The mortgage servicing industry has become stronger and more efficient in a post-crisis world due to the efforts of servicers to delegate authority to make modification decisions and to offer modifications with more favorable terms to borrowers, such as step rate mortgages and principal forbearance, according to Yvette Gilmore, VP Single-Family Servicer Performance Management with Freddie Mac [1].
Gilmore stated that Treasury’s Home Affordable Modification Program (HAMP) has played an important role in helping borrowers by setting industry standards to assist in a unified way.
Nearly eight years after the crisis, the five lessons Gilmore said Freddie Mac has learned from the crisis are as follows:
- Lower payments
- Earlier borrower engagement
- Reduced documentation
- Simpler programs
- More feedback
Payment relief drives ongoing modification performance and is the biggest predictor of long-term success for borrowers, Gilmore said. And the earlier servicers can engage with a borrower, the better the chances of completing a modification and the greater chance it will perform better over time.
“Together with our servicers we have helped nearly 1.2 million struggling homeowners avoid foreclosure since the crisis began in 2009,” Gilmore said. “Our serious delinquency rate—the percent of borrowers who are 90 days past due or in foreclosure—is at its lowest level in seven years. And an improving housing market and economic picture bode well for many homeowners who are underwater or struggling.”
Freddie Mac is currently preparing for the “new normal” in mortgage servicing for 2017 and beyond, Gilmore said. The current outlook is for fewer underwater borrowers, rising mortgage interest rates, and “more localized patterns of booms and stress in the housing market and the economy as a whole.”
The new normal includes making sure that loss mitigation programs continue to be effective for borrowers, which includes planning for a world without the government’s HAMP and Home Affordable Refinance Program (HARP), both of which are set to expire at the end of the year.
These are important considerations we're thinking through with our regulator, the Federal Housing Finance Agency, and the industry,” Gilmore wrote. “However, I think it's important to note that the majority of modifications we complete today are through our proprietary programs.”
Also to be considered in the era of the new normal, Gilmore said, is how to determine borrower eligibility—for example, when to require documentation and when a streamlined process is necessary.