Settlement Monitor Reports on Progress, Servicer Compliance

Joseph A. Smith, Monitor of the National Mortgage Servicing Settlement issued a progress report on Wednesday.  Smith, former North Carolina Banking Commissioner, said the interim report was published to inform the public about the nature of the settlement, the steps that have been taken to implement it, and the results to date.  Smith is not required to issue his first report to the Federal Court until the second quarter of 2013.

The report includes a summary of the material terms of the various judgment and agreements comprising the settlement, a review of actions taken to date to implement the settlement, and information about the relief that has been extended to consumers under the settlement during the second quarter of 2012.

Smith was authorized by the settlement to employ a primary professional firm (PPF) to ensure the quality of servicers' monitoring and has hired BDO USA, LLP.  Five servicer performance firms (SPF) have also been employed to monitor the five individual servicers involved in the settlement.  Smith said in picking the six companies he placed great emphasis on the independence of each with regard to its assigned servicer.

Each servicer has an Internal Review Group (IRG) comprised of employees and/or independent contractors and consultants of the servicer that is responsible for performing reviews of the servicer's compliance with the Settlement.  IRG members must be separate and independent from the line of business being reviewed.

Also assisting in the review are a law firm, an accounting firm and a forensic accounting firm, and a communications firm.  These firms assisted in selecting the PPF and negotiating work plans.  Smith has also sponsored a non-profit Office of Mortgage Settlement Oversight (OMSO) to provide administrative support and enable the Monitor to carry out his duties independently and transparently.  This office will accept payment of money and maintain books and records.

Under the settlement the Servicers will provide specific dollar amounts of relief to borrowers over a three year period.  The servicers have the flexibility to provide relief in a variety of forms including loan modifications, transitional funds, short sale facilitation, deficiency waivers, forbearance, and anti-blight activities and must report quarterly to the Monitor on the relief given and their progress toward meeting payment obligations.

The Settlement is structured to provide credits for relief given against Settlement commitments.  To encourage servicers to make substantial early progress they will be given an additional 25 percent credit for principal reductions or credited refinancing activities that take place within the first 12 months of the program.  If servicers do not meet their total commitment within three years they will be penalized no less than 125 percent of the unmet commitment amount.

While the amounts have not yet been confirmed, scored, or credited, servicers have submitted documentation for the following during the first quarter of the Settlement period.

• A total of $10.56 billion in relief was provided to 137,846 borrowers; an average of $76,615 per borrower.
• First lien modifications were completed for 7,093 borrowers and resulted in loan forgiveness of $749.4 million or $105,650 per borrower.
• An additional 5,500 borrowers received forgiveness of pre-March, 2012 forbearance in the amount of $348.9 million.
• Second-lien modifications and extinguishments were provided to 4,213 borrowers; $231.4 million in relief.
• Almost 23,000 home loans were refinanced with an average interest rate reduction of 2.1 percent.
• Short sales or deeds in lieu were authorized for 74,614 borrowers at an average of $116,200 per borrower.
• Through various other consumer relief programs the servicers provided $458.8 million in relief to 24,353 borrowers.
• First lien modification trials were extended to 21,104 borrowers and 28,047 borrowers were in an active trial.

The Settlement contains 304 actionable Servicing Standards and each servicer has agreed to a timeline for phasing in implementation of these standards.  By July 5, each of the servicers had implemented between 35 and 72 percent of the standards.  Among the standards that all servicers have put into operation are standards relating to the integrity of documents, single points of contact for borrowers, and a variety of customer service standards including communicating with representatives from state attorneys general and regulatory agencies who act upon a written complaint filed by a borrower.  Servicers are also establishing reasonable standards and training requirements for loss mitigation staff, eliminating compensation arrangements favoring foreclosure over other alternatives, and having adequate staffing and systems to track borrower documentation and information.

In the area of loss mitigation servicers report that they have designed proprietary first lien modification programs, eliminated any application or processing fees for loan modifications, and are performing independent evaluations of denials of requests for modifications.  Servicers are also complying with the Servicemembers Civil Relief Act and related state laws and have engaged independent consultants to review all foreclosures in which a military service member is known to have been on the loan.

Servicers also report ant they have developed and implemented anti-blight policies for their owned real estate (REO) and are complying with state and federal laws related to the rights of tenants in foreclosed properties.

The Settlement establishes 29 metrics for servicing standards and the Monitor is authorized to develop three more at his own discretion.  He can also establish an unlimited number of other new metrics to address any patterns of non-compliance that emerge.  For that reason, Smith stresses that it is important that consumers and their advocates report any negative experiences through the OMSO website.  The website, www.mortgageoversight.com, is designed to inform the public about the settlement and invite comments.  Smith said to date the website has received about 1,300 distinct submissions from consumers about their experience and about three-fourths of them report problems with their servicers.