Lenders Advocate for Document Integrity
The Mortgage Bankers Association is undertaking an effort to see if the Uniform Single Attestation Program can be split into two, creating a separate program for commercial servicers, geared to their specific needs.
Russell Richardson, vice president Prudential Asset Resources, said at a panel session on "legal compliance" at the MBA's commercial mortgage servicing conference that the USAP program was originally created in 1963 and has been revised three to four times since then. It was originally written for residential servicers, with seven separate sections and 21 separate standards, and at least two of the standards are not applicable to the commercial mortgage side, he noted. In these cases, "management will either say we've complied with all of them or complied with them, save these exceptions." Gary Smuckler, a partner with the law firm of Morgan, Lewis and Bockius, noted there is increasing pressure by master servicers to get USAPs done in March.
Keith Dunsmore, a partner with Akin, Gump, Strauss, Hauer & Feld, said, "Document integrity is the politically correct terminology for something that used to be called document defects." The process of delivering loan documents into a trust is sketchy and "we have tons of loans where UCCs were never assigned."
Servicers pushed the issue since "half the time documents had to be obtained from the borrower." If the loan goes bad, that's when there is conflict. David W. Forti, a partner with Dechert, said that servicers should not wait until the first servicing transaction (to address any issues). Touching on the topic of document retention, which he sees as a "relatively hot issue right now," Mr. Forti said that seeing that there is a variety of issues with loan documents, they should be kept at a minimum until a loan pays off.
After the loan pays off, it becomes a bit more complicated, he said. There are class-action suits going on across the country on issues relating to release of lien, according to him. A document retention program is "critical to any decent sized company," he said, pointing to the example of Enron's document shedding which was "a very bad thing to do."
Mr. Smuckler pointed out that servicers are servicing in an environment where "information is king," which could result in issues relating to confidentiality. The most important restrictions on release of such information are the contract restrictions that "get slipped into the end of contracts." As well, there are securities law restrictions, insider trading ramifications and borrower confidentiality issues (how much of their information is going out on websites). The problem is that the market expects the information flow, with bondholders, rating agencies, loan origination groups and mortgage lenders all asking for information.
Typical restrictions on the primary servicers are: they must have a compliance plan and make no disclosure to affiliates, rating agencies (who should be kept informed through the master servicer) and bondholders; they must allow disclosure if it is allowed by the law; borrower confidentiality issues in carrying out their ordinary servicing duties; while most loan documents specifically permit wide disclosures, risk exists, including defamation and negligence, if the information is disclosed incorrectly.
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