Legal Risk a Top Issue.

Fairbanks Capital, staggering from months of criticism in the press and a lengthy, expensive federal investigation, has reached a settlement with regulators and may well be on the road to recovery. Though the company's portfolio has been shrinking, it is still in business and gaining some traction with rating agencies and consumer groups.

But the toll the criticism of the firm's former customer service, collection practices and fee policies has taken on the firm is not small. And at the recent MBA National Mortgage Servicing Conference in San Diego, it was clear that lenders are spending a lot of time looking at their policies and procedures to make sure they don't find themselves facing the same torrent of criticism that Fairbanks encountered.

On the bright side, federal regulators claim they are not trolling the waters looking to expand their scrutiny of servicers practices on a wide scale. But they also made it clear that they will respond to the complaints of consumers and consumer advocates, many of them lawyers skilled at finding discrepancies between loan servicing practices and the requirements of loan documents or state law.

But one thing is clear from conversations with regulators and servicers. Most investigations of loan servicing practices begin with ...