Superintendent Lawsky Announces Agreements With Morgan Stanley, Saxon, AHMSI & Vericrest On Groundbreaking New Mortgage Practices

Superintendent Lawsky Announces Agreements With Morgan Stanley, Saxon, AHMSI & Vericrest On Groundbreaking New Mortgage Practices

Benjamin M. Lawsky, Superintendent of Financial Services, today announced that New York’s Department of Financial Services has entered into agreements with Morgan Stanley and its mortgage servicer Saxon, American Home Mortgage Servicing, and Vericrest Financial to adhere to the landmark mortgage servicing practices previously agreed to by Goldman Sachs Bank, Ocwen Financial, and Litton Loan Servicing.

“Today's agreements are an important step forward in cleaning up some of the mortgage industry's most troubling practices. These new reforms are now spreading out into the industry at a time when homeowners truly need relief in the wake of the financial crisis. We will continue to do everything we can to make these reforms the norm in the servicing industry,” Superintendent Lawsky said. “I commend Morgan Stanley, Saxon, American Home and Vericrest for being leaders in agreeing to implement this new higher standard to protect homeowners from abuse and I urge others in the industry to follow their lead.”

“Strong standards like these Servicing Practices are needed so that regulators like the DFS can hold servicers truly accountable through the examination process and the Department’s enforcement mechanisms,” Lawsky said.

Importantly, the agreements do not preclude any investigations of past practices or release any claims or actions whatsoever.

The agreements on Mortgage Servicing Practices will redress troublesome and unlawful practices that have plagued the mortgage servicing industry as a whole. Those practices include:

  • “Robo-signing,” where servicer staff signed affidavits stating they reviewed loan documents when they had not actually done so.
  • Weak internal controls and oversight that compromise the accuracy of foreclosure documents.
  • Referring borrowers to foreclosure at the same time as those borrowers are attempting to obtain modifications of their mortgages or other loss mitigation.
  • Improper denials of loan modifications.
  • Failing to provide borrowers with access to a single customer service representative, resulting in delays or failure of the loss mitigation process.
  • Imposition of improper fees by servicers.

The agreements make the following changes:

  1. End Robo-signing and impose staffing and training requirements that will prevent Robo-signing.
  2. Require servicers to withdraw any pending foreclosure actions in which filed affidavits were Robo-signed or otherwise not accurate.
  3. End “dual tracking”, i.e., referring a borrower to foreclosure while the borrower is pursuing loan modification or loss mitigation, and prohibit foreclosures from advancing while denial of a borrower’s loan modification is under an independent review, which is also required by the agreements.
  4. Provide a dedicated single point of contact representative for all borrowers seeking loss mitigation or in foreclosure so borrowers are able to speak to the same person who knows their file every time they call.
  5. Require servicers to ensure that any force-placed insurance be reasonably priced in relation to claims incurred, and prohibit force-placing insurance with an affiliated insurer.
  6. Impose more rigorous pleading requirements in foreclosure actions to ensure that only parties and entities possessing the legal right to foreclose can sue borrowers.
  7. For borrowers found to have been wrongfully foreclosed, require servicers to ensure that their equity in the property is returned, or, if the property was sold, compensate the borrower.
  8. Impose new standards on servicers for application of borrowers’ mortgage payments to prevent layering of late fees and other servicer fees and use of suspense accounts in ways that compounded borrower delinquencies and defaults.
  9. Require servicers to strengthen oversight of foreclosure counsel and other third party vendors, and impose new obligations on servicers to conduct regular reviews of foreclosure documents prepared by counsel and to terminate foreclosure attorneys whose document practices are problematic or who are sanctioned by a court.

The new agreements announced today are between the Department and three mortgage servicing companies:

  • Morgan Stanley and its subsidiary SCI Services, Inc., which owns Saxon Mortgage Services, Inc. Saxon, headquartered in Irving, Texas, services more than 162,000 loans nationally with a total unpaid principal balance of more than $26.6 billion, and more than 9,000 loans in New York with a total unpaid principal balance of more than $2.4 billion.
  • American Home Mortgage Servicing, Inc., which indirectly owned and controlled by WL Ross & Co. American Home, headquartered in Coppell, Texas, services more than 380,000 mortgages nationwide with a total unpaid principal balance of more than $71 billion and more than 24,000 loans in New York worth a total unpaid principal balance of more than $6.8 billion.
  • Vericrest Financial, Inc., headquartered in Oklahoma City, Oklahoma. Vericrest services more than 47,000 loans nationally with a total unpaid principal balance of more than $6.8 billion and more than 2,500 loans in New York with a total unpaid principal balance of more than $625 million.

Chuck Bell, Programs Director of Consumers Union, said, “These new agreements establish critically-needed protections for homeowners facing foreclosure, by ending unfair and illegal practices that interfered with borrowers’ rights. Borrowers will now have more orderly, streamlined procedures in mortgage servicing, including a Single Point of Contact, so they don’t get a bureaucratic runaround between multiple staff members. They will also have a fairer opportunity to seek a loan modification, and keep their home. Building on the earlier Ocwen-Goldman agreement, the New York State Department of Financial Services is proving that New York is going to impose tough, but fair rules for mortgage servicing. These agreements create a better, more predictable business environment for both lenders and consumers. We applaud Superintendent Lawsky and the DFS staff for their efforts to achieve better public oversight of financial services, and look forward to the rapid adoption of these standards across the entire marketplace.”

Josh Zinner, Co-Director, Neighborhood Economic Development Advocacy Project (NEDAP), said, "The widespread failure of mortgage servicers to work with homeowners in good faith is harming communities and exacerbating the foreclosure crisis. We strongly support efforts by the Department of Financial Services to hold the mortgage servicing industry accountable."

The Morgan Stanley, Saxon, American Home, Goldman, Ocwen and Litton agreements were arranged through the work of Executive Deputy Superintendent of the Financial Frauds and Consumer Protection Division Joy Feigenbaum, Associate Counsel Brian Montgomery, Assistant Counsel Max Dubin, and Associate Counsel Ellen Buxbaum, with the assistance of Deputy Superintendent of Mortgage Banking Rholda Ricketts.

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