Fitch Ratings assigned a Negative Outlook for the entire U.S. residential mortgage servicer ratings sector on increased concerns surrounding alleged procedural defects in the judicial foreclosure process.

This industry wide issue will cause all servicers to be under increased scrutiny from a wide range of state and federal regulators, state attorneys general, and GSEs. 

All servicers will be affected, even those fully in compliance with all foreclosure rules and regulations. This can be attributed to the increased amount of time and manpower it will take to properly address the much higher level of oversight, the rising number of inquiries that are received as well as the anticipated additional court delays.

"Risks  to  servicers  include  cost  to research and remediate any errors, additional  fees and resources, potential penalties and reputational risk," said Diane  Pendley, managing director and head of U.S. RMBS operational risk for Fitch.

Around one-third of Fitch-rated servicers have completed their reviews of foreclosure processes  and the accuracy of their foreclosure affidavits.  These  servicers do not believe they will need to take any corrective  action or make any changes to their current processes at this time. 

Some  servicers  have  estimated  that they will be able to complete their review within the next several weeks, while others are still unable to  give a  specific estimate of how long it might take to complete their reviews.


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