Fitch Ratings on Thursday assigned a "Negative Outlook" to the entire U.S. residential servicing sector, citing concerns about "alleged procedural defects in the judicial foreclosure process."
Fitch says servicers are facing increased costs to research and remediate foreclosure errors and potentially face fines, monetary penalties, and reputational risk.
In a research note, Fitch managing director of RMBS, Diane Pendley, said "all servicers" are affected by the crisis "even those fully in compliance with all foreclosure rules and regulations. This is due to the increased amount of time and manpower it will take to properly address the much higher level of oversight and inquiries that are received, as well as the anticipated additional court delays."
Fitch said it received responses to a recent survey it sent out regarding servicers' specific internal procedures used to verify and execute foreclosure affidavits. These servicers told Fitch they take the foreclosure allegations seriously and have reviewed, or are in the process of reviewing, their internal procedures on verifying and executing foreclosure affidavits.
One-third of Fitch-rated servicers have completed their reviews. "These servicers do not believe they will need to take any corrective action or make any changes to their current processes at this time," Fitch said. "Some servicers have estimated that they will be able to complete their review within the next several weeks, while others are still unable to give a specific estimate of how long it may take to complete their reviews."
