Servicers Face New Fairness Scrutiny on Loss Mitigation Results

Banking regulators are paying more attention to loss mitigation and how servicers handle delinquent borrowers and the outcomes, which will be reviewed from a fair lending standpoint.

Ballard Spahr partner Richard Andreano noted that examiners will be looking at who is getting the loss mitigation assistance and who is getting foreclosed on.

If most of the foreclosures involve minorities, it could raise fair lending concerns.

The agencies and the Consumer Financial Protection Bureau have made it pretty clear that they will be looking at servicing and loss mitigation, Andreano said. And fair lending will be part of that assessment going forward.

The Ballard Spahr attorney is telling clients that the fair lending focus they have on the origination side needs to be replicated on the servicing side.

Meanwhile, the Department of Housing and Urban Development has revised its Fair Housing Act regulations to incorporate the “disparate impact” approach to proving discrimination.

The final rule says residential mortgage servicing is covered by the act when it comes to “both intentional discrimination and discriminatory effects.”

It is the first time HUD has included mortgage servicing in its FHA regulations.

“The disparate impact rule will focus more attention on the servicing issue. But we were headed there anyway,” Andreano said.