Recently, things have been pretty quiet on the "predatory servicing" front. But if lenders let go of their vigilance, that could change in a heartbeat. Anyone who remembers Fairbanks Capital knows that coming into the sights of state attorneys general, the Federal Trade Commission and investigative journalists from local television stations is no fun. Once Baltimore journalists and consumer advocates got hold of Fairbanks, the lender's problems - deserved or not - became national in scope. Other lenders have also had to fend off public scrutiny and regulatory criticism, but for Fairbanks, it was pretty much a death blow.
So how can you protect your franchise? For one, familiarize yourself with the settlement reached by companies like Fairbanks and Ocwen with the FTC. Details of the settlement between Fairbanks, the FTC and HUD can be found in a November 2003 press release on the FTC's website. At the time, FTC officials took pains to say that the settlement was not meant to establish a kind of "best practices" for the industry and that the prohibitions agreed to by Fairbanks did not mean the practices were illegal.
But the FTC's allegations give you an idea of what practices could get you into trouble. Fairbanks agreed to accept partial payments from most consumers and to apply most consumers mortgage payments first to interest and principal, reform its lender-placed insurance practices, limit certain fees related to late payments or delinquency, investigate and resolve consumer disputes more quickly, provide timely billing information including an itemization of fees, review loan files carefully before referring loans to foreclosure and prohibit the "piling on" of late fees. In addition, Fairbanks agreed not to enforce certain waivers in forbearance agreements that consumers had to sign to prevent foreclosure.
Why dredge up this old news now? Because recent headlines have revealed that regulators have not forgotten about "predatory lending." Most of the accusations, such as the Iowa attorney general's recent comments about loan officers, won't affect servicers directly. But remember, large mortgage servicers are the "deep pockets" in the predatory lending picture. And that means that scrutiny of loan administration and collection practices will continue to be a fact of business for the mortgage industry.
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