Magazine article Mortgage Banking

Pointing the Finger

Magazine article Mortgage Banking

Pointing the Finger

Article excerpt

DACOSTA MASON, NATIONAL coordinator for state consumer affairs at Washington, D.C.--based AARP, the membership group of Americans aged 50 and older, concedes the group's targeting of the secondary investor market--through endorsement of so-called "assignee liability" laws--was intended primarily to get the secondary sector to police wayward originators.

Mason, a panelist at the New York-based Royal Media Group's Third Annual Subprime Summit in La Jolla, California, in February, warned that a shift in responsibility to the secondary market does not mean originators should get too "comfortable." He cautioned originating lenders not to become falsely confident that errors or transgressions made in the origination stage will be the sole responsibility of the loan buyers.

"Assignee liability says the ultimate loan holder has a little more at stake" than it did before, said Mason. However, it does not mean the originator should not suffer the consequences of predatory lending behavior, he said.

Another Royal Media Subprime Summit speaker, Arthur Castner, vice president at West Palm Beach, Florida-based Ocwen Federal Bank FSB, voiced concerns about potential legal attacks on his bank's servicing practices in the "post-Fairbanks" environment that has left servicing firms vulnerable to suspicion at best and litigation at worst. "Unfortunately, the Fairbanks [Capital Corporation] case has turned into 'best practices' for our industry," Castner said, adding: "Foreclosure is now a bad word."

Ocwen now is taking a very cautious approach with its mortgage-holding customers, Castner said. "We've got to give them latitude, even when they can't make their payments," he reported. [Ed. note: Some weeks after Castner's comments in February, the National Community Reinvestment Coalition (NCRC) confirmed that it is working with a Chicago law firm to bring a class-action lawsuit against Ocwen for alleged abusive servicing and foreclosure practices. In response, Ocwen's general counsel, Paul Koches, said in a statement released to the media, "Attacks against Ocwen and its mortgage servicing practices are misdirected and irresponsible."]

The Fairbanks case was also referenced by Joel Winston, associate director, division of financial practices, Federal Trade Commission (FTC), speaking before a full house at the Mortgage Bankers Association's (MBA's) National Mortgage Servicing Conference in San Diego in February. "We don't believe in over-regulation just for the sake of calling it 'consumer protection,'" Winston said. "But we do believe in going after the bad guys, and that's what we're doing."

As described by Winston, the role of government in general and the FTC's role charge them with "very vigorous enforcement of the law--going after the bad actors and making them give money back to consumers. But at the same time, we really have an acute recognition of the risk of overzealous regulation and interfering in the marketplace, [in a market] which for the most part works extremely well for consumers."

In the continuing hubbub over assignee liability, Frank Raiter, managing director and head of the RMBS group at Standard & Poor's Structured Finance, New York, said there is a problem with the definitions used by lawmakers writing individual statutes and ordinances throughout the country. "The terms in predatory lending of 'high-cost,' 'covered loans,' 'home improvement,'" vary widely, said Raiter, causing problems for his firm and fellow rating agencies. …

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