The 27 terms state attorneys general are demanding top servicers follow are an onerous and rigorous regimen.
While the final terms of the settlement deal, prompted by slack handling of legal requirements at the heart of the robo-signing mess, are likely to be more moderate than these, these are a shot across the bow of a struggling industry.
We warned some months ago that when even one state attorney general starts an investigation, the resulting settlement costs someone hundreds of millions of dollars.
Here, all 50 state AGs have signed on, in a very rare example of unanimity that (in their opinion) servicers are in need of severe correction.
To be fair, the burdens of the servicing business, especially the default servicing side, mushroomed quicker than servicers could staff up to handle them. Hence, one guy robo-signing thousands of cases in an hour, or a day.
Still, robo-signing was not a paper-shuffling mistake, which is why it will end up costing the top servicers those hundreds of millions of dollars.
The harsh term sheet does seem at least a little bit like piling on.
Servicers these days are dizzy as their traditional ways of doing business are being challenged.
For instance, the government-sponsored enterprises are looking at changing the fee structure that they use to pay their seller-servicers for servicing. That would be a game changer!
And the Basel III rules contemplate reducing how much servicing can contribute to an institution’s Tier I capital.
A 10% cap, as proposed, would be a game changer as well.
The Federal Deposit Insurance Corp. has added another wrinkle by suggesting servicing standards be included in risk retention rules for mortgage-backed securities.
The regulatory momentum has certainly switched over from the originations side of the business to the servicing side.
None of these things are set in stone, and the final versions are likely to be less onerous than the original proposals.
But servicers would be wise to conclude from the 27 terms attached to their doors that their traditional ways of doing business are ending.
That, and dealing with the millions of loans in foreclosure or approaching it, and arranging loan modifications and short sales, and selling real estate owned, should be enough to make sure that servicers’ plates are never empty.
