How the Global Foreclosure Settlement Agreement Impacts Servicing Fees

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As scrutiny of default servicing practices provided significant impetus for the recently announced global foreclosure settlement agreement (the “Agreement”), it is no surprise that the Agreement prescribes extensive standards to resolve issues with these practices. Based upon the Servicing Standards announced as part of the Agreement, one major area of focus will be the fees that mortgage loan servicers charge in connection with servicing loans.

Although the Servicing Standards include a broad range of fee prescriptions, with regard to default servicing fees the primary areas of focus include: (1) whether such fees are bona fide, reasonable in amount, and disclosed to the borrower appropriately and in detail; (2) whether any default-related fees collected are for reasonable and appropriate services actually rendered, and meet additional criteria; (3) whether fees charged for third-party default-related services (including those performed by an affiliate of the servicer) are at a reasonable market rate; (5) whether the servicer collects any unearned fees, or gives or accepts any referral fees, in connection with third-party default-related services; and (6) whether the servicer marks up any third-party default-related services.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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