News and Resources

Fair Lending Refocused: Loan Modification and Loss Mitigation Outcome Reviews

Jonice Gray Tucker & Valerie L. Hletko

September 26, 2011

Mortgage loan servicers are under growing pressure from regulators to adhere to traditional fair lending principles in default servicing operations. Among other things, regulators have suggested that servicers proactively identify and undertake measures to en-sure “fair servicing” for all borrowers, particularly where loan modifications are concerned. While examination custom, regulatory guidance, and the Interagency Fair Lend-ing Examination Procedures implemented in the origination context may serve as guideposts, servicers lack clear standards for conducting fair servicing reviews.

This article provides a brief background on the regulatory climate relating to fair lending compliance in the context of loss mitigation and loan modifications. For servicers whose regulators have suggested or mandated self-testing, the authors discuss a matched-pair “plus” approach, which aims to assess at a basic level whether similarly-situated borrowers are treated equally to address regulatory concerns, while the industry awaits more specific regulatory guidance.

Published in Lexis Nexis Emerging Issues Analysis.