Foreclosure Legislation May Have Unintended Consequences

Tension is evident in the mortgage servicing industry as federal regulators along with state lawmakers and consumer protection groups are coming after servicers, according to speakers on the legislative roundup panel at the SourceMedia Mortgage Servicing Conference in Dallas. "The rules are all being changed," said David M. Bizar, a partner with McCarter & English. The attorneys general of New York and Connecticut are enforcing federal law and claiming suitability violations under the Truth In Lending Act, he said. The speakers described how there is an increased demand for transparency in data for servicers, but they do not have the resources to provide it and run the risk of providing conflicting data. The industry needs to see uniformity in data reporting, they said. Robert Power, senior vice president, Bank of America, said there is a lot of talk of across the board about foreclosure moratoriums and foreclosure counseling/mediation. Local government ordinances are mirroring this. These laws can have unintended consequences, he said. If a borrower waits 30-60 days until mediation they can fall further behind in their payments and into more debt. They may have fewer options by the time of mediation or lose their best option for a loan modification by this time, Mr. Power said. A whopping 125 cities have local ordinances dealing with vacant properties and the number is growing. A national system is being formed to gather information for cities to identify the servicer, property preservation company and local real estate agent connection to the REO properties in each community.