Urban Institute Housing Finance Policy Center Codirector Alanna McCargo moderated the online event first asking if there are ways to reduce the costs of regulation in servicing without increasing risks to consumers and the housing market. Meg Burns, SVP of Mortgage Policy at Financial Services Roundtable said “Absolutely.”
“Consumers do not derive any benefit whatsoever from the complex and inconsistent rules that were imposed over the course of the crisis,” said Burns. “Ironically, the various regulators who issued new policies all had the same goals in mind—to improve servicing practices and enhance the customer experience.”
Burns said the regulations have lengthened the time that it takes to resolve delinquent loans, which increases costs and harms the people who are in need of help. David Battany, EVP of Capital Markets at Guild Mortgage agreed. According to Battany, consumer protection regulations need to be powerful, clear, and simple.
“When regulations are unnecessarily complex, or intentionally vague, this needlessly creates uncertainty and bureaucracy, which leads to higher costs, all of which are passed onto the consumer and reduces access to credit, particularly for higher risk and harder to serve borrowers,” Battany said.
The average cost to originate a loan is about $8,900, according to Battany, which is almost double what it was a few years ago. When borrowers sit down to look at their 100-page loan file, he wonders how many of those papers they actually look at and if the expensive work behind the scenes really adds value to them.
“Most regulations [had] very good intentions. Most people would agree that the ability to repay and many servicing regulations created post crisis solved real issues and provide important consumer protections,” Battany said. “The issue lies in the unintended consequences of the people who in good faith wrote the details of the implementation of these regulations without having a full understanding of the complex business processes they were attempting to regulate.”
Ted Tozer, former President of Ginnie Mae, said though the CFPB has one foreclosure timeline, an investor has a different one. In his opinion, the servicer should have only one timeline to comply with that doesn’t change based on the location of the property, the servicer’s regulator, or who owns the mortgage.
“Servicers need a set of rules and expectations that are specific, standardized, and consistently enforced by regulators and investors,” said Tozer. “A servicer should not be put in a position where they have to decide whose rules they will violate.”
This idea is consistent with the views presented in a recent white paper by the National Mortgage Servicers Association (NMSA), which looks to standardize key definitions, guidance, and best practices surrounding the preservation and maintenance of vacant and abandoned properties.
“At the end of the day we have to remember the housing finance ecosystem is basically a zero sum game,” said Tozer. “What ever economic burdens are put on mortgage investors and servicers, those costs will be passed on to borrowers in higher credit costs or limited credit availability.”
To view the NMSA white paper, click here.
To read the rest of the Urban Institute discussion, click here.