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Are Servicing Reforms on the Horizon?

mortgage-app-fiveA report titled Setting the Stage for Servicing Reforms, released by the Urban Institute’s Housing Finance Policy Center (HPFC) on Wednesday has made a case for the importance of policy reforms in the mortgage servicing sector. The report reviewed how the mortgage industry has changed over time and explained the importance of the mortgage servicing industry to the overall housing market as well as the significance of servicing to a wide variety of stakeholders.

The report is the first in a series by HPFC’s Mortgage Servicing Collaborative—a group consisting of lenders, servicers, consumer groups, civil rights leaders, researchers, and government—that was convened to develop a common understanding of the biggest issues in mortgage servicing, their implications, and possible solutions as well as policy options that can advance policy reforms for mortgage servicing. The series will examine key servicing issues and provide recommendations for resolving them.

It touched upon the current mortgage servicing landscape, how it was before the 2008 housing crisis and how it has changed after the Great Recession. The report pointed out to the fact that although new rules put in place after the crisis increased standardization, they are not aligned among investors, leading to inefficient servicing.

Making its case for policy reforms to increase efficiency in this sector, the report said that the costs of servicing mortgage loans have increased since the 2008 crisis. Citing an MBA survey of mortgage servicers, the report said that between 2008 and 2016, the per loan cost of servicing a non-performing loan, one that is either delinquent or in default, has almost quadrupled from $482 to $2,113. The cost of servicing a performing loan has also nearly tripled from $59 to $163. These increasing costs have a negative effect on all stakeholders such as consumers, mortgage servicers, federal regulators, insurers, guarantors, and housing counselors the report said.

The report indicated that the mortgage servicing industry today was much more complex, tightly regulated, and sophisticated than the pre-crisis servicing industry. With housing reform finance legislation once again in the works in Congress, now was the right time for service reforms.


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