Arguably, since foreclosure reviews have been the biggest stumbling block to improving residential mortgage servicing efficiency, even to speeding up the recovery of the housing market, recent changes to the review process may help improve the mortgage market fundamentals.
Not instantaneously, however, according to Fitch Ratings, because servicers still have to deal with the “backlog of foreclosures remaining to be processed.”
Fitch maintains the settlement gives servicers a chance to leave behind costly and time-consuming headaches related to “the extended and recently controversial” case-by-case independent foreclosure reviews mandated by the enforcement actions issued in April 2011.
The $8.5 billion agreement with the Office of the Comptroller of the Currency and the Federal Reserve Board—signed among others by Fitch-rated servicers Bank of America, Citibank, JPMorgan Chase, PNC and Wells Fargo—includes direct payments to borrowers either in cash or other assistance.
The end of the independent review process will allow participating servicers to reroute their resources and focus their attention “on completing other initiatives required by the various regulators,” notes Fitch’s managing director, structured finance, Diane Pendley.
Such changes would help ease certain compliance burdens that have proven to weigh heavily enough on servicers to push them to take action.
“The additional scrutiny, mandated changes and costs,” Pendley argues, “have caused many institutions to re-examine strategies and question their commitments to the market.”
Fitch lists among related consequences the fact that three of the 10 servicers who signed the agreement are no longer active in the U.S. residential servicer market.
In addition, many mortgage servicers “have actively pursued a strategy to offload nonagency and, in some cases, higher-risk agency portfolios to concentrate on new, low-risk products.”
Comparatively, the new settlement requirements may instead create an opportunity to reassign employees “that have been involved with the lengthy review process.”
The agreement brings about another positive change for mortgage servicing employees, “it makes the final compensation structure clear and eliminates further cost for the independent reviews,” Fitch said.
These new requirements are expected to allow the servicers to better control and eventually lower future service costs, which in turn should help improve loan-servicing quality.