Over the past decade, mortgage loan servicers have been subject to increasing scrutiny by federal and state regulators, as well as private litigants. The recent financial crisis has heightened public examination of mortgage servicing practices, with litigation and enforcement activity intensifying markedly during the past 18 months. Servicers are now facing a new frontier of legal claims based on novel theories that include attacks on previously unchallenged business practices. The absence of clear, written compliance standards has provided government regulators and private plaintiffs with wide latitude to challenge servicing practices while simultaneously hampering the ability of servicers to manage growing enforcement and litigation risks in a rapidly changing environment. The authors undertake a review of recent government enforcement actions and litigation, suggesting a number of strategies that servicers should employ to reduce enforcement action and litigation risks.

This article was co-authored with Benjamin P. Saul and Thomas A. Dowell and appeared in the Review of Banking and Financial Services, Volume 26, No. 6, and is reprinted with permission.