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Mortgage servicing in general, and default servicing in particular, is in for its own form of modification. Based on testimony given before a ""Senate subcommittee Thursday"":http://banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_id=f7e75053-78b6-4a27-b2bb-0e8ebca7d7f5 and comments from the senators themselves, national mortgage servicing standards are in the cards.
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The topic has taken center stage in light of recent documentation errors related to foreclosures, and a growing number of industry analysts and mortgage banking groups are voicing their support.
On Capitol Hill Thursday, Rep. Robert Menendez (D-New Jersey), chairman of the Senate Banking Committee's housing subcommittee, said homeowners in his home state have inundated his office with grievances about their experience in trying to remedy delinquency, from complaints about servicers losing paperwork to unexpected foreclosure notices in the midst of loan mod negotiations.
Menendez says he's seeing a ""reluctance by servicers to modify loans that would be sustainable in the long-run,"" and he called the ""enforcement actions handed down"":http://dsnews.comarticles/regulators-hand-down-enforcement-actions-to-servicers-and-their-vendors-2011-04-13 by federal regulators last month ""too little too late.""
According to Menendez, there is an ""increasing consensus that at least some kind of national mortgage servicing standards are warranted."" He added that even mortgage investors are on the side of homeowners when it comes to choosing modification or other alternative over foreclosure.
Laurie Goodman, market analyst for ""Amherst Securities"":http://amherstsecurities.com/ fell in line with Menendez's assertion, noting that the interests of investors and borrowers are aligned in that foreclosure is the worst outcome for both.
The investor suffers a loss between 50 and 80 percent of the loan amount with a foreclosure, Goodman explained.
She says there are several very real conflicts of interest facing servicers that may stop them from acting in the best interest of investors and homeowners, including the
[COLUMN_BREAK]fact that servicers often own a share in companies that provide ancillary foreclosure services; a servicing compensation structure in which fees for current loans are too high and fees for servicing delinquent loans are not high enough; and servicers' ownership of junior liens when they don't own the first lien.
National servicing standards ""would go a long way"" to address these conflicts of interest that pit investors and homeowners on one side and servicers on the other side, according to Goodman.
David Stevens served as commissioner of the Federal Housing Administration up until the beginning of this month, when he accepted a position as president of the ""Mortgage Bankers Association"":http://www.mortgagebankers.org.
""The worst recession in living memory has led to the worst mortgage performance in our lifetime,"" Stevens said in testimony before the subcommittee. ""Servicers have been overwhelmed by national delinquency rates running four to five times higher than what had been typical during the prior 40 years.""
Acknowledging the ""overwhelming nature of the crisis,"" Stevens added that servicers recognize their ""mistakes and lack of preparedness.""
""We recognize that our industry can and must do better,"" he said, adding that ""servicers have tried to meet competing obligations in a rapidly changing environment, and we believe that national servicing standards can help us accomplish the goal of preventing foreclosures whenever possible.""
Stevens stressed, though, that national servicing standards ""must be truly national"" in order to drive real reform.
The effort must be coordinated between lawmakers, servicers themselves, and a host of federal regulators, Stevens said, rather than ""piling on requirement after requirement"" in a piecemeal fashion.
""MBA supports reasonable national servicing standards that apply fair practices for borrowers, servicers, and investors alike and that seek to eliminate the patchwork of varying federal, state, local, and investor requirements...that only compound the complexities servicers already face,"" Stevens said.
""[I]n moving toward national servicing standards, policymakers must fully recognize the economics of mortgage servicing,"" Stevens added, ""and balance laudable public policy goals against business and market realities.""
