Federal Reserve Will Fine 14 Mortgage Servicers. Why Should A REALTOR Care?

Mortgage and Lending with SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171)

The Federal Reserve will fine 14 mortgage servicing companies, according to Fed Governor Sarah Bloom Raskin on January 7th at the annual meeting of the Association of American Law Schools.

"We should not forget that effective enforcement of our laws can animate our efforts as policymakers, regulators, business innovators, legal educators, and lawyers in creating the conditions that must exist for the emergence of an improved mortgage-servicing model that hinders neither economic growth nor homeowners' legal security.

If a law is worth having, the law is worth enforcing."

The irony of that last remark is that Raskin was nominated to the Federal Reserve Board by President Obama, whose administration seems to take issue with that remark.  But I digress.

Why Should You Care as a REALTOR?

Included in the 14 companies threatened by the yet-to-be-announced fines are Bank of America, JPMorgan Chase and other large banks. These mortgage servicers receive and process mortgage payments, and make decisions with respect to issues such as

  • Mortgage servicing practices
  • Mortgage Principal reduction
  • Mortgage forgiveness, and
  • Foreclosure 

You care about this issue because what happens in the foreclosure arena directly affects property values

Banks are foreclosing properties and selling them at a loss which is sometimes greater than the loss which would be realized if a bank allowed the property owner a principal reduction so that the owner could avoid foreclosure.  This practice seems counter productive, and raises the question of motive.  Why would a bank intentionally displace a homeowner when it could be cheaper to let him/her stay put and keep another foreclosure from driving down home values? 

The reason we've seen such intransiegence with respect to principal reduction is the fear that such an action will create a new "run on the bank."  Mortgagors (borrowers) who would otherwise keep on paying their mortgages for fear of foreclosure are likely to line up and say "Me, too!"

Will monetary sanction on the banks work?

Here's the problem with fining the banks: they will pass on the cost of the fine to you and me.  We've seen this time and again over the past three years as politicians seek to impose their will on the banks.  Make one fee illegal, and another fee pops up somewhere else. 

And that's a subject for another blog post...

photo Reuters/Brian Snyder



I'm Mike in Tucson, your preferred Tucson Arizona Mortgage Lender

NMLS #223495

SUNSTREET MORTGAGE LLC ~ Correspondent Mortgage Bank
Offices in Mesa, Tucson, Sierra Vista & Nogales


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Karen Kruschka
RE/MAX Ultimate - Manassas, VA
- "My Experience Isn't Expensive - It's PRICELESS"

Mike  It boggles my mind that the very people who caused the problem are not pro-actively participating in a solution.

Jan 09, 2012 09:05 AM #1
Mike Jones
SUNSTREET MORTGAGE, LLC (BK-0907366, NMLS 145171) - Tucson, AZ
Mike Jones NMLS 223495


We inhabit a mixed-up world, don't we?  Thanks for commenting!

Mike in Tucson

Jan 09, 2012 06:25 PM #2
Don Hess
Keller Williams Realty of Central PA East, 930 Red Rose Court, Lancaster, PA 17601 - Quarryville, PA

Unfortunately your comment "Here's the problem with fining the banks: they will pass on the cost of the fine to you and me." is true in many cases. During my career in many businesses the so called "corporate taxes" that politicians always claim will not hurt the consumer are always passed on in higher prices. This is a double edged sword. It costs we consumers more and also makes the products that we depend on to create jobs less competitive. The road to hell is truly paved with good intentions.

Jan 10, 2012 11:58 AM #3
Marge Piwowarski
Phoenix AZ Horse Property - Phoenix, AZ
Phoenix AZ Horse Property, LLC

There is no free lunch.  Sooner or later we will pay for the full trough the bankers feed from. 

Jan 11, 2012 08:42 PM #4
Barbara-Jo Roberts Berberi & Corinna Birgit Cromartie
Charles Rutenberg Realty - Palm Harbor, FL
Palm Harbor & Dunedin FL Residential Real Estate

This is long overdue. Thanks for getting the information out! Hope your 2012 has started off with a positive bang!  :-)

Jan 13, 2012 04:09 PM #5
Marlis Landreth
Retired - Tucson, AZ
Retired Tucson Realtor

Mike, thanks for stopping by to welcome me.  Do we know why these banks are being fined? Is it their lack of working with homeowners to keep them in their homes despite all the bail out money and incentives to do so?  If that's the case, then I'm all for it - despite the long term ramifications.  I've heard too many tales of people being told they qualify for a loan mod only to have it reversed in 3-6 months and the home is foreclosed on. 

Jan 17, 2012 06:09 PM #6
Barbara-Jo Roberts Berberi & Corinna Birgit Cromartie
Charles Rutenberg Realty - Palm Harbor, FL
Palm Harbor & Dunedin FL Residential Real Estate

Looking for an update on this information................

Feb 15, 2012 03:49 PM #7
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