Mortgage Servicing Industry Abuzz Over Revelations
NEW YORK – Recent revelations that Ally Financial Inc. and JPMorgan Chase & Co. may have cut corners on their foreclosure paperwork have sent the servicing industry into a tizzy, with concerns being raised about massive delays in foreclosures and a reduction in company ratings.
Mark Zandi, a well regarded economist at Moody's Economy.com, told American Banker, an affiliate of Credit Union Journal, that the crisis could delay certain foreclosures for up to 10 years.
Meanwhile, investors in residential mortgage-backed securities are bracing for a new round of losses on their bonds. "From a bond perspective, we are using higher projected severities in our analysis of transactions," said Roelof Slump, a managing director at Fitch Inc. "Any operational deficiencies could impact the ratings."
Ally has halted, for now, an undisclosed number of foreclosures in 23 states after revelations that one of its employees said he routinely signed off on court documents without verifying the information or having a witness present.
JPMorgan Chase is halting 56,000 foreclosures it had begun, pending a review of whether employees properly signed and verified information in its foreclosure documents.
At least six state attorneys general have begun investigations into Ally's foreclosure practices, and fear runs high that it is only a matter of time before more servicers admit similar problems – and Congress launches hearings.
For now, the scandal is causing rating agencies to warn residential servicers to double-check how they foreclose on troubled loans.
In a new notice to its servicers, Fitch said that, if it finds a company's "processes are not adequate and remedial actions are not sufficiently robust," it will take rating action. Some mortgage advisers think the whole mess could blow over in a few weeks, but not all agree.
The "defects" cited in the Ally case were described in a deposition by a GMAC employee, who said he routinely signed off on court documents without verifying their information or having a witness present.