Fair Lending Principles Must Underpin Loss Mit

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The Obama Administration and Congress have searched for foreclosure alternatives to address the increasing number of defaulting residential mortgage loans, which rose to 9.47% in the fourth quarter of 2009. Some of these programs, such as the Home Affordable Modification Program (HAMP) have had disappointing results, partly because of the complicated eligibility criteria involved and the difficulty of administration. This article (co-authored by Lori J. Sommerfield, Jonice Gray Tucker and Thomas A. Dowell) explores the need to apply fair-lending laws to loan servicing activities, to assure an environment in which homeowners can achieve fair and equitable opportunities to achieve loss mitigation solutions. The authors describe the Department of Justice’s new Fair Lending Unit and its enforcement priorities, along with risk factors the DOJ has identified for possible unlawful discrimination.

Mortgage loan servicers should recognize the likelihood of greater government and regulatory scrutiny of their fair lending efforts, and reinforce the applicability of fair-lending principles in the servicing arena. They must adopt and implement policies for reviewing and deciding loan modification applications and documenting these decisions consistently and thoroughly. Neglecting these issues can lead to significant enterprise risk.

This article first appeared in “Servicing Management” magazine on June 7, 2010 and is reprinted with permission.

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