Lenore Albert, a plaintiff's lawyer in Huntington Beach, Calif., said the consent orders federal regulators recently issued against the largest mortgage servicers gave her "another tool" to fight foreclosures.
On April 15, two days after the enforcement actions came out, Albert won a court order blocking Aurora Loan Services from holding foreclosure sales on six homes in Orange County. In their request for a restraining order, her clients claimed they were harmed by so-called dual tracking, in which Aurora began foreclosure proceedings at the same time it was evaluating the borrowers for loan modifications. The consent orders bar this practice.
The borrower plaintiffs "acted diligently upon issuance of the [consent] orders," wrote Judge James V. Selna of the U.S. District Court for the Central District of California in Santa Ana in his restraining order.
Servicers can expect more such diligence nationwide.
One likely result of the orders, some industry observers said, is that thousands of borrowers, many of them currently in litigation against servicers, will get another shot at a loan modification.
"There will be a lot of remodifications for those [borrowers] that fell out of a modification the first time," said Art Tyszka, director of document services at Wolters Kluwer Financial Services, which has been hired by several of the largest servicers to conduct loss-mitigation efforts.
"Several hundred thousand loans at a minimum" will get one more chance, Tyszka said.
"The words 'loss mitigation' and 'loan modification' appear no less than a hundred times in the consent orders, so it's logical to assume that the regulators are keenly interested in as many borrowers as possible being put back into loan workouts."
Sean O'Toole, the chief executive of ForeclosureRadar.com, a Discovery Bay, Calif., data company, said cancellations of foreclosure actions are on track to increase 58% this month compared with the first three months of the year combined.
But the reasons could be varied and not just because of the consent orders.
In California, for example, servicers can postpone a foreclosure notice for up to a year. Some of the cancellations may be attributed to short sales, or to a reluctance on the part of servicers to liquidate real estate assets while housing prices are still dropping, O'Toole said.
Albert filed her suit, which seeks class-action status, in January against Aurora and Deutsche Bank (the securitization trustee for the mortgages).
It claims Aurora did not apply the trial payments to the borrowers' mortgages but instead put them into a "suspense account" that incurred more fees, interest and expenses.