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» VISIT US ONLINE @ DSNEWS.COM INDUSTRY INSIGHT The Servicer's Guidebook By Megan R. Cello T finds that completed foreclosure files contain he default servicing world was rocked in February when the documents that wouldn't comply with the new nation's five largest mortgage servicers reached an agreement in standards, it must, at its own cost, substitute a landmark settlement with the Department of Justice (DOJ) corrected documents and provide notice to the borrower or borrower's counsel. and 49 state attorneys general (AG). The settlement, which was signed and finalized last April, was prompted by an investigation by several Notices to Homeowners in Default state and federal agencies into default servicing practices, undoubtedly in Default servicers have long been expected to response to 2010's robo-signing scandal as well as mounting claims of the send various pre-foreclosure notices to customers in default. Essentially all mortgages or deeds banks' customers pertaining to fraud in loan modification practices. Initially grabbing the headlines was the servicers' agreement to pay a sum of $25 billion in homeowner relief and restitution.1 It appears the more enduring consequence of the settlement will be the change in national servicing standards. Although only five servicers were parties to the AG/DOJ settlement, the Consumer Financial Protection Bureau hopes to make similar sweeping changes in servicing standards a requirement for all mortgage servicers sometime in the first quarter of 2013.2 While the exact nature of the anticipated national servicing standards remains to be seen, all servicers can look to the settlement as a guide for expectations and best practices.3 Document Execution Procedures In 2010, the default servicing industry realized the devastating impact that substandard document execution procedures would have on its reputation. To address the issues brought to the forefront in 2010's now infamous robo-signing scandal, the servicers agreed to implement new document execution standards.4 All pleadings filed in a judicial foreclosure state must be supported by competent, reliable evidence. Any affidavit executed in furtherance of a foreclosure must be based upon the signor's personal knowledge, which, at a minimum, requires the signor to review the file and make his or her own independent assessment as to the accuracy of the information being provided in the affidavit. The settlement also calls for servicers to establish standardized forms of affidavits, sworn statements, and declarations in order to make sure the documents being used meet the requirements of applicable state and local laws. Servicers will also be expected to adequately train employees on document execution and certify employee attendance at the training. Servicers must also ensure they are sufficiently staffed to prepare, verify, and execute documents without cutting corners. While some servicers provided cash incentives to employees based on the volume of documents they executed, this practice is now prohibited. Finally, if a servicer of trust contain requirements for "right-to-cure" notices, and the Fair Debt Collection Practices Act requires that a validation notice be sent by any party attempting to collect a debt.5 The settlement requires servicers to send yet another notice.  At least 14 days prior to commencing a foreclosure, servicers must send a statement setting forth items available upon request, an account statement, an ownership statement, and a loss mitigation statement.6 The notice of items available upon request must advise the borrower that he or she has a right to request and receive a payment history, copy of the promissory note, any assignment(s) of mortgage, and the name of the current holder of the note and mortgage. The account statement must clearly and conspicuously state a current reinstatement amount, the date through which interest has been paid, the date of the last full payment, the current interest rate, the date of future adjustment (if the interest rate is variable), any prepayment penalty, a description of late/insufficient fund fees, a telephone number and email address where the 1 The approximate breakdown in distribution of settlement proceeds is as follows: $10 billion toward principal reduction of loans for borrowers in imminent risk of default; $3 billion to refinance loans of borrowers who owe more than their homes are worth; $7 billion toward other forms of relief; $5 billion to federal and state governments. The United States Department of Justice, Office of Public Affairs, Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses, available at www.justice.gov/opa/pr/2012/February/12-ag-186.html (February 9, 2012). 2 The Consumer Financial Protection Bureau, Summary of Proposed Mortgage Servicing Rules, available at http://files.consumerfinance.gov/f/201208_cfpb_detailed_summary_proposed_ mortgage_servicing_rules.pdf (August 2012). 3For a full list of the servicing standards contained in the settlement agreement, please see Exhibit A of the consent judgments, which may be found in PDF format at nationalmortgagesettlement.com. 4 See Paragraphs I.A.1–17 of the Servicing Standards. 515 U.S.C. § 1692g(a). 65

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