Some Servicers Sweat HAMP Certification
Mortgage executives are balking at what amounts to a souped-up Sarbanes-Oxley Act for servicers.
The Treasury Department wants companies receiving federal incentive payments for modifying troubled loans to sign an agreement certifying they are in compliance with the Making Home Affordable initiative's more than 800 requirements.
Among other things, the document says the servicer acknowledges that providing false or misleading information to Fannie Mae or Freddie Mac (which are helping Treasury run the program) may constitute a federal crime.
With a June 1 deadline, the executives are in a bind. If they don't sign the certification, their companies could get kicked out of the program or lose the incentive payments earned for loan mods that have been completed. But if they do sign the document, they put themselves on the hook.
Servicers are "taking this very seriously" because of "the risk of civil and criminal violations for the person signing the certification," said Terry Couto, a partner at Newbold Advisors LLC.
Some servicers are urging Treasury to extend the deadline to June 30 or soften the language. Treasury did not respond to questions for this story.
Making Home Affordable is the umbrella program for the administration's various initiatives to help troubled borrowers avoid foreclosure, of which the Home Affordable Modification Program is the largest and best known. Participation in the programs is voluntary.
Although HAMP started more than a year ago, this is the first time companies are being asked to sign the certifications as part of an annual renewal process.
On a conference call, servicers discussed problems with the specific language of the agreement, including the potential for criminal penalties and reputational risk.
According to nearly a dozen executives, lawyers and consultants who took part in the call, the agreement is much broader than Sarbanes-Oxley, which requires executives to take personal responsibility for the accuracy and completeness of a company's financial reports.
Some servicers are urging Treasury to add clauses found in the Sarbanes-Oxley law such as "to the best of my knowledge" or "in all material respects," that would give an executive some legal leeway for any unintentional misstatements. Several servicers said they had no problem signing the agreement; others knew very little about it.
Most were concerned that any investigation into servicing practices could uncover operational mishaps that servicers have been struggling with because of the deluge of inquiries and paperwork from defaulted borrowers.
Bank of America Corp., the largest home loan servicer, is waiting for further instructions from Treasury, said Rick Simon, a B of A spokesman. "Certainly it is safe to say we have a team working on this," he said.
The biggest concern is that an executive could face criminal penalties after vouching that a servicer is in compliance with all applicable federal, state and local laws, and that the company took all actions necessary to implement the loan modification program, including providing training to employees and contractors. Executives also must certify they provided updated and correct information about borrowers' records to ensure that systems maintained by Fannie, Treasury's compliance agent for the Home Affordable Modification Program, are accurate.
Some servicers have developed "Sarbanes-Oxley-type teams to identify and remediate gaps between the Treasury requirements and their internal processes," Couto said. "This unfortunately requires a significant and expensive effort." Lawyers said that while executives signing the agreement are certifying they will not provide false or misleading information to Fannie or Freddie, it is impossible for them also to know if fraud or any other criminal behavior is taking place at their servicing shop that they are unaware of.