The 2011 Mortgage Servicers Outlook published mid-December by ""Moody's"":http://v3.moodys.com/Pages/default.aspx predicts more troubles ahead for servicers regarding irregularities in foreclosure practices and documentation.[IMAGE]
More scrutiny of the irregularities banks have recently been under fire for could allow for definition of just how bad things are, but more scrutiny could also lead to the discovery of even more problems within the foreclosure practices.
The New York-based company expects more clarity will develop from servicers finishing their internal audits of their practices and portfolios. External scrutiny will continue from government entities and investors, including many state attorneys general.
Last week Nevada and Arizona attorneys general filed lawsuits against ""Bank of America"":http://v3.moodys.com/Pages/default.aspx, and ""Wells Fargo"":https://www.wellsfargo.com/ recently agreed to a $2 billion settlement with California.
""In 2011, it will become evident how seriously courts will view violations of court rules on foreclosure procedures"" said Gene Berman, a Moody's assistant VP and analyst.
He continued, ""Since judicial foreclosure laws vary as greatly from state to state as judicial foreclosures do from judge to judge, we could see a wide range of judicial opinions on the legality of the foreclosure processes and actions taken to remedy each situation.""
According to the report, foreclosure flaws will add at least three months to the timeline it takes to foreclose on properties. Irregularities in foreclosure practices prompted Moody's to place the servicing quality rating of 12 servicers on review for downgrade.
Moody's believes new controversies may arise over the different practices servicers have in how they make advances to investors and the denial or restriction of mortgage insurance and trust claims that result from servicing errors and may end up creating losses for investors.
In 2011 Moody's plans to continue investigating servicers' cash management and investor reporting practices.
The company expects servicers will also have more government modification programs on their plates, and that they may face stronger pushes to allow principal forgiveness.
Although the rate at which delinquencies have been rising slowed in 2010, Moody's reports they are still at levels that produce elevated costs to servicers.