Revealing that federal banking agencies have found significant "structural problems" in the mortgage servicing industry, Federal Reserve Gov. Dan Tarullo is calling for the creation of national foreclosure standards.
While Tarullo said it should be left to Congress whether those standards would preempt state laws governing foreclosures, he said ongoing issues warrant the creation of some kind of federal rules.
"In light of the range of problems already encountered, and the prospect of further changes in the industry—including the possible migration of more servicing activity to non-banking organizations—it seems reasonable at least to consider whether a national set of standards for mortgage servicers may be warranted," he said.
Testifying before the Senate Banking Committee on Wednesday, Tarullo acknowledged that such a move would be a gigantic change to the current system, but said it is clear servicers are struggling to comply with various local rules.
"It has been increasingly apparent that the inadequacy of servicer resources to deal with mortgage modifications—an area that was a point of supervisory emphasis—was actually a reflection of a larger inability to deal with the challenges entailed in servicing mortgages in many jurisdictions and dealing with a complicated investor base," he said. "For example, foreclosure procedures are specifically the province of real property law governed by the states, and can vary not only by state, but also within states and sometimes even within counties."
Residential servicers—both nonbanks and depositories alike—have been swamped by the foreclosure crisis with most firms unprepared for the tidal wave of delinquencies swamping the system.
Some banks are now reassessing their commitment to amassing a large amount of MSRs, and may become net sellers of servicing rights over the next few years, industry advisors told National Mortgage News recently.
