Youngstown Daily Legal News

Bill would require licensing for Ohio mortgage servicers

TIFFANY L. PARKS
Special to the Legal News
Published: June 18, 2013

Communities United for Action in Cincinnati, the Legal Aid Society of Columbus and the East Side Organizing Project in Cleveland are all stumping for a bill to regulate the residential mortgage servicers industry.

The proposal, House Bill 80, is jointly sponsored by Reps. Denise Driehaus, D-Cincinnati, and Mike Foley, D-Cleveland, and would establish the Residential Mortgage Servicers Registration Act to be carried out by the superintendent of financial institutions in the Ohio Department of Commerce.

On Tuesday, June 2, CUFA President Roger Davis testified in support of the bill before the House Financial Institutions, Housing and Urban Development committee.

“Good afternoon,” he said. “I said ‘good afternoon’ but is it really a good afternoon? In 2012, 3,000 people in Hamilton County lost their homes to foreclosure. In 2006, the same number of people lost their homes. So, why isn’t there a difference?”

Davis said the same servicers who foreclosed in his community in 2006 were still in action in 2012.

“They still aren’t modifying loans the way they should. They are still taking way too long to make their decisions and they are still losing homeowners’ paperwork,” he said. “We used to have neighborhoods but because of the foreclosure crisis, now we have ghost towns with vacant homes everywhere.”

While there have been a number of “significant efforts” at the federal and state levels since the start of the recession in 2007 to help those faced with foreclosure, Driehaus said the majority of the initiatives haven’t had an impact on the mortgage servicer industry.

“More needs to be done to ensure this industry is doing what it is supposed to be doing,” she said. “Mortgage servicers need to be licensed and adhere to standards and best practices.”

For most communities, Driehaus said the days of walking down to the local savings and loan bank, taking out a home loan with the local banker, making monthly payments with the same person who originated the loan and knowing that person and that bank have a direct stake in seeing through to the end of the mortgage are gone.

“As the mortgage and foreclosure crisis of the last five years has taught us, the path your mortgage loan will travel is a convoluted path filled with mortgage-backed securities and credit default swaps,” she said.

HB 80 would require mortgage servicers to be registered under the commerce department and sets forth business standards, responsibilities to borrowers, guidelines for civil and criminal background checks, criminal penalties for violations and a $1,000 annual fee.

The proposal also would charge mortgage servicers with maintaining certain records and filing reports and standards for the collection of money.

“The mortgage servicing industry is one that many people do not understand or even know exists,” Driehaus said. “Mortgage servicers, in simple terms, act as the middle man between homeowners and lenders. Borrowers make their monthly payments not to the lender, but to the servicer.”

Driehaus also said servicers are contracted out by lenders through pooling and servicing agreements.

“These PSAs are somewhat limited in scope in what mortgage servicers can and can not do. Servicers are paid properly and sufficiently through a variety of mechanisms as outlined in the PSA if the payments are made on time and consistently,” she said.

“Once a foreclosure is filed however, it makes economic sense for the servicer to see through to the sheriff sale as quickly as possible. This leaves no room for loan workouts or modifications, and leaves homeowners in the helpless state we hear about today.”

Driehaus also pointed to a history of mismanagement and deception within the servicer industry.

“This is why we are proposing that Ohio license mortgage servicers that do business in this state,” she said. “This will not limit a bank’s ability to do business in the state, or make Ohio an island where credit is unavailable.”

Paul Bellamy, ESOP director of development and research, also offered proponent testimony for HB 80 Tuesday.

He said Ohioans need lawmakers to revise the law to assert more control over the foreclosure process.

“We must act to transform the current foreclosure system from a wealth-destroying process into a wealth-preserving process, as was originally intended under the forfeiture laws,” he said, noting that in 2009 he backed a “radical” proposal to reform the foreclosure system.

“Unfortunately, (that bill) never made it into law and, in a sense, HB 80 is a watered-down version of that initial effort to reform the perverse servicer disincentives that needlessly consumed so much private and public wealth across the state. While that was more than four years ago, precious little has changed since then to suggest that the wasteful legal process has improved outcomes for any interested parties to the foreclosure system, except, of course, the servicers themselves.”

According to the National Conference of State Legislators, Driehaus said 21 other states, including Michigan, Kentucky and West Virginia, license and regulate mortgage servicers.

“HB 80 should be Ohio’s next step in preventing foreclosures,” she said, adding that enacting the bill would not be a new concept. “We already license banks, credit unions, mortgage brokers, loan originators, payday lenders, pawn brokers and foreclosure attorneys among others.”

HB 80 is co-sponsored by Democratic Reps. Barbara Boyd, John Patterson, Nickie Antonio, Dan Ramos, Tom Letson, Robert Hagan and Alicia Reece.

The bill has not been scheduled for additional hearings.

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