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While the regulatory order requires the servicers to overhaul their operations, it also bolsters a key bank defense — namely, that the significant problems uncovered in the process have not led to improper foreclosures.
April 13 -
If banks were looking for a palatable trade-off in state and federal regulators' plan to revamp mortgage servicing practices, they didn't find it.
March 8 -
In July 2008, the cusp of the financial meltdown, Aurora Loan Services approached some ARM borrowers with a loan mod offer that was hard to turn down — in more ways than one.
February 8 -
Borrowers that call a hotline to have their loan-mod case reviewed are handed off to a nonprofit group created by a large mortgage servicer and largely funded by the industry.
December 17
In addition to the 14 biggest mortgage servicers, two of the biggest vendors to the industry received cease-and-desist orders from regulators Wednesday. One was stronger than the other.
Lender Processing Services Inc. and Merscorp Inc.'s Mortgage Electronic Registration System were both cited for "significant compliance failures" and "unsafe and unsound business practices" related to foreclosures. Regulators are requiring both companies to hire independent consultants, take remedial steps to address past failures and hire additional staff.
But only LPS, a publicly traded company in Jacksonville, Fla., that provides foreclosure-related services to banks, faces the possibility of having to reimburse servicers and borrowers if an independent review finds anyone was financially harmed by its failure to properly execute mortgage documents.
In a Securities and Exchange Commission filing, the company noted that "the order does not make any findings of fact or conclusions of wrongdoing, nor does LPS admit any fault or liability." The filing said the agencies "have not yet concluded their assessment of whether any civil money penalties may be imposed." LPS shares fell 3%, to $30.19 each.
MERS, in particular, has become a lightning rod in the controversy over foreclosures. But the company, which is owned by its 5,000 members (including the top two servicers, Bank of America Corp. and Wells Fargo & Co.), said it is already implementing changes to tighten corporate governance, improve internal controls and address quality-assurance issues identified by federal regulators.
MERS, in Reston, Va., cited changes it made in February, when it told members not to foreclose in its name mostly because borrowers have filed so many suits claiming the company has no standing to foreclose even though MERS has been listed as the lienholder in many foreclosure filings. MERS even issued a press release Wednesday calling the review of its practices "a major step forward" for the industry. (The orders against servicers were also viewed as a positive for the industry; see related
The Office of the Comptroller of the Currency led the on-site review of MERS, coordinating with the Federal Deposit Insurance Corp., Federal Housing Finance Agency and the Federal Reserve Board. The Fed led the interagency review of LPS. The agencies have the authority to examine the firms under the Bank Service Company Act.
MERS has 30 days to hire a third party to analyze and assess its directors, officers, management and staffing needs. It has 90 days to create a plan to establish adequate internal control, risk management, audit and reporting requirements.
Regulators also highlighted potential problems with MERS' finances and ordered the company to create a plan that would identify whether it needs additional capital and where the money would come from. MERS also has to identify and monitor its funding and liquidity risk, provide a plan to reduce discretionary expenses and improve earnings, and maintain adequate reserves for "contingency risks and liabilities."
MERS also must develop a strategy to manage lawsuits effectively. The company has 90 days to comply with the consent order. Within 20 days, MERS must form a compliance committee of three directors, two of whom cannot be employees.
LPS also must hire an independent consultant within 10 days to conduct a risk assessment of its default management services, including whether its mortgage-servicer clients are exposed to risks from its past failures in executing mortgage documents.
Within 45 days, LPS has to hire an independent consultant to review how mortgage documents were executed at two subsidiaries, DocX LLC and LPS Default Solutions Inc. from January 2008 through December 2010. The company has 45 days to submit a remediation plan that identifies problems with mortgage documents not meeting legal requirements and determines if any foreclosure sales can be remediated.
Among other issues, the review will determine whether LPS employees had personal knowledge of the information contained in foreclosure affidavits, whether documents were notarized correctly, and whether fees and expenses charged to borrowers were accurate.
