homesmillbrae.com » Federal Regulator

Housing Crisis: New Rules Hit Mortgage Servicers

Thu, 17 Jan 2013 13:57:45 +0000

The nation’s five largest banks service about half of all mortgages, but recently they have been selling those servicing rights to so-called “specialty servicers,” like Ocwen and Nationstar, whose stocks have been soaring. These companies specialize in delinquent mortgages.

The new rules could make mortgage servicing more expensive, especially for those specialty servicers and level the playing field between them and the big bank servicers. That is because many of the new rules are similar to rules the big banks are already following under the $25 billion servicing settlement signed early last year with state attorneys general and the Department of Justice over “robo-signing” foreclosure abuses. The specialty servicers have no such mandates.

(Read More: Homeowners With No Mortgage Offer Recovery Clues)

“If you’re a good servicer who’s been doing sensible things, this will probably be about what you are doing now, just with a heavier enforcement regime behind it,” said CFPB Director Richard Cordray. “For servicers that have been doing a poor job, and many of them have, they will have to change their processes and get in line.”

The new rules include some very basic service standards, like clear monthly statements, prompt payment crediting and quick correction of errors; In other words, common sense that one might not expect to see mandated by a federal regulator.

“This shows just how poorly performing the mortgage servicing industry was before the crisis, and then as volumes increased in delinquencies during the crisis, it all exponentially worsened,” said Cordray.

(Read More: US Home Prices Surge Despite Distress)

Most of the rules focus on those delinquencies. First, and perhaps foremost, servicers may not move forward with a foreclosure while simultaneously working with a borrower to avoid foreclosure. This “dual tracking” led to thousands of borrowers losing their homes when alternatives were well within reach.

Article source: http://www.cnbc.com/id/100385527

Obama Gets Big ‘No’ On Slashing Mortgage Debt

Wed, 01 Aug 2012 05:30:16 +0000

Despite strong pressure from the Obama administration, a federal regulator will not allow Fannie Mae and Freddie Mac to reduce mortgage principal. The Federal Housing Finance Agency’s Ed DeMarco has previously opposed the program, which uses taxpayer money to pay lenders to reduce loan balances of severely troubled borrowers, but had not made the final decision until now.

“After much study, I have concluded that Fannie Mae and Freddie Mac’s adoption of HAMP PRA [the government's Home Affordable Modification Program Principal Reduction Alternative] would not make a meaningful improvement in reducing foreclosures in a cost effective way for taxpayers,” DeMarco wrote in a letter to the chairman and ranking member of the Senate Committee on banking, Housing and Urban Affairs.

DeMarco concludes that the program presents the risk of more losses to taxpayers, not to mention operational challenges to the GSE’s. He cites moral hazard, suggesting that as many as 19,000 borrowers who are current on their mortgages could strategically default in order to qualify for debt forgiveness. Even more significant, he goes on, could be long-term consequences for mortgage credit availability.

“Fundamentally, principal forgiveness rewrites a contract in a way that other loan modification programs do not. Forgiving debt owed pursuant to a lawful, valid contract risks creating a longer-term view by investors that the mortgage contract is less secure than ever before,” writes DeMarco in the letter to lawmakers.

Treasury Secretary Timothy Geithner responded immediately in a letter to DeMarco:

“I do not believe it is the best decision for the country, because, as we have discussed many times, the use of targeted principal reduction by the GSEs would provide much needed help to a significant number of troubled homeowners, help repair the nation’s housing market, and result in a net benefit to taxpayers.”

A study of the program by Treasury’s Michael Stegman showed that mortgage modifications that included principal reduction had a far lower re-default rate than those without the debt forgiveness.

“Fannie Mae’s analysis suggests that using principal reduction to reduce the loan-to-value- (LTV) ratio not only increases a borrower’s ability to pay, but for these selected borrowers, it also increases the likelihood that they will continue to pay,” writes Stegman in the analysis.

The FHFA estimates that up to 500,000 Fannie and Freddie borrowers could have been eligible for principal reduction. The Treasury’s current program pays lenders large incentives to write down loan balances, using unspent money from the $700 billion TARP (Troubled Asset Relief Program). But FHFA says despite a positive financial benefit to Fannie and Freddie, it is really just a transfer of taxpayer funds, adding “to the over $188 billion in taxpayer support the Enterprises have already received.”

Some lawmakers, however, may not be done fighting yet. Several have been pushing for more action to help homeowners, and the heat is on with the election less than 100 days away.

“It is incomprehensible that Mr. DeMarco would reject the chance to save up to a billion dollars in taxpayer funds while helping nearly half a million homeowners stay in their homes,” said Rep. Elijah Cummings (D-MD) in a statement. “He should immediately withdraw this reckless and misguided letter and start following the law Congress passed.”