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Servicers Release a Proposal in Response to Robo-Signing Settlement

Perhaps in preparation for the meeting between bank representatives and lawmakers scheduled for Wednesday, servicers have reportedly drafted their own proposal in response to the robo-signing settlement they were given earlier this month.


Ron D'Vari, CEO of asset management and capital markets advisory firm ""NewOak Capital"":http://www.newoakcapital.com/ notes that while progress will be made by the meetings, many of the groups to be affected by the outcome will not be included in the discussions.

""The ultimate resolution will attempt to balance treatment of various constituents, including borrowers in need of [assistance] vs. paying borrowers, tax payers, investors, and pension funds. Many of these parties will not be represented at the table but will be affected,"" he said.

Though specific details of the servicer response proposal are not yet available, the ""_Wall Street Journal_"":http://www.online.wsj.com reports that the 15-page proposal, called Draft Alternative Uniform Servicing Standards, features some of the same guidelines as the 27-page proposal sent by state attorneys general.

The proposal has timelines for modification processing and also mandates there must be a single point of contact for borrowers, but has no mention of principal write-downs.

The idea of write-downs has been a particularly controversial idea, with servicers and lawmakers, and now ratings agency questioning the soundness of mandatory write-downs for delinquent borrowers.

""Standard & Poor's"":http://www.standardandpoors.com released a cost-benefit analysis of the proposal, saying that the mortgage servicing industry would most likely prove beneficial in the long term, but may have negative effects on the short term recovery.

In the case of principal forgiveness, S&P notes that wide scale principal forgiveness could result in a reduction in the number of nonperforming mortgages as well as increased home retention for struggling borrowers.

The rating agency also notes that many homes facing foreclosure are not owner occupied and would not be covered under the terms of the settlement. Even more problematic, S&P estimates that the amount of forgiveness needed to re-equitize borrowers or lower their payments enough to be effective is more than the amount proposed in the settlement.

According to the agency, in some cases a 50-70 percent reduction would be necessary to achieve that feat.

About Author: Joy Leopold


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