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.