The 27-page document that was sent to major banks last week  by the 50-state group of attorney generals is now publicly available. 

The letter outlines terms for a settlement expected to be worked out between the group and the banks' mortgage servicers to stop litigation and correct flaws in the system that became apparent as servicers moved from the routine handling of performing loans to managing a scenario of rapidly rising delinquencies and skyrocketing foreclosures.  

The document covers a wide variety of topics relating to the relationship between servicers and borrowers, servicers and investors, and servicers and various regulatory groups and is specific in its recommendations across a range of concerns.  For example, servicers, especially in non-judicial states where legal guidance may be lacking are required to prepare affidavits and swear to their accuracy based on personal knowledge or review of loan documents.  The servicer must also correct any improper filings and notify the borrower if deficiencies have been noted in any part of the document preparation.  Servicers will also be required to verify the accuracy of a borrower's account information and be able to properly identify and document the note holder.

The settlement terms pay particular attention to the servicers' loss mitigation responsibility, calling it an "affirmative duty" and prohibiting a dual track where one department within a servicing facility is negotiating loss mitigation while another is pursuing foreclosure.  Servicers will also be required to provide borrowers with a single point of contact and maintain a single electronic record of the process.  There are also close to a dozen general loss mitigation requirements setting out standards for staffing, training, and documenting loss mitigation activities, making reports to credit bureaus, and communicating with borrowers. 

One particular item that jumped out from the list because it has been a source of many borrower complaints; "Servicer's employees shall not instruct, advise or recommend that borrowers go into default in order to qualify for loss mitigation relief."  Other points addressed in the document are fees charged to borrowers and investors' access to information.

The document envisions the establishment of a third-party monitor selected by the AGs and the Consumer Finance Protection Bureau (CFPB) which will have access to records and can audit servicers' performance.  Servicers will also be required to set up internal corporate governance procedures to monitor compliance with the settlement agreement and to report regularly to both the AGs and the CFPB.

Penalties, not yet specified, are contemplated for violation of the procedures and servicers will also be expected to provide monetary relief to borrowers who have been victims of service misconduct.  It is also specified that "a substantial portion of monetary relief shall be dedicated by Servicer to support an enhanced program of sustainable loan modifications including principal reductions."

American Banker made the entire document available to the public. It can be reviewed HERE.

READ MORE: Loan Servicer Code of Conduct Proposed by State Officials and DOJ