You may be wondering at the increasing number of reports about specialty mortgage servicers. The reports have it that this current brand of mortgage servicers, who bought their contract rights to service mortgages from the 5 largest mortgage servicers, are doing all the misdeeds that the "big 5" mortgage servicers agreed not to do in their big National Mortgage Settlement with the United States Attorney General and the Secretary of Housing and Urban Development, and with most of the States Attorneys General. In that big settlement, the big 5 mortgage servicers agreed to stop doing such things as robosigning, lender force-placed insurance unfair practices, and the like.
How can the specialty mortgage servicers now be doing all these things post-settlement, if the companies which sold them the mortgage servicing rights agreed in the National Mortgage Settlement not to do these things?
It turns out that the specialty mortgage servicers argue that they are not bound by the settlement their principals made.
The settlement documents must have been written by the mortgage servicers. The "settling 5" agreed with the Department of Justice, HUD, and the majority of State Attorneys General:
References to Servicer shall mean [fill in the name of one of the five bank mortgage servicers] and shall include all Servicer's successors and assignees in the event of a sale of all the assets of Servicer or of Servicer's division(s) or major business unit(s) that are engaged as a primary business in customer-facing servicing of residential mortgages on owner-occupied properties.
It does not take a transaction lawyer from a white-shoed Wall Street law firm to know that the 5 Servicer's "successors and assigns" have an argument that they are not included where the sale is NOT "of all or substantially all" of the Servicer's "assets". In addition to the contract rights to service mortgages, the Gang of 5 for example could have sold furniture and fixings and other assets which they and their assigns valued much higher than the contract rights to service mortgages. In that event alone, the assigns could and undoubtedly would argue that the sale of servicing rights was NOT "a sale of all or substantially all" of the 5 Servicer's assets.
Cunning? Perhaps. Another one of those hard decisions they tell us they had to make? Not hardly. But whatever it is, you cannot call it a Good Faith Settlement, because it isn't.
© 2014 by Dennis J. Wall. All rights reserved. No claim to original U.S. Government works.
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