Loan Servicers Sign Empty Promise To Ohio Residents Headed Towards Foreclosure

Ohio Treasurer Richard Cordray today joined Governor Ted Strickland and Department of Commerce Director Kimberly Zurz in announcing that nine mortgage loan servicers agreed to sign a “Compact to Help Ohioans Preserve Homeownership.” This begs the question, however, of whether this is nothing more than sound and fury, signifying nothing.

The servicers claim they are willing to take the following steps, all of which sound good in theory:

* Engage in a substantial and large-scale loan modification effort for adjustable rate mortgage resets and subprime mortgages.

* Identify, evaluate and make good faith attempts to contact at-risk or defaulting borrowers as soon as possible.

* Modify loans to the extent permissible within existing fiduciary, contractual or other legal obligations and in accordance with prudent mortgage lending and servicing practices.

* Create incentives for staff and foreclosure counsel to modify loans rather than foreclose.

* Report progress to the Ohio Department of Commerce.

* Enter into a non-binding agreement with the State for some defined period of time (The agreements extend to June 30, 2009).

The problem is that the mortgage services do not have the power to be bound by any such promises. Mortgage servicing is governed by a document called a Pooling and Servicing Agreement, which governs exactly how a mortgage servicer has to handle loans. These documents are complex and does not permit the servicer the opportunity to deviate in any way.

That’s precisely why the agreement with Ohio is “non-binding;” had the servicers agreed to be bound by the promises they made, they would all be in violation of their own operating agreements.

Full of sound and fury, indeed.

Want a laugh? Read the signed compacts here.