The $25 billion mortgage servicing settlement means more due diligence work for servicers when assessing the work of law firms and other third parties assisting with foreclosures and bankruptcies.
The national mortgage servicer settlement involving the nation's top five mortgage servicers shows firms taxed with ensuring that all law firms, trustees, subservicers and other third parties handling foreclosure or mortgage servicing activities are in line with best practices outlined in the settlement agreement.
The settlement, agreed to in February, was officially filed with the court on Monday.
Servicers are required to survey the firm's qualifications, practices, information security for document handling and financial viability, according to settlement documents.
The agreement with the state attorneys general requires servicers to amend their agreement and engagement letters to ensure they comply with all federal and state policies and procedures.
Servicers also are on notice via the settlement that they must deliver timely notice of a third-party provider's failure to adequately perform a given task or comply with procedures.
Firms on the servicing side also are called to ensure third-party companies have access to all relevant information from the servicing shop to handle court and foreclosure proceedings.
Servicers also have to review fees and costs charged by third parties to make sure the charges are lawful.
Foreclosure law firms are of particular concern in the settlement.
The deal says servicers shall launch a certification process for all law firms that provide foreclosure and bankruptcy services.
This process involves ensuring all of the attorneys working on a servicers' projects are licensed to practice in the applicable jurisdictions and have the competencies to perform those services. The process also involves ensuring regulations and state rules are followed by attorneys involved with servicers.
In addition, servicers now have to ensure outside parties have a servicer contact to work with when dealing with loss-mitigation questions from the borrower.
To further due diligence, servicers also must adopt procedures that force law firms and third parties to keep records that show all notarizations of servicer documents that are completed by notaries used by a third party.