Laws May Have Unintended Consequences.(Managing REO)

Byline: Jennifer Harmon

Dallas-Tension is evident in the mortgage servicing industry and federal regulators along with state lawmakers and consumer protection groups are coming after servicers, according to speakers on the legislative roundup session at the SourceMedia Mortgage Servicing Conference here.

"Everybody right now is trying to get into your space. There is tension there. We're seeing quite a bit of that on the East Coast. The rules are all being changed," said David M. Bizar, a partner with McCarter & English in Boston. He said attorneys general in New York and Connecticut are enforcing federal law and claiming suitability violations under the Truth in Lending Act.

"In the past when someone came in to originate a loan, all you had to do was try to figure out if they qualified for it under your credit criteria. Suitability is making this like buying stock in the stockbroker's office where the person actually owes a fiduciary duty to the person coming in wanting to buy the securities. That's never really been done. It's another shining example of if it starts to go through, our lives could change significantly."

Servicers are working more with lawyers in-house and externally in order to get through this and ensure they understand what is going on in the field, he added. "Recognize there is a little bit of an alphabet soup going on in our space and we have all these regulations - the OCC, the OTS, I don't know how many state regulators. And they're all doing their own thing."

If a bank is federally chartered, for a large portion, the state regulators can't touch them, Mr. Bizar said. "With everything going on in the states, I wouldn't be surprised if we see some of the institutions move to federal charters. But it doesn't help a bit unfortunately with the foreclosure requirements. There is simply no pre-emption to foreclosures."

Robert Power, senior vice president, issues specialist for Bank of America, in Plano, Texas, said there is a lot of talk regarding across-the-board foreclosure moratoriums and the new and emerging issue of foreclosure counseling/mediation. Eight or 10 states have either a statewide or significant jurisdictions that require some sort of mediation. Local government ordinances are mirroring this.