Fairbanks, Ocwen Cases Leave Mark on Industry
Two regulatory agreements between subprime servicing specialists and federal regulators are having an impact on the entire loan servicing industry, according to Fitch Ratings.
While federal regulators said the agreements that Select Portfolio Servicing (formerly Fairbanks) and Ocwen Federal Bank entered into were not designed as industry guidelines, a Fitch Ratings survey of lenders found that the settlement and supervisory agreements have had a widespread impact on servicing practices.
Thomas Crowe, a director in Fitch's operational risk management group, said that because the agreements are the only published documents out there that carry the authority of the government, lenders have been reviewing their own practices in light of those agreements.
"The two settlements or agreements weren't intended to be best-practice guidelines for the industry, but I think in reality that is what they have become," he told MSN.
Most servicers surveyed by Fitch undertook some type of review of their operations in response to the Fairbanks and Ocwen cases in an effort to ensure that they are not targeted by regulators or consumer advocates.
Especially in the subprime arena, many servicers acknowledged changing certain practices as a result of those reviews.
The areas servicers most frequently said they made changes in were customer service, borrower communications, dispute resolution, fees charged, payoff practices, collections and default management (including repayment plans and foreclosure processes), force-placed insurance and compliance, Fitch Ratings said in a special report.
Fitch noted that servicers are increasingly referring borrowers to independent credit counseling agencies. Mr. Crowe said the use of counseling agencies is apparently an attempt to be more sophisticated in helping troubled borrowers.
"The borrowers may tend to be more honest with a credit counseling agency than they are with a lender that is trying to collect a debt," he said.
Servicers are also becoming more flexible with the use of repayment plans and modifications in order to keep more borrowers in their homes. Extended repayment plans and multiple repayment plans are becoming more common.
In addition, some lenders are providing incentive compensation to collectors to keep as many loans out of foreclosure as possible.
Some servicers are also expanding pre-foreclosure reviews to ensure that loans referred to foreclosure have not been the subject of prohibited actions and that there are no outstanding customer disputes. Some lenders are delaying the initial demand letter or refer-to-foreclosure letter by about 30 days to allow additional time to pursue collection and loss mitigation opportunities.
Mr. Crowe said these pre-foreclosure reviews do not seem to be adding a significant amount of time to foreclosure timelines. Fitch thinks it is a good practice to have a fresh set of eyes review the file before a lender commences foreclosure actions.
He noted that many lenders continue to pursue a "dual track" strategy of pursuing loss mitigation solutions while taking steps toward foreclosure on a defaulted loan simultaneously.
Lenders are also expanding review of insurance coverage before force-placing coverage, Fitch said.
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