With all the hubbub about loan servicers doing little to help homeowners, the Federal Financial Institutions Examination Council (FFIEC) shot out a press release regarding “responsible loss mitigation activities.”
The group, which consists of the Federal Reserve, FDIC, OCC, OTS, and others, made it clear that loan servicers must act on behalf of the best interests of the investor.
“Servicers have an obligation to act in the best interests of the owners/investors of serviced residential mortgage loans and in accordance with the terms of the governing contracts,” the release said.
“Any decisions that are not anticipated to produce a greater recovery to investors given the alternatives may constitute a breach of that duty.”
While that may seem harsh for homeowners, the statement is actually meant to produce more loan modifications.
The FFIEC noted that when dealing with multiple liens on a property, a loan servicer’s decision to modify the first mortgage should not be influenced by the potential impact of a modification on a subordinate lien, and vice versa.
Frequently, second mortgages have been a roadblock for potential loan modifications, but now the FFIEC is seemingly saying to go for it if it’s an overall positive.
“Regardless of any potential effect on the subordinate lien obligations, servicers should modify the first lien mortgage when doing so would produce a greater anticipated recovery to the first lien owners/investors than not modifying the loan.”
“Failure to do so may be a breach of the servicer’s obligation to those owners/investors.”
Of course, it may be easier said than done.