Servicers Facing Identity Crisis?
Tampa, FL-New laws are forcing servicers to engage in largely untraditional activities that are taking a toll on their resources and challenging the meaning of what it means to be a servicer today.
According to Mortgage Contracting Services LLC vice president Douglas Licker, one recent example and hot topic in many servicing shops is the Helping Families Save Their Homes Act of 2009 (H.R. 1106 or S. 896), which grants new rights to tenants. It adds notice requirements when a servicer is processing a foreclosure action, giving tenants up to 90 days to eviction. Consequently, until that tenancy is over servicers are in the landlord business. "It is a new federal burden for servicers. Up to this point tenancy, rental and real estate laws were a state-by-state affair."
Steve Horne, CEO of Wingspan Portfolio Advisors, agrees that servicers are increasingly functioning more as general contractors coordinating the ever-increasing disparate functions required by investors, regulators and other interested parties. "The challenge is both finding the specialist able to deliver the services in question and coordinating their services into the overall servicing function," he says. "Many servicing systems are simply not designed to function as air traffic control systems for so many parallel and simultaneous efforts. As such, few servicers have the ability or resources to step up to this challenge to meet all the regulations and requirements demanded in the current marketplace."
Mr. Licker says for the first time a federal law tells servicers to deal with tenants, and not evict a Section 8 tenant until their lease is over. "At least from the Section 8 perspective servicers are required to become landlords, too." Until now servicers dealing with foreclosure cases would simply file the paperwork with their attorney. Times have changed. Servicers of foreclosed multifamily property loans are dealing with new H.R. 1106 issues. In what jurisdiction the notice can be sent prior to the sale date and where after the sale date? Can a servicer collect rent? What are the new potential liabilities when taking over a landlord's responsibility? Servicers need to review their risk policies. "There's a whole host of liability possibilities from accepting rent. So there's a new set of landlord liabilities, which may or may not be covered through your typical servicer policies." Prior to H.R. 1106 servicers would not reach out to tenants, the parallel, he explained, are loan modification efforts. "Now everyone is very eager to speak to borrowers." Similarly, servicers now need to talk to tenants since problematic evictions are unavoidable. Answers cannot be cookie-cut, he says. Solutions are going to be multidisciplinary with a multistate approach because the laws are different. Plus, managing an inhabited property is always more challenging than managing a vacant property. These are pressing issues to all servicers." In general, servicers are taking over new risks.This trend of multiplying legislative hurdles, he argues, "would slow down the foreclosure process." In his view the most important change is that "the loss mitigation pendulum has swung away from the collector's mentality towards a partnering collaborative."
New requirements do not necessarily reflect how servicers are accustomed to doing business, nor how their servicing systems operate, says Mr. Horne, so traditional methods and strategies are clearly insufficient to meet today's challenges. The government, the industry and stakeholders need "reconsider what it means to be a servicer."