndentedList"<liAdopting formulas that would force banks to morernregularly consider offering loan write-downs to underwater borrowers.</li<liEnforcing firm modification timelines forrnservicers to meet, including notifications to borrowers of actions onrnmodification requests.</li<liProviding a single point of contact forrnborrowers over the course of the modification process.</li<liRequiring a freeze on foreclosures duringrnmodification considerations and providing methods for penalties and enforcement.</li<liOutlining steps for banks to verify thernaccuracy of amounts owned and placing limits on fees the banks can charge distressedrnborrowers.</li<liAdopting directives to improve tracking ofrnmortgage notes and chain of title.</li<liIncreasing supervision of foreclosing law firmsrnand other third-party vendors. </li</ul

The letter indicates that the Mortgage ElectronicrnRegistration System (MERS), the industry owned mechanism for tracking mortgagerndocuments that has been at the heart of many complaints about robo-signing andrnimproper foreclosures, will be dealt with later.  </p

The WSJ says that this letter is separate from any settlement that may be worked outrnbetween the group and banks to address various abuses that came to light in thernfall and led to foreclosure moratoriums in several states including arnnation-wide pause in Bank of American’s foreclosures.  Such a settlement, the newspaper says, “could include requirementsrnfor banks to write down more than $20 billion in loan balances for borrowersrnthat are underwater or to pay more in fines. The current proposal, outlining arncode of conduct, is designed to lay the foundation for more permanent changesrnin mortgage-servicing practices that would outlast such a settlement.”</p

To further quote the WSJ article, “Banks said they arernstudying the document ‘We are analyzing what was shared with us yesterday,’rnsaid a spokeswoman for Wells Fargo. A spokesman for Citigroup said, ‘Ourrndiscussions with government officials are confidential.’ Bank of Americarndeclined to comment.</p

The press release from AMI, which represents private investors, publicrnand private pension funds and endowments, quoted the group’s Executive DirectorrnChris Katopis commenting, not on a specific letter, but on news reportsrnconcerning “thernmulti-state Attorney General investigation into mortgage servicer allegedrnmisconduct.”   Katopis stated:</p

“Forrnmonths, the 50 state Attorneys General have worked on developing a settlementrnplan that helps Americans and our communities. rnThis is a bipartisan group of elected officials which includesrnRepublicans and Democrats, conservatives, centrists, and all political stripes.  While the details of the plan’s substance arernforthcoming, we all must respect the integrity of the process.  We urge Congressional lawmakers to respectrnthe rule of law, the autonomy of the states, and allow this process to continuernwithout intervention, at least until all of the facts are made known to thernpublic.</p

“As Congress reviews the proposed plan andrnother recommendations, the issue of defective loan put backs must remain highrnon the agenda, as it impacts a range of our institutions back home, such asrnstate entities. “It is the greatest hope of mortgage investors that anyrnsettlement carefully consider the impact on the soundness of state pension,rnretirement systems, life insurance, and medical savings plans.” </p

AMI mayrnbe responding in equal measure to the investigation and to efforts currentlyrnunderway in Congress to eliminate the Making Home Affordable Program (HAMP), andrnotherwise eliminate or severely restrict the government’s role in housingrnfinance.

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