The 27-page term sheet handed to the five largest residential servicers last week is a detailed, dense list of requirements that, if implemented as proposed, would fundamentally change the relationship between servicers, investors and borrowers.
The nation's top five servicers – Bank of America, Wells Fargo, JPMorgan Chase, CitiMortgage, and Ally Financial/GMAC – control 64% of the $9.6 trillion servicing market, according to figures compiled by National Mortgage News.
The term sheet, obtained by American Banker, is just the opening bid in an ongoing negotiating process between the servicers and various state and federal agencies attempting to punish them for significant issues uncovered in the foreclosure process. While some of the details of the term sheet have been made public already, the sheer breadth and depth of the proposed requirements were not clear until now. (American Banker is an affiliate of National Mortgage News.)
The term sheet covers virtually every detail of how servicers operate, laying out new requirements for mortgage documentation, interaction with borrowers, relationships with active military personnel, loan modifications, principal reductions, bankruptcy proceedings, short sales and technology systems.
And most importantly for servicers, it dictates foreclosure terms in both judicial and non-judicial states. The details mandate that when foreclosing on a home servicers must provide sworn statements to the borrower, "setting forth facts" related to their right to foreclose. It also stipulates that whoever signs the affidavits on behalf of the servicer must be "competent to testify on the matters stated."
It even includes a proposed requirement that servicers enter into a contract with retailers such as Wal-Mart Stores Inc. or FedEx's Kinko's to enable borrowers to fax modification documents to banks free of charge, in addition to ordering servicers to create Web sites to allow borrowers to upload documents directly.
Speaking to reporters on Monday, Tom Miller, the Iowa attorney general in charge of negotiations on behalf of the 50 state AGs, said the proposed settlement had to be tough to enact real change in the industry.
But he also noted that a final deal with servicers could take months to complete.
"What we are really trying to do is change a dysfunctional system," he said. "We really want to change all that, that's our goal. It's a significant difficult goal. We've had discussions with banks. We are hopeful we can reach an agreement good for banks and good for homeowners."
