Financial BulletinRegulations and developments affecting the ﬁnancial services industry March 9, 2011Proposed mortgage reform:What servicers need to knowLast Thursday, the state attorneys general • Loss mitigation requirements — test. If the test is positive, the servicerand federal regulators submitted a Mortgage servicers would be required must send the results to the trustee27-page term sheet to the country’s ﬁve to thoroughly evaluate borrowers for or other authorized parties to obtainlargest banks that outlines proposed all available loss mitigation options consent for the modiﬁcation.requirements to overhaul mortgage before foreclosing. Servicers would Servicers are also encouraged toservicing procedures. The term sheet have to offer and facilitate loan consider principal reduction ascovers the entire foreclosure process, modiﬁcations instead of foreclosing an option whenever possible.interactions with borrowers, loan when the loan modiﬁcations result in Servicers would also have to evaluatemodiﬁcations and more. Negotiations a higher net present value (NPV) than delinquent loans with loan-to-valuebetween the institutions and regulators foreclosure. If a borrower requests ratios of more than 100 percent andwill continue over the next few months. a loan modiﬁcation and the servicer offer a principal reduction if it would Here are some key points from the believes that a pooling and servicing result in a better NPV than a standardterm sheet and their implications for agreement prohibits one, the servicer modiﬁcation.mortgage servicers. would still have to perform the NPV continued>• Foreclosure and bankruptcy information and documentation — In states where foreclosure afﬁdavits are not required, mortgage servicers would be required to provide borrowers with a sworn statement that includes facts supporting the servicer’s right to foreclose on the borrower. This statement would serve as a ﬁrst notice to the borrower. These rules would also apply to bankruptcy proceedings.