Regulatory Actions Melding Into National Servicing Standards


n the last year and a half, the foreclosure-documentation crisis has triggered nationwide scrutiny of the default servicing process for residential mortgages. In the wake of these events, supervisory and enforcement actions by banking regulators have set minimum expectations for national servicing standards that are driving compliance expectations.

In April 2011, federal banking regulators entered into consent decrees with 14 major servicers and two third-party service providers that mandated significant changes regarding the manner in which default servicing is conducted.

Two months later, in June 2011, the Office of the Comptroller of the Currency (OCC) mandated that loan servicers under its purview conduct self-assessments that require evaluating compliance in six major areas of default servicing and undertaking look-back file reviews to identify borrowers who may have been harmed by prior practices.

More recently, in October 2011, the newest federal regulator, the Consumer Financial Protection Bureau (CFPB), announced servicing examination principles that provide a framework for testing regulated servicers’ compliance with consumer protection laws.

In addition, state regulators have spent nearly a year negotiating a detailed settlement with major servicers, including a proposed order setting forth compliance expectations that state attorneys general (AGs) will seek to impose as an industry standard on other servicers.

Although these simultaneous actions by state and federal players have uncertain implications for the long term, prudent servicers are closely reviewing the changing requirements in order to determine what they need to do and what further compliance standards examiners and relevant enforcement agencies will expect them to meet. This article addresses the sources of these standards and offers practical steps for servicers seeking to implement processes that are consistent with regulatory expectations.

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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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