Fitch Ratings published the following report in response to 10 residential mortgage servicers agreeing to forego foreclosure reviews in exchange for entry into an $8.5 billion settlement.
Fitch Ratings believes the settlement between regulators and 10 residential loan servicing companies is positive for those companies as it is an end to the foreclosure review proceedings and will allow for a refocus on the services they provide. The Office of the Comptroller of the Currency (OCC) and the U.S. Federal Reserve Board announced the agreement on Jan. 7, 2013. It includes the payment of $8.5 billion, either as cash payments or assistance to help borrowers, and effectively ends the case-by-case independent foreclosure reviews mandated by the enforcement actions issued in April 2011.
In our view, the end to the extended, and recently controversial, independent review process will allow these servicers to refocus on completing other initiatives required by the various regulators, as well as to reassign internal staff that have been involved with the lengthy review process. In addition, the agreements makes the final compensation structure clear and eliminates further cost for the independent reviews that will allow the servicers to better establish their future cost to service and potentially allow funds to be released for improvements in the quality of their services.
The additional scrutiny, mandated changes, and costs have caused many institutions to re-examine strategies and question their commitments to the market. Three of the 10 servicers under this agreement are no longer active in the U.S. residential servicer market. Many have actively pursued a strategy to offload non-agency and, in some cases, higher risk agency portfolios to concentrate on new, low-risk products.
Fitch further believes that the industry as a whole has addressed foreclosure documentation and process changes that resulted from regulation and policy changes. However, we see a backlog of foreclosures remaining to be processed.
The servicers included in this agreement who are also Fitch-rated servicers include: Bank of America, Citibank, JPMorgan Chase, PNC, and Wells Fargo.
The above analysis was published by Fitch Ratings agency.