Fitch Ratings has assigned a negative outlook for the entire U.S. residential mortgage servicer ratings sector based on increased concerns surrounding alleged procedural defects in the judicial foreclosure process.
‘Risks to servicers include cost to research and remediate any errors, additional fees and resources, potential penalties and reputational risk,’ says Diane Pendley, managing director and head of U.S. RMBS Operational Risk for Fitch.
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 government-sponsored enterprises. All servicers will be affected, even those fully in compliance with all foreclosure rules and regulations, because of the increased amount of time and manpower it will take to properly address the much higher level of oversight and inquiries that are received, as well as the anticipated additional court delays, Fitch says.
Fitch says that all of its rated servicers have indicated that they are taking affidavit execution seriously and have reviewed or are in the process of reviewing their internal procedures used to verify and execute foreclosure affidavits.
Approximately one-third of Fitch's 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 may take to complete their reviews.
However, ‘All servicers appear to be working towards quantifying and defining their position on foreclosures,’ says Pendley. Fitch expects that all servicers will have substantially completed their internal reviews by the end of the fourth quarter.
Based on the research that the servicers have completed to date on these issues, all servicers generally maintain the factual accuracy of their affidavits. However, some have found their procedures for reviewing, signing and notarizing foreclosure documents may require changes and corrective actions.
A servicer's ability to resolve each corrective action at the local court level will create a wide variety of remedial steps and associated time frames, Fitch says.
‘Final resolution of the foreclosure affidavit concerns and the multiple resulting investigations, along with assigned ownership rights prior to initiating foreclosure actions, may not occur until well into 2011 and possibly beyond,’ Pendley explains.
SOURCE: Fitch Ratings