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Slapping a servicing idiocracy

By Holden Lewis · Bankrate.com
Thursday, April 14, 2011
Posted: 3 pm ET

Mortgage servicers ignored the countless news articles that described their slipshod practices, so now the government has to step in. That's my conclusion after reading the Interagency Review of Foreclosure Policies and Practices, a report released yesterday by three federal regulators.

Imagine that your company were terrible at what it does. So bad that newspapers and TV news programs covered your company's errors daily, for months. Wouldn't you expect management to do something about it? Like, conduct a companywide audit to identify exactly what was being done wrong and why, and how to fix the problems?

According to regulators, major mortgage servicers didn't do those things:

Moreover, failure to conduct comprehensive audits to identify weaknesses in foreclosure processes resulted in servicers not taking sufficient corrective action to strengthen policy and procedural gaps, increase staffing levels, and improve training in response to sharply rising foreclosure volumes prior to the agencies’ foreclosure reviews.

The mortgage servicers are being sanctioned by regulators because they treated everyone and everything like a number. The report says some homeowners lost their homes to foreclosure when they shouldn't have -- when the homeowners should have been protected by the Servicemembers Civil Relief Act or bankruptcy law, or while the homeowners were still in trial modifications. To the servicers, these homeowners were merely case numbers to clear; they weren't people.

Employees, outside law firms and other third-party companies were evaluated on speed and efficiency over quality and accuracy. After all, you can hang numbers on speed and efficiency, but not so easily on quality and accuracy.

So now the regulators step in, mandating establishment of compliance programs and a review of past foreclosures. The regulators order the servicers to communicate effectively with borrowers and to assure "that communications are timely and appropriate and designed to avoid borrower confusion." The servicers are told that they must properly oversee the law firms that they employ. I can tell you what would be a good start: The servicers could sign contracts with third-party foreclosure law firms. They are in the habit of hiring law firms on handshake deals. That seems exceedingly odd.

I hope we don't hear a bunch of complaints about regulatory overreach. The feds are telling servicers to identify and fix what they're doing wrong, to communicate with borrowers without confusing them, stop foreclosing on people who are supposed to be protected by law from foreclosure, and to formalize business relationships by using contracts. That's not overreach. It's common sense.

Something that lenders and servicers clearly lacked.

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2 Comments
Monte
April 15, 2011 at 1:57 pm

I totally agree with you Homeless. If the government is going to hand out money they need to make sure that it is done in a wise manner, however I know the government rarely does anything wise.

Homeless
April 15, 2011 at 7:25 am

This is not much of a shock! The government handed these companies carte blanche checks with a "handshake deal" that they would do th right thing with the money...yeah right. I'm not sure the HAMP programs (and similar) were necessarily the right thing to do (I probably would feel differently if the program had actually helped me in my time of need!), BUT if the government was going to put those programs into place, there should have been a strict and streamline process that every case had to go through and there should have been oversight to ensure it was happening the right way. In the end the banks had no accountability, therefore this is what happened.

So they are going to review past foreclosures, what does that mean. If a buyer went into a foreclosure with all the good intentions and bought the house under the impression it had gone through the correct legal steps, what is going to happen? Are their homes going to be taken away and given back to the people that could not afford them. What is this review REALLY going to do. It's not so much that the regulators are overreaching, they are just focusing on the wrong things!