Defaults Stress Compliance Needs.

DALLAS -- Lenders need to make sure their procedures are in compliance with state foreclosure laws, especially as higher default rates rise across the country, said Roland Reynolds, a partner with Pfeifer & Reynolds LLP, at the recent SourceMedia Mortgage Servicing Conference here.

"You may not always be in compliance with state law procedures. Go back and do some house cleaning and make sure you are up-to-date," Mr. Reynolds said on the regulatory panel at the conference. "Look at your timelines and notices. Make sure you don't violate procedures in different jurisdictions."

A lot of times foreclosure attorneys will give servicers good advice regarding specific loan documents if there is a problem, he said. "You don't want to be continually violating procedures in some of the quirky jurisdictions that are out there in different places. One way to do that is just to go back to your foreclosure attorneys and tell them what you are doing. Ask them to certify it to see what you're doing is correct," said Mr. Reynolds.

"Push off that burden. It's a little bit difficult to do those 50 state reviews if you're not a particularly big house. Also, do that with reconveyance procedures and your vendors. Make sure you are in compliance with all the state laws. Now, we are coming into an environment where we are probably going to have more litigation, and this is the time to tighten up on all these things. In most cases, they are not potential class-action cases, but it's possible, particularly in areas making headlines."

Servicing shops should have a loan fraud loss recovery unit within them to some capacity, not just be delegated to quality control people who are just a separate repurchase group, he said.

"I think the way to do it is to pull a couple of people from within your organization who are familiar with underwriting. Maybe have them talk to your some of security folks, too. Teach them how to do asset searches and title reviews," said Mr. Reynolds.

"When you have a loan you've incurred the loss on, and you know it's coming up, review it. Look at that loss. Don't just write it off. Think about ways you can recover it. Either through something as simple as making a demand through the broker who you thought was ignoring the repurchase demands, looking at what else was involved in the fraud. If permissible, talk to the borrower. Be more forceful about it. Do it in-house or through your relationship with outside counsel."