If you think that mortgage servicers have been paralyzed in its response to the foreclosure crisis, there are some good reasons. Multiply as defaults and losses mount, these servicers are under pressure from all sides:
Consumer disputes of mortgage servicers have reached unprecedented levels, in a consolidated class action lawsuits. A recent lawsuit against Bank of America will go forward after a federal judge refused to dismiss it. This action, which includes thousands of homes, said that the owners were improperly denied Hamp changes. This is the tip of the iceberg, because borrowers across the country accuse servicers improper foreclosures, misrepresentations, mishandled files and much more. Many of those lawsuits eventually fail, but enough to get the victory for the uncertain legal environment, which encourages more convenient.
Regulators are clamping down on servicers like never before. 13th April 2011, four federal agencies jointly issued cease and desist orders against 14 people, most servicers This extraordinary action, led by the Office of the Comptroller of the Currency (OCC) ordered the bank to produce "action plans" for the revamping their service policy after noting "serious deficiencies" that "are unsafe and solid banking practices."
Regulatory action was not limited to the rhetorical use: 20 July, 2011, Federal Reserve Board issued a consent cease and desist order from Wells Fargo, which does $ 85 million of sentencing. According to the Fed, Wells had falsified income information on mortgage applications (a practice that has become known in the boom years of 2002-2006), and managed to qualify borrowers for prime mortgages into more profitable subprime loans. In addition to fines, Wells Fargo was ordered to reimburse affected borrowers.
Activities of consumers and regulators such as the double pincers squeezing servicers on both sides. And you have some blood drawn from the seemingly bloodless lending giants Bank of America reported $ 1.9 billion in legal costs for the second quarter of 2011-more than double the previous quarter. The situation in the JPMorgan Chase was similar: $ 1.3 billion in legal fees for 2 quarter of 2011-more than triple the $ 400 million reported for the previous quarter.
Ministry of Justice makes changes in service policies with major lenders, and unlike the regulators, DOJ is not just a job in administering sanctions and the increase: it can bring criminal charges too. DOJ has taken the lead in the settlement negotiations began the attorneys general of several states. Negotiations are still ongoing, and other federal entities waiting for terms that appear to determine their positions by service reforms. Cost estimates to repair the consequences are set to more than $ 20 billion.
Investors are parties to the mortgage service are actually working. They are easily forgotten in the clamor of competing demands, but they consider the most important cards: their service contracts. Big mortgage players such as Fannie Mae, Freddie Mac and private investor groups pressure their service to stop delaying the execution on loans that are beyond repair, and punish poor performance.
In the meantime, investors who buy mortgage-backed securities from large service have sued them for selling bad products, the most prominent example is the recent suit that Bank of America has agreed to settle for whopping $ 8.5 billion. In addition to the amount of money, BofA has agreed to transfer the servicing of certain high-risk loans subservice, which will probably be more aggressive in the implementation of rehabilitation measures. As soon as that deal was announced, some of the prosecutor announced his intention to retire, said conditions were too friendly Bank of America.
28 July, several large institutional investors, released a separate suit alleging securities fraud in loans originated by Countrywide Financial, which Bank of America bought in 2008. These players are the California Public Employee Retirement System (CalPERS), Blackrock, and T. Rowe Price. Then 8th August, amid a general market panic, the insurance company AIG announced it is also suing Bank of America on similar grounds. A stock prices immediately fell by more than 20 percent. That same day also saw a dramatic drop in stock prices of other big banks: Citigroup (15.7%), JP Morgan Chase (8.7%), and Wells Fargo (9 %).
Big Trouble
An objective observer would conclude that these service are in big trouble, no matter what they requirements of all stakeholders, regulators and consumers to produce more paralysis, not less. Julie Williams, First Senior Deputy Comptroller and Chief Advisor to the OCC, he alludes to in his testimony before a subcommittee of the House Committee on Financial Services on the 7th July 2010. She stressed the importance of uniform service standards that will satisfy all the various regulatory entities.
TARP two, anyone?
