The only bank that has been penalized for mortgage servicing lapses got slapped for doing the opposite of what state attorneys general have been demanding.
Bank of America Corp. was penalized in the fourth quarter for delaying foreclosures — not for moving too quickly. B of A expects to pay an estimated $230 million of "compensatory fees" to Fannie Mae and Freddie Mac for the lag.
Now, experts are wondering whether the absence of any regulatory fines amounts to a green light to speed up the processing of foreclosures as long as the paperwork is in better order.
"It's ironic that servicers are being fined for not foreclosing fast enough but have faced no penalties for their poor performance on loan modifications and not helping borrowers," said Steven Gillan, the executive director of the American Alliance of Home Modification Professionals, an Astoria, N.Y., company that helps servicers with the government's loan modification program.
Regulators have failed to punish servicers for noncompliance with the Home Affordable Modification Program because, they say, they lack the authority to assess penalties.
Fannie has assessed similar fees against other servicers for dragging their feet in completing foreclosures within its prescribed deadlines, said Maureen Davenport, a Fannie spokeswoman, but it has not disclosed the names of the other servicers or the amount of fees assessed.
In August, Fannie said it would start monitoring servicers to determine why there are delays in moving delinquent loans into foreclosure. If servicers did not properly account for the holdups, Fannie said it would perform on-site reviews and assess fees to give servicers "a financial incentive to comply with Fannie Mae policies and improve the overall quality of their performance."
A Freddie spokesman said the government-sponsored enterprises could not disclose such information because it involved "proprietary communications" with GSE customers. The Federal Housing Finance Agency, the GSE's conservator, did not return calls seeking comment.
Whether servicers should pay fines — and how much — for lapses is a focal point of settlement talks with state attorneys general and federal banking regulators.
Cease-and-desist orders are expected early this week from federal regulators against the top 14 mortgage servicers, but they are not expected to include any monetary penalties.
Instead, the regulators likely will demand servicers hire more staff or slow down the foreclosure process.
Though consumer groups have been pressing for a pound of flesh, arguing that borrowers have been improperly foreclosed upon, banks have long claimed that robo-signing affidavits amounted to little more than paperwork errors.
Banks say borrowers were not improperly foreclosed on but rather were all in default and had been living in their homes rent-free for an average of 18 months.
Some industry experts said the compensatory fees assessed by the GSEs are not fines at all, but simply adjustments the servicers are required to make when they fail to meet appropriate guidelines and timetables.
"The backlogs in courts in many jurisdictions added to the delays and may have been out of the control of the mortgage servicers," said Dave Stephens, the chief financial officer of United Capital Markets.
