Mortgage servicers, namely the nation’s five largest banks, will have to adapt their business models to new timelines starting this week for short sales, as some of the regulatory aspects of the state attorneys general mortgage settlement are implemented into the banking sector.
According to a HousingWire summary of the new regulations, servicers are now required to respond to borrowers with a decision on the short sale within 30 days of receiving a request. To monitor that timeline, an internal group will be created by services that will review the requests the first two months of the quarter.
“If a servicer takes longer than 30 days on more than 10 percent of the requests, the firm is considered in ‘potential violation,'” the article stated.
Other stipulations include: servicers must notify borrowers within that 30 day timeline if any documentation is missing from their application, and servicers must also notify borrowers of any deficiency payments that are required. Failure to do so could also lead to a “violation” label.
If any of the new rules are broken, and a servicer is placed under violation, a representative from the firm must meet with a monitoring committee and form an action plan to correct the negligent behavior. If the rule breaking persists, the servicer could face fines up to $1 million, and $5 million more for additional violations.
Chris Hanson, a lawyer in short sales, said in the HousingWire piece that the new regulations streamline the process.
“If a real estate broker can get a checklist from the bank detailing what documentation is needed, everything can be provided up front, and the bank will be required to give a thumbs-up or a thumbs-down within 30 days,” he said. “That’s not a bad deal.”
Ironically, this new regulation goes even farther than a Senate bill that was introduced last month by Lisa Murkowski, a Republican Senator from Alaska who wanted to add a greater level of expediency to the short sale process. In 2011’s fourth quarter, the average short sale took 308 days to complete, according to data from RealyTrac.
The bill would have given servicers 75 days to reply to a homeowner’s written request, a period during which they were required to approve, deny or request an extension for up to 21 days; if the servicer failed to meet the bill’s stipulations, the homeowner would have received $1,000 for each infraction. Though the bill seems to still be alive on the floor, one does wonder if it will proceed in light of the mortgage settlement rules.