Sam Gendusa January 30, 2013

Fitch Ratings, one of the three Nationally Recognized Statistical Rating Organizations (NRSRO) along with Standard & Poor’s (S&P) and Moody’s Investor Services, published a report calling the recent $8.5 billion settlement between government investigators and banks “positive”. The agreement, which requires banks and residential loan services to dole out cash payments to foreclosed homeowners who may have been dealt with fraudulently, was reached on January 7, 2013 and effectively brings an end to nearly two years worth of Independent Foreclosure Reviews.

The reason, according to the Fitch report, for the positive outlook is twofold:

In our view, the end to the extended, and recently controversial, independent review process will allow these servicers to refocus on completing other initiatives required by the various regulators, as well as to reassign internal staff that have been involved with the lengthy review process. In addition, the agreements makes the final compensation structure clear and eliminates further cost for the independent reviews that will allow the servicers to better establish their future cost to service and potentially allow funds to be released for improvements in the quality of their services.

The Fitch Group believes that, on the whole, banks and servicers have now adapted to the new regulations and are best served by closing this chapter and focusing on a new one. While the reviews were still ongoing, they say, banks and servicers were held in a state of limbo and even questioning whether or not to continue servicing residential home loans. And the facts back up that claim, as three of the ten servicers involved in the process have already pulled out of the residential servicing market.

So the conclusion Fitch Ratings arrived at is simply this: everyone is better served by putting this whole mess behind us. And in order to put it behind us, some compensation had to be paid. The settlement covers that, and now we can all move on.

Let’s hope their right!

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