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