Sen. Sherrod Brown, D-Ohio, and Rep. Brad Miller, D-N.C., late this week introduced a comprehensive bill that would force mortgage servicers to act in the best interests of investors while pressuring them to engage in loan modifications.
The two Democratic congressmen claim that the federal consent orders signed or issued to 14 of the nation’s largest servicers are inadequate and fail to instill meaningful reforms.
“Ending the foreclosure mill requires stronger oversight, streamlined modification procedures, and meaningful penalties when servicers break the law,” said Sen. Brown who chairs the Senate Banking subcommittee on financial institutions and consumer protection.
The Foreclosure Fraud and Homeowner Abuse Prevention Act addresses many facets of the securitization and servicing process -- from MBS trustee duties to servicer compensation, principal reductions on underwater loans, and adequate staffing for tackling the record number of defaults and foreclosures.
One provision of the bill bans servicers from owning second liens if the first mortgage on the same property is part of the servicer’s pool. Another clause gives borrowers a legal defense to stop foreclosures if the servicer fails to offer loan modifications.
The bill also requires servicers to mark-to-market loans once they are 120-days delinquent which eliminates an accounting incentive to prolong temporary modifications and delay recognizing the cost of a permanent modification. “This bill will lead to a realistic modification of mortgages,” Rep. Miller said. (The measure also has enforcement mechanisms to hold servicers accountable for failing to do their jobs.)
Separately, federal banking regulars are working on comprehensive servicing standards, according to acting Comptroller of the Currency John Walsh. “By bringing in the Federal Housing Finance Agency and Consumer Financial Protection Bureau into the talks, we have an opportunity to extend standards to the nonbank sector as well,” Walsh said at a Women in Housing and Finance luncheon on Thursday.
