Though regulators have so far been vague about what kinds of national servicing standards they hope Congress will enact next year, momentum appears to be growing behind the concept.
Whether it succeeds will depend largely on how ambitious the plan is, including whether lawmakers and regulators try to craft standards that would preempt local foreclosure laws.
"There needs to be legislation," said outgoing House Financial Services Committee Chairman Barney Frank in a brief interview this month. "We have to come up with a situation where there is one entity responsible for any mortgage and any individual who invests in a mortgage has to know that that's there. … I think it will require legislation to clean this up, going forward, to prevent the recurrence of" a foreclosure mess.
The idea was first raised at a Dec. 1 hearing by Federal Reserve Board Gov. Dan Tarullo, who said regulatory agencies' review of servicers had turned up significant problems. Though Tarullo was vague on what he wants nationalized, such standards could include the timing of a servicer's notice to a delinquent borrower of how many days until foreclosure is allowed under the servicer contract, responsiveness to customers, how a foreclosure should be done and how a servicer should operate during a foreclosure.
The biggest unknown is how effective standards could be without also preempting state and local laws that govern foreclosures. Many observers said any new standard would have to preempt state laws to be effective.
Any attempt to preempt state laws is a political minefield and sure to provoke a fight with state regulators and attorneys general. But if policymakers do not get past such problems, some argue, big servicing issues will persist.
"The feds seem unwilling to grapple with the fact that there are materially inconsistent state laws that are extending the time to foreclosures," said Laurence Platt, a partner at K&L Gates. "Unless they synchronize those with a federal standard, my son could start and end college before a foreclosure could end."
