25 Billion Dollar Settlement Helps Servicers

Posted by kevin on June 5, 2012 under Foreclosure Blog | Comments are off for this article

To review, a servicer collects the monthly mortgage payments and distributes those payments to the lender, the taxing authority, and the insurance company. It gets a fee for providing this service. Most servicers are affiliated with large banks- too big to fail banks.

The servicer, in many instances, was the original lender or the purchaser from the original lender, who then sold the loans to FANNIE, FREDDIE or a securitized trust.

Since the servicer is involved in the collection and distribution of payments, it is the entity that coordinates foreclosure or bankruptcy activities on the part of the lenders. It was the entity most likely to be involved in robo-signing, issuing questionable certifications or affidavits in foreclosure litigation, and even forging instruments. The AG’s were looking primarily at the servicers, and the AG’s had claims of approximately a trillion dollars or more against these servicers. These AG claims go away based on the settlement. Now, you as a borrower can raise these defenses in a foreclosure action. But you do not have the same clout that a State AG has to pursue litigation. Moreover, you have to deal with state procedural rules which put a time limit on the ability to set aside a judgment based on fraudulent papers. Therefore, your chances of hitting a home run against the servicers are limited.

Imagine if you could get off the hook on your debts by putting up 25 billion to wipe out of trillion dollars of liability. You could pay off a million dollar mortgage for $25,000. How come the government did not give you that deal? It has something to do with a concept known as moral hazard. Many in the banking industry and government think that it sends a bad message to allow people to walk away from their mortgage obligation. Notwithstanding that many got hoodwinked into deals that they could not afford. However, those same people have no problem with bailing out the banks. In other words, a different set of rules apply to the too big to fail banks. Go figure.