What Happened to Servicers After They Mishandled Loans?

ABUSE word cloudAs a result of their mishandling of loans during the subprime mortgage crisis, mortgage servicers faced a range of legal and financial consequences. Here are a few examples:

1. Legal settlements: Many mortgage servicers faced legal action from federal and state regulators and were required to pay large settlements to homeowners and investors. For example, in 2012, five major banks – Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial – reached a $25 billion settlement with federal and state regulators over their handling of foreclosure proceedings and mortgage servicing practices.

2. Increased regulatory scrutiny: Following the crisis, mortgage servicing practices became subject to increased regulatory scrutiny, with regulators implementing new rules and requirements for mortgage servicers to follow.

3. Changes to servicing practices: Mortgage servicers were required to change their practices to comply with new regulations and to address some of the issues that had contributed to the crisis, such as dual-tracking and inadequate staffing.

4. Loss of business: Some mortgage servicers faced reputational damage and a loss of business as a result of the crisis. For example, in 2011, Ally Financial, which was one of the largest subprime mortgage servicers at the time, announced that it would exit the mortgage servicing business due to regulatory pressures and reputational damage.

The mishandling of loans by mortgage servicers during the subprime mortgage crisis did lead to changes in the way loans are handled today. There were consequences but many questioned whether or not they were painful or expensive enough to really incentivize servicers to make meaningful changes.

We may find out soon depending on what happens in the real estate market in the coming months.

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