At a hearing Thursday, two House Financial Services subcommittees came together to discuss the role of federal agencies in the creation of new mortgage servicing standards and settlements with the nation's largest mortgage servicers on foreclosure practices.[IMAGE]
The hearing included statements from members of the Office of the Comptroller of the Currency (OCC), the FDIC, the Consumer Financial Protection Bureau (CFPB), the Mortgage Bankers Association (MBA), the Center for Responsible Lending and two state attorneys general.
Witnesses called for new universal standards for the servicing industry.
""[A] key public policy objective should be the coordinated development of uniform mortgage servicing standards,"" said Jullie L. Williams of the OCC.
The MBA also supports the adoption of national servicing standards.
""Presently, servicers face an overwhelming multitude of servicing standards and rules from federal laws . . . local ordinances, federal regulations, state regulations, court rulings or requirements, enforcement actions . . ."" stated David H. Stevens, president and CEO of the MBA.
""Adding to the complexity is the fact that no two servicing standards are alike,"" Stevens continued. ""Fannie Mae, Freddie Mac and FHA guidelines may cover the same subjects, but the requirements differ for each.""[COLUMN_BREAK]
""Several regulators have recently specified their own distinct standards regarding mortgage servicing, a trend that concerns MBA deeply,"" Stevens continued.
Stevens stressed that national standards ""must be truly national in scope and not simply another standard layered atop the already overwhelming number of servicer requirements.""
However, Alabama Attorney General Luther Strange stated, ""Any ultimate settlement must not preempt state law sovereignty.""
Strange also warns against creating incentives for borrowers to strategically default on their loans.
Among areas witnesses cited as needing reform are documentation, foreclosure prevention, communication with borrowers, and dual track processes.
Several regulators propose implementing incentives for servicers to work with troubled borrowers and the adoption of a single point of contact for borrower communications.
Williams stated that the OCC has ordered ""look-back"" provisions, ""which require a comprehensive, independent review of foreclosure actions for borrowers who completed, or were in the process of, a foreclosure during the period of January 1, 2009 through December 31, 2010.""
Raj Date, associate director of research, markets, and regulation for the CFPB, noted that when the CFPB is enacted July 21st, mortgage servicing will be one of their priorities.
Date notes two major structural problems with the current servicing model. The first is that consumers do not often have the power to choose their servicer, and the second is that ""the current structure of servicing fees creates a strong incentive to underinvest in adequate technology, people, and processes to handle cyclical spikes in delinquencies,"" he said.
He notes that servicing fees do not often cover the cost of servicing seriously delinquent loans.
""Improving mortgage servicing will take both market reforms and regulatory reforms,"" said Mark Pearce of the FDIC.