National Mortgage Servicing Settlement

The National Settlement Executive Summary, the Mortgage Servicing Settlement Fact Sheet, and the Servicing Standards Highlights for the recent mortgage servicing settlement among the United States Justice Department, federal agencies identified within the Executive Summary, certain state Attorneys General, and five leading residential mortgage loan servicers including Bank of America; Citigroup, Inc.; J. P. Morgan Chase; Wells Fargo; and, Ally Financial, Inc. (formerly GMAC) collectively describe a significant accomplishment for homeowners receiving benefits from the settlement. Included within the settlement provisions is a prohibition against dual or two tracking by  mortgage loan servicers, e.g., loan servicers are reportedly not to engage in discussions or negotiations with borrowers to modify, extend, forebear, or pursue short sales while at the same time proceeding with the foreclosure process without interruption or delay. This important issue is discussed further on page 3 of the Servicing Standards Highlights.

The mortgage loan servicers identified are required to dedicate at least $20 billion in various forms of relief to homeowners and an approximate additional $5 billion in cash payments to several states and to the federal government. Apparently, the federal government prefers the major banks listed within the settlement to extend directly financial relief to homeowners and at the same time compensate governments at the state and federal level for some of the alleged losses suffered. The settlement does not include Fannie Mae, Freddy Mac, FHA, VA, or Ginnie Mae, as the federal government and its agencies do not wish to contribute taxpayers’ funds to this settlement (which would require Congressional approval).

Equally, the settlement excludes the investors holding the participation certificates evidencing investments in senior and subordinate traunches created when pools of residential mortgage loans were securitized and then sliced and diced with interests therein sold to investors, whether foreign or domestic. While the settlement does not include all mortgage loan servicers, it is apparently expected the procedural requirements will become the standard of or at least an example for the rest of the mortgage loan servicing industry.

A Release of Claims is included within the National Mortgage Settlement.  The following represents the Release language included within the Executive Summary:

“The proposed Release contains a broad release of the banks’ conduct related to mortgage loan servicing, foreclosure preparation, and mortgage loan origination services.  Claims based on these areas of past conduct by the banks cannot be brought by state attorneys general or banking regulators.

“The Release applies only to the named bank parties. It does not extend to third parties who may have provided default or foreclosure services for the banks.  Notably, claims against MERSCORP, Inc. or Mortgage Electronic Registration Systems, Inc. (MERS) are not released.

“Securitization claims, including claims of state and local pension funds, and including investor claims related to the formation, marketing or offering of securities, are fully preserved.  Other claims that are not released include violations of state fair lending laws, criminal law enforcement, claims of state agencies having independent regulatory jurisdiction, claims of county recorders for fees, and actions to quiet title to foreclosed properties.  Of course, the Release does not affect the rights of any individuals or entities to pursue their own claims for relief.”

The provisions within the National Mortgage Settlement designed to assist homeowners should be reviewed for their application to each fact situation.

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