Wednesday, January 11, 2012

Fed: Enforcement Actions, Monetary Penalties Necessary for Servicers

Standing before the Association of American Law Schools in Washington D.C., Sunday, Federal Reserve Governor Sarah Bloom Raskin discussed the importance of enforcement in the mortgage servicing industry and argued that monetary penalties are an important part of that enforcement.

Her message stated simply that “laws and regulations must be enforced.”

A lack of enforcement “leads to the entrenchment of bad practices and an increase in the costs of correction,” Raskin said, calling many of the mortgage servicing industry’s recent practices “shoddy.”

Amid heightened foreclosure rates, mortgage servicers have encountered “critical weaknesses” in their processes,
Raskin said, pointing out specific problem areas such as oversight of third-party law firms and foreclosure document preparation.

Raskin added that courts are also rejecting many practices that were standard among underwriters and the secondary market.

“The longer it takes for mortgage servicers to make the operational adjustments necessary to fix their sloppy and deceptive practices, the costlier and more difficult it becomes for them to sort them out and correct them,” Raskin said.

The Federal Reserve issued enforcement actions against several servicers in April to address specific aspects of mortgage servicing and foreclosure procedures.

The servicers must create and submit plans to adjust their procedures to correct improper actions moving forward.
However, Raskin says this is “only a start.” She favors imposing monetary penalties against servicers for two reasons.

First, charging fines for misconduct “incentivize[s] mortgage servicers to incorporate strong programs to comply with laws.”

Second, monetary penalties “remind regulated institutions that non-compliance has real consequences,” Raskin said.

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