The ""Securities and Exchange Commission"":http://www.sec.gov (SEC) is putting mortgage lenders on alert regarding disclosures about potential losses from foreclosure paperwork defects and loans they may be forced to buy back from investors.[IMAGE]
In a ""letter sent to the CFOs"":http://www.sec.gov/divisions/corpfin/guidance/cfoforeclosure1010.htm of publicly traded banking companies, the federal agency reminded lenders of disclosure obligations that should be included in their upcoming regulatory filings.
In particular, the SEC said mortgage lenders are required to relay to their investors ""any known trends, demands, commitmentsÃ¢â‚¬Â¦or uncertainties"" that they ""reasonably expect"" to have an ""unfavorable impact"" on the company's financial results.
A number of major lenders have already revealed that theyÃ¢â‚¬â„¢ve found errors in legal documents for foreclosures. Bank of America says it is submitting ""102,000 corrected affidavits"":http://www.dsnews.com/articles/bank-of-america-and-fidelity-national-reach-agreement-for-reos-2010-10-18 to courts in 23 judicial states. Wells Fargo is doing the same for some ""55,000 pending foreclosure judgments"":http://www.dsnews.com/articles/wells-fargo-owns-up-to-finding-errors-in-55000-foreclosure-affidavits-2010-10-28.
The news of so many blunders in the processing of foreclosure paperwork has prompted ""federal regulators"":http://www.dsnews.com/articles/task-force-pursues-criminal-investigation-of-foreclosure-paperwork-errors-2010-10-19 and ""attorneys general"":http://www.dsnews.com/articles/all-states-to-take-part-in-coordinated-foreclosure-investigation-2010-10-13 in all 50 states and the District of Columbia to put the servicing industry under a microscope.[COLUMN_BREAK]
Onlookers say reform is in the cards for the servicing industry to ensure the just and fair treatment of homeowners in distress.
More immediately, costs that come with delayed liquidation timelines, legal battles from homeowners contesting foreclosure decisions, and, if some state attorneys general have their way, mandated loan modifications and principal writedowns as part of a settlement agreement could eat away at lendersÃ¢â‚¬â„¢ pocketbooks.
The SEC told lenders in the letter, Ã¢â‚¬Å“[Y]ou should discuss any implications of any foreclosure review, including potential delays in completing foreclosures, if applicable,"" in financial filings and with shareholders.
On top of the procedural issues with foreclosures, mortgage investors are becoming more vocal with their demands that lenders repurchase poorly underwritten loans from the boom days that have since defaulted.
Lenders repurchased ""$6 billion in faulty mortgages"":http://www.dsnews.com/articles/price-tag-for-fannie-and-freddie-bailout-could-double-fhfa-2010-10-21 from Fannie Mae and Freddie Mac during the first half of 2010, according to figures from analysts at RBS Securities Inc. And the regulator of the two GSEs says itÃ¢â‚¬â„¢s looking into 64 mortgage-backed securities (MBS) issuers and lenders in the hopes of recouping loan losses.
Most recently, the Federal Reserve Bank of New York, along with a large group of private investors that includes Blackrock and Pimco, said they wanted Bank of America to buy back soured mortgage securities that were improperly serviced by Countrywide Financial Ã¢â‚¬" problems that BofA inherited with its 2008 acquisition of the subprime lender. The buybacks being pursued could reportedly carry a price tag of $47 billion.
The SEC is advising lenders to provide Ã¢â‚¬Å“clear and transparent disclosureÃ¢â‚¬Â regarding obligations relating to the impact of Ã¢â‚¬Å“representations and warranties that you made in connection with your securitization activities and whole loan salesÃ¢â‚¬Â to the GSEs and private investors.