By Joe McCloskey

There is a strong public and industry attitude, evident from many recent articles from both trade magazines and the general media coverage,  that servicers are responsible for the foreclosure processing fiasco and need to be held accountable for it.  The large number of pending foreclosures undoubtedly has put a strain on quality controls and the ability of servicers to consistently deliver accurate, up-to-date case status information.  Examples of fraudulent document documentation are very distressing, but how common such occurrences have been will not be determined until internal reviews are completed.

Of even greater concern is a foreclosure moratorium, which could sweep across all servicers.  The Federal Government has real concerns for the financial health of Fannie and Freddie, and they in turn have made it clear expenses due to foreclosure processing reviews will be borne by servicers.  FHA Commissioner Donovan, who is a voice for the Administration in many mortgage industry matters, has said he is concerned that a moratorium would affect servicers who had done nothing wrong.  This may reflect the administrations preference, but there is very strong pressure for the Federal Government to impose a moratorium.

Local municipalities can have a major impact on this.  With about 40 states initiating actions and/or investigations, local court rulings on the authority to suspend foreclosure actions unilaterally will be important, and likely uneven.  Historically such moves have been overturned by the courts, but usually after some delays have been accomplished.

Delayed foreclosure actions, either self-imposed or mandated, will obviously cause the shadow inventory of pending foreclosures to grow, and earlier plans to move forward on delayed foreclosure actions are now being reviewed.  With foreclosure delays vacant properties still held as delinquent accounts pose a growing problem to communities.  Now more than ever, it is critical to identify damages, recover hazard insurance proceeds, and effect needed repairs on pre-foreclosure properties.  In doing so it is equally important that servicers maximize recoveries from hazard insurance, and determine needed repairs with objectivity and awareness of the delicate balance between timeliness, cost effectiveness, and community impact.