Mortgage Servicer Reaches $45M Deal With AGs

Manatt, Phelps & Phillips, LLP

Manatt, Phelps & Phillips, LLP

In a settlement involving the attorneys general of 49 states and the District of Columbia, a national mortgage servicer agreed to pay roughly $45 million for allegedly violating state and federal laws on foreclosures, loan modifications and servicing, including more than $31 million in payments to affected borrowers and $5 million to AGs who investigated and allegedly uncovered the alleged violations. As part of the settlement, the servicer likewise agreed to comply with an extensive set of additional default servicing standards.

What happened

Beginning in December 2010, a coalition of state mortgage regulators from Arizona, Georgia, Louisiana, Massachusetts and New York launched an investigation of one of the nation’s largest servicers. The exam covered the period of Jan. 1, 2008, to Dec. 31, 2010, concerning the servicer’s compliance with applicable state and federal laws and regulations.

The regulators claim that they found a host of problems, from a lack of controls related to document execution (including inconsistent signatures, unauthorized execution, faulty assignment, and improper certification and notification) to deficiencies in servicing, foreclosure, loan modification and other loss mitigation processes.

In addition, the regulators assert that the company had deficient internal controls, including inadequate staff levels and a lack of independence, as well as deficiencies in control and oversight of third-party providers, particularly local foreclosure counsel. Finally, the regulators identified alleged deficiencies in the document maintenance processes, such as the failure to retain required documents and the failure to produce documents when requested in tandem with the examinations.

The AGs and the company reached a deal totaling $45 million, with the bulk of the payment allotted for consumer relief. An estimated 52,000 individuals whose homes were improperly foreclosed on between Jan. 1, 2009, and Dec. 31, 2012, will receive a share of $31,456,210, qualifying for a minimum $840 payment. Borrowers who faced foreclosures initiated by the servicers—but who did not lose their homes—will receive a minimum payment of $285. The states imposed a further $8,823,515 administrative penalty. Each will receive $159,967, with an additional $165,033 for the states that conducted the examination process.

As to the remainder, about $1 million of the fund was directed toward claims administration, with another $5 million slated for the states that led the investigation and negotiations.

While the company did not admit to any wrongdoing or violations of the applicable laws, it also promised to change its standards with regard to servicing, foreclosures and loan modifications; conduct testing for three years to ensure compliance with the standards; and provide compliance reports to the participating jurisdictions. Included as an exhibit to the consent judgment is an extensive set of these new servicing standards, which likewise include requirements concerning vendor oversight and protections for service members.

“We have agreed to resolve concerns raised by [the regulators], arising from its servicing examination conducted in 2010, and believe that settling the matter is in the best interest of [the company] and its constituents,” the New Jersey-based servicer said in a statement. “Our decision to resolve this legacy matter under the terms of the settlement agreement and consent orders is not admission of liability or that we violated any applicable laws, regulations or rules governing the conduct and operation of our servicing business during the relevant time frame. In fact, the servicing standards that we are required to adopt under the terms of the settlement are largely [the company’s] standards today.”

To read the Consent Judgment, click here.

Why it matters

On its face, the consent judgment is similar to the types of multistate mortgage servicer settlements that have already been negotiated among other large mortgage servicers. That said, and whether the judgment is fair or not, all mortgage servicers should carefully scrutinize the consent judgment’s servicing standards as a baseline against which regulators may judge similar conduct, and which class action plaintiffs may seek relief for systemic practices that do not comply.


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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