New York State, which depending on who one talks to, is hailed or booed about its foreclosure prevention policies, may have already set a precedent for the future of how regulators monitor mortgage servicers.
After a state exam found indications of problems even though Ocwen was the first major mortgage servicer that agreed to abide by certain state approved mortgage servicing practices in 2012, New York State required Ocwen to hire a monitor.
Starting in 2013 the monitor is expected to be in place for two years to guarantee Ocwen does not violate said agreement in the future and to ensure the servicer fully reforms its practices.
Apparently, well-intended agreements between servicers and regulators may succeed only if properly implemented.
Earlier this week Aurora, Bank of America, Citibank, JPMorgan Chase, MetLife Bank, PNC, Sovereign, SunTrust, U.S. Bank, and Wells Fargo reached a $8.5 billion “in principle” agreement with the regulators. Furthermore the regulators said “similar agreements in principle,” will be reached with other servicers.
The Office of the Comptroller of the Currency and Federal Reserve examiners stated they “are continuing to closely monitor the servicers’ implementation of plans” required by the enforcement actions issued in April 2011 by the OCC, the Fed and the Office of Thrift Supervision.
The $8.5 billion agreement will help enact strong standards for mortgage servicers, especially on foreclosure prevention activities, and hold banks accountable, said director of housing finance and policy at the Center for American Progress, Julia Gordon.
It complements last February’s historic $25 billion settlement between the five largest mortgage servicers and 49 state attorney generals over the so-called “robo-signing” scandal, she said. But “effective administration of this settlement will require a strong and independent monitor with real accountability to taxpayers.”
Gordon's statement voices concerns expressed by regulators in New York. Recently state regulators added a new requirement designed to ensure mortgage servicing agreements signed by some of thenation's largest mortgage bankers such as Ocwen Financial Corp. are properly implemented.
In December 2012 New York State Superintendent Benjamin M. Lawsky reported to the media the Department of Financial Services sent to Ocwen a new consent order. It requires Ocwen to hire an independent monitor whose task is to review Ocwen’s operations, identify problem areas and report on corrective actions within 90 days.
The move is expected to ensure that the servicer complies with an earlier agreement to reform mortgage servicing practices that has been signed by another seven mortgage servicers besides Ocwen.
The said practices include a number of requirements. End robo-signing and impose staffing and training requirements that will prevent robo-signing and require servicers to withdraw any pending foreclosure actions in which filed affidavits were robo-signed or otherwise not accurate.
Stop referring a borrower to foreclosure while the borrower is pursuing loan modification or loss mitigation, known as “dual tracking,” and prohibit foreclosures from advancing while denial of a borrower’s loan modification is under an independent review.
Provide a dedicated single point of contact representative for all borrowers seeking loss mitigation or in foreclosure; require servicers to ensure that any force-placed insurance be reasonably priced in relation to claims incurred, and prohibit force-placing insurance with an affiliated insurer; and impose more rigorous pleading requirements in foreclosure actions to ensure that only parties and entities possessing the legal right to foreclose can sue borrowers.
Require servicers to ensure that equity in the property is returned, or if the property was sold, compensated for borrowers who have been wrongfully foreclosed.
Implement servicing standards that prevent layering of late fees and other servicer fees on borrowers’ mortgage payments, or the use of suspense accounts that compound borrower delinquencies and defaults.
Require servicers to strengthen oversight of foreclosure counsel and other third-party vendors.
In September 2011, Ocwen was the first mortgage servicer to agree to the department’s newly designed mortgage servicing practices to correct robo-signing and other foreclosure and workout practices were pushing many homeowners into foreclosure.
The department said it focused on Ocwen as one of the largest and fastest growing mortgage servicers in the country that in New York alone “services more than 40,000 residential home loan accounts held largely by distressed homeowners.”
In the past two years Ocwen acquired several large servicers adding to its book of business portfolios of distressed home loans from Litton Loan Servicing LP in 2011, Saxon Mortgage Services, Inc. and EMC Mortgage Corporation in 2012 and Residential Capital, LLC. Plus, the department noted, and plans to acquire mortgage-servicing rights from Homeward Residential, Inc., formerly known as American Home Mortgage Servicing, Inc..
The department plans to continuously monitor Ocwen’s mortgage servicing practices because the examination showed in some instances “the company failed to demonstrate that it had sent out required 90-day notices before commencing foreclosure proceedings or even that it had standing to do bring the foreclosure actions.”
It also reported “gaps in Ocwen’s Servicing Practices,” including instances of failure to provide a single point of contact for borrowers, pursued foreclosure against borrowers seeking a loan modification, failed to conduct an independent review of denials of loan modifications, or failed inaccurate borrower and loan information.
Mortgage Servicing Practices are designed to address “troublesome and unlawful practices” implemented by the mortgage servicing industry as a whole, such as Robo-signing, weak internal controls and oversight of foreclosure documents, improper fees and denials of loan modifications.