Oh Sarbanes-Oxley, you always come back to haunt financials, don’t you?
Sarbox, enacted in 2002 in response to corporate fraud at firms like Enron, mandates increased personal liability for senior managers. And we should be clear here — it doesn’t seem to be Sarbanes-Oxley per se that could come back to haunt mortgage servicer execs accused of shoddy practices, but rather Sarbox-type agreements they may have signed as part of the US Treasury’s various housing programmes.
From Structured Finance News:
Servicing executives were required by the Treasury Department to sign Sarbanes-Oxley-type agreements by Sept. 30 certifying they were in compliance with the Making Home Affordable Program. Some servicing executives initially balked at signing personal requirements akin to the Sarbanes-Oxley Act of 2002, which required that executives take personal responsibility for the accuracy and completeness of a company’s financial statements.
The agreements make it a federal crime to provide false or misleading information to Fannie Mae or Freddie Mac.
While the issue of robo-signing foreclosure documents is not addressed specifically in the 17-page servicer participation agreement, it does state that the “servicer is in material compliance with, and certifies that all services have been materially performed in compliance with all applicable federal, state and local laws, regulations, regulatory guidance, statutes, ordinances codes and requirements.”
The issue then is that some mortgage servicer execs could face personal lawsuits brought under the False Claims Act — if they guaranteed that their own internal servicing processing satisfied that applicable law compliance requirement.
It’s certainly an intriguing idea — but we’d note that based on June 2010 housing programme guidance, the certification process seems to be limited to MHA activities, not all servicer practices and procedures. Still, that won’t stop some commentators from calling for more personal liability. This for instance, is from Barry Ritholtz:
Want to eliminate uncertainty from the REO / foreclosure market and legal system? One simple SarbOX affidavit filed with the SEC will do it.
(A sample servicer participation agreement [for Hamp] is here.)