Valuing mortgage servicing rights is tricky in normal times. The foreclosure documentation mess threatens to make the process even more difficult.
"It's just another whammy to the mortgage banking industry and the mortgage servicing assets," said Brett Schaffer, the president of Phoenix Capital Inc. and Phoenix Analytics Services Inc., which provide mortgage servicing rights advisory and valuation services. "The servicing remains highly illiquid at historical standards. It's kind of hard to wonder … how much more illiquid it will become, but certainly this will add to it."
Schaffer and other industry experts say it's premature to determine how big of a hit the "robo-signing" scandal will have on servicing valuations. Much depends on how long it takes for servicers to address the problem.
"If this gets resolved in fairly short order within a month or six weeks and … there isn't any critical flaw in the mortgage servicers' practices in general, then I don't think it has really any impact," Schaffer said. "On the other hand, if it is determined that there is a material flaw and there is going to be long-term foreclosure halts, then it probably would have a material impact on those particular firms. It's not just a blanket statement for the market."
The latest industry saga erupted late last month, when Ally Financial Inc.'s GMAC Mortgage said it was halting evictions and foreclosure sales in the 23 states where the process is handled by courts as it investigates problems with the way documents were executed. The issue was brought to light in the depositions of an employee who revealed that he routinely signed thousands of documents a month without verifying the information or having a witness present, which is required by law.
