Loss Mitigation: Fair Lending Implications in Servicing and Modifications


Ms. Tucker’s presentation on the fair lending implications loss mitigation for loan servicing identifies the key legal and regulatory themes facing loan administration departments during the financial crisis. While the challenges to loan administration practices are rising along with foreclosures and defaults, there are impediments to the viability of “fair servicing” actions, including the fact that loan servicers rarely have access to race and ethnicity data, and borrowers are often noncompliant with HAMP race-data collection. Reliable statistical analysis therefore becomes difficult in these cases. Enforcement officials are looking more carefully at the use of discretion in loss mitigation, because historically the higher the level of discretion, the greater the potential for race-based disparities in outcome. However, some servicers with successful loan modification programs offer the greatest discretionary leeway for their customer service and loan workout personnel.

Other recent challenges for loan servicers come from state attorneys general, who are conducting their own investigations of servicing practices, often based on allegations of unfair and deceptive trade practices. Some AGs are outsourcing their enforcement efforts to private plaintiffs’ firms on a contingency fee basis, with the likelihood that rigorous enforcement will continue at the state level. At the same time, state legislators are expected to enact new servicing-related legislation, further complicating the compliance environment.

Ms. Tucker’s presentation at the 2011 CRA & Fair Lending Colloquium is reproduced below with permission of WoltersKluwer.

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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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