Max’s Comments on AGs’ Term Sheet for Mortgage Servicers

I just had a chance to look through the 27 page document.  My first impression is profound sadness in knowing that the Attorney Generals feel compelled to state that all affidavits must be truthful and contain no false statements.  Have things gotten so bad that we must now get the Servicers to write 1,000 times on the school blackboard:  “We must tell the truth; We must tell the truth; We must tell the truth.” And we must make sure our attorneys and third-party vendors are telling the truth.  Have they all been lying on such a grand scale?  I am sorry for the rhetorical question—of course they have. 

The substance and source of the Rules are based for the most part on existing laws and rules without any references to the same.  And to some extent they are wrong.  For example, Covenant 2 of the standard Uniform Instrument is the MANDATORY application of payments Covenant. The Agreement should just have required full compliance with this covenant.  It provides payments Shall be applied in the following order of priority:  interest, principal, escrow for taxes and insurance, late fees, approved advances and legal fees.and then to reduce principal.  I do not read the agreement to be fully consistent with Uniform Covenant 2.

Also, the document provides what I see as a lot of room for interpretation.  Many if not most of the terms are not defined and this alone makes things very iffy.  Servicers are provided with plenty of wiggle room.  By using such terms as the “contractually due date,” it is not clear if this means the pre-default or the post-default date.  This is especially important in Chapter 13 cases.

I guess the bottom line is that the proposal “leaves the MERS problem for later.”  I would just add that it seems to me a lot has been left out for future consideration.

Having said all that, many of the new Rules are excellent and directly address major abuses.  But, where is the right of the consumer to enforce a breach?  Where are the remedies?

Finally, the extra employee staffing, the extra proof and documentation and direct source vendor monitoring will be very expensive with no right to recapture these extra costs from the consumers.  I would expect strong resistance from the servicers for these reasons.  It is, after all, always about the money!