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February 21, 2012

Foreclosure Fraud Settlement: Will There Be Terms, Or Just Suggestions?

Posted in: Uncategorized

Before the foreclosure fraud settlement was inked, at least half a dozen Republican Attorneys General said publicly that they were philosophically opposed to principal reductions of any kind. Then, in December of last year, the committee that helps elect Republican AGs received hundreds of thousands of dollars from Citi, Wells Fargo and JPMorgan Chase. All of a sudden, every Republican AG but Oklahoma signed on to the deal.

This tells you how “philosophical opposition” can be overcome, and also how scared the banks are of the settlement. And it may tell you how everyone expects the settlement to be implemented, i.e. just like every other settlement with the banks – poorly. The New York Times today looks at single point of contact, a standard for servicing which has been mandated on at least a couple of occasions, without success.

While the entire process of seeking a mortgage modification is complicated and time-consuming, few elements are as maddening as the inability to get through to a representative at the bank, or being asked for the same documents again and again.

So the promise of a single point of contact has emerged as a crucial element in the much-ballyhooed $26 billion settlement reached earlier this month involving state attorneys general, the federal government and the five biggest mortgage servicers. These rules will apply nationwide and come with commitments of strong enforcement by federal and state authorities, but they carry a familiar ring for those experienced in the foreclosure process.

Last April, the industry made many of the same pledges under a consent order with the Office of the Comptroller of the Currency and since then, consumer representatives say, there has been barely any improvement, adding that loan files continue to be handed off from one agent to another, sometimes weekly, and that even when a single person is assigned to their cases, one phone call after another goes unreturned.

“It doesn’t seem like much has changed,” said Josh Zinner, co-director of the Neighborhood Economic Development Advocacy Project, or Nedap, a resource and advocacy center that works with community groups in New York. “We’re still seeing the same systematic problems.”

I agree with Yves Smith that single point of contact is not really the issue. If you had accurate record-keeping at the servicers, than any call center employee could access the proper data and help customers. We know this because that’s how it works with practically every other customer service call center in the world, and while nobody particularly likes calling customer service, in general terms your phone or cable company rep can figure out your situation in a short period of time by accessing your records (and they don’t have single point of contact). Only in the servicer business do we see these persistent problems, and at some point you have to attribute it to the servicing model itself. Either the profit margins are so low for the servicing business that they cannot adequately staff without losing money, or they simply don’t believe that they will be meaningfully sanctioned for these endemic problems.

Either way, this shows that servicers will not keep up their end of the bargain. They didn’t for the OCC consent order, and they won’t for the servicing settlement. And if the servicing standards won’t take, what does this mean for the principal reductions or refinancing? What does it mean for the money going to the states, which increasingly is getting used for things like higher education or Medicaid gaps or knocking down vacant homes? We haven’t seen terms of the settlement yet, but based on prior knowledge, we can say with some degree of confidence that the terms of the settlement, in many cases, will be no more than just suggestions.


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