Miami Herald: PANDORA'S BOX: REGULATORS START TO PEEK UNDER THE HOOD OF SERVICERS

Jan 31, 2011

ONE ON ONE WITH NEIL GARFIELD

COMBO ANALYSIS TITLE AND SECURITIZATION

Regulators target loan servicers to fix foreclosures

EDITOR’S NOTE: Let’s hope they ask the right questions like:

Where do they get their money from?

Where does the money go?

Where is that denial of modification by investors that you reported to the court?

To whom are you sending payments?

To whom did you ever send payments?

What interest, contingent or otherwise, do you have in the property?

How do you get paid on a performing loan?

How do you get paid on a non-performing loan? Where does that money come from?

With whom do you share revenues, profits or proceeds?

Where is the custodian of documents?

From whom do they take directions or instructions?

What communications does the servicer have with investors?

What communication does the servicer have with Trustees or Asset Backed Pools?

What communications does the servicer have with Trustees on Deeds of Trust

What communications does the servicer have with mortgagees named on mortgages?

What companies does the servicer have the same directors, officers or shareholders as the servicing company?

Besides the servicer, what types of organizations are involved in the foreclosure process that didn’t exist before 1980?

By PRASHANT GOPAL AND LORRAINE WOELLERT

Bloomberg News

Mortgage servicers face a new era of tighter oversight as regulators seek to cut the number of botched foreclosures and increase loan modifications for struggling borrowers.

The industry, which oversees $10.6 trillion in loans, has been overwhelmed by more than 3 million foreclosures since 2006. The housing-market collapse exposed failures — in the way servicers are paid, track loans and process property seizures — that threaten to stall a fledgling rebound in prices and sales.

“If we fail to act decisively now to deal with the foreclosure crisis, we risk triggering a double-dip in U.S. housing markets,” Sheila Bair, chairman of the Federal Deposit Insurance Corp., said in a Jan. 19 speech to mortgage-industry executives in Washington. “The problem is serious, and the need for action is urgent.”

Changes being studied include a new fee structure for servicers, independent reviews of rejected requests to ease loan terms and a fund to compensate victims of improper foreclosures, according to Bair and other federal and state regulators. Lawmakers have proposed reining in the privately run Merscorp Inc., even as the company says it could serve as a national mortgage registry.

While regulators are in the early stages of their work, any changes probably will raise the cost of servicing loans, which would mean higher costs for homeowners. The reforms are in part a response to a long list of court cases that showed banks trying to foreclose using shoddy documentation or without being able to demonstrate they had the standing to do so.

* * *

Until last week, Jacqueline Yulee was defending her Jacksonville, Fla., home against foreclosure by two banks, each claiming it owns the $213,750 mortgage she signed on Halloween in 2003.

Wells Fargo & Co., based in San Francisco, filed its complaint against the 58-year-old insurance agent on April 14, more than a year after Minneapolis-based U.S. Bancorp started its proceedings. The companies are trustees for investors in two separate mortgage pools, and her loan couldn’t be held by both at the same time. Last week, after being asked about the dueling foreclosures, Wells Fargo withdrew its lawsuit.

The second suit shouldn’t have been filed, said Ron Bendalin, general counsel at Irving, Texas-based Vantium Capital, whose Acqura Loan Services business is servicing the mortgage for Wells Fargo. The loan was sold to the Wells Fargo trust on Feb. 3, 2010, and the trust should have replaced the plaintiff in the first case, he said.

“I think we put too much trust in banks,” said Yulee, who stopped paying her mortgage two years ago after losing a previous job. “We assume they know what they’re doing.”

OVERREACTION FEARED

The Mortgage Bankers Association, the industry’s Washington-based trade group, is seeking a role in developing new rules and has put together a panel of executives to study proposals, Chief Executive Officer John A. Courson said.

“Anytime you see a situation like this it will typically result in regulation and oversight,” Courson said in an interview. “All of us agree the process would need improvement, but what you don’t want to do is overreact.”

Servicers collect monthly mortgage payments, and may modify or foreclose on a loan in a default. They often don’t own the loans they are servicing. The four biggest companies by portfolio size — Bank of America Corp., Wells Fargo, JPMorgan Chase & Co. and Citigroup Inc. — service about half of home loans by value, according to data from news website Mortgagedaily.com.

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