In my prior post on mortgage servicing, I talked about the potential of mortgage servicers to be harmful barriers between homeowners and investors, both of whom may want to negotiate a loan modification. Recognizing such a problem raises the question of a solution. U.S. Representative Maxine Waters recently introduced legislation that would profoundly alter the duties of mortgage servicers. The bill, HR 5679, The Foreclosure Prevention and Sound Mortgage Servicing Act of 2008, would prohibit the initiation of a foreclosure if the mortagee or servicer has failed to engage in "reasonable loss mitigation activities." The bill lays out exactly what counts as loss mitigation and offers up non-binding guidance on standards of affordability for loss mitigation. Servicers would have to report data on their loss mitigation activities, disaggregated by the type of mitigation activity (separately accounting for things like modifications, deeds in lieu of foreclosure, or repayment plans).
The bill also takes aim at the communication problems between servicers and homeowners. The bill requires services to provide a toll-free number that provides borrowers with direct access to a person with the information and authority to fully resolve issues related to loss mitigation and specifies that such a person must be physically located in the United States. Servicers are also required to forward borrower’s information to HUD-certified housing counselors whenever a borrower is 60 days or more overdue.
In the hearing last week on the bill (which you can watch as an archived webcast), Chairwoman Waters kept returning to a fundamental point–mortgage servicing is an unregulated industry. The witness testimony was essentially unanimous that mortgage servicing has a tremendous impact on American families and on the resolution of the current crisis. Of course, the debate was over whether this regulation was the right approach. The bill hasn’t gotten much publicity yet, but I encourage readers who are interested in the foreclosure crisis to take a look and post their feedback.
Comments
8 responses to “The Future of Mortgage Servicing”
I like it Katie! Who is “The Secretary” BTW? I like the time tables for actions being taken. If this was in place I would feel better about a FHA or HUD backed home loan.
I like this part too:
6A(c)(2)(C) Forbearance under the loan that provides for a temporary reduction in, or cessation of, monthly payments followed by a reamortization of the amounts due under loan, including arrearage, and a new schedule of repayment amounts
This provision more than any other might keep more people out of Chapter 13 Bankruptcy if it was a required loss mitigation “activity”. Hey, but you can’t have your cake and eat it too.
6A(d)(2) I like as well. The notion that you may not have to produce those doc’s in order to modify the loan would help a lot of people who work as well as the unsophisticated.
The problem with any such legislation is that it relies on the good-faith performance of a mortgage servicer who is simply not going to tune its processes and procedures to its financial detriment and will not ignore their real customer, the pool trustee.
You can’t regulate an entire abusive industry out of existence. You can only kill them off by creating market forces that cure offensive behavior.
I’ve raised the parallel before – at one time it was thought that breaking up the phone company would destroy communications completely. Many claimed it would usher in the breakdown of our entire communications infrastructure. History shows us that those kinds of collective marketplace controls are the dams that not only hold back econommic and technological progress, they keep consumers in the yoke of the master.
The answer to predatory mortgage servicing (which is the keystone to predatory lending) is to turn it over to a consumer/market realm of borrower choice, where servicers who abuse borrowers are eventually eliminated by sheer behavioral trends and public exposure. If borrowers are given a choice as to who services their loan, those who routinely abuse borrowers will die as the market dictates.
I realize this is stunningly anathematic to the status quo, but so was breaking up the Bell System some 30-odd years ago.
Let consumers decide who services their mortgage and responsible servicing will in turn dictate what loans can and will be produced and serviced.
The gum-flappers in Washington will rant and rave at the behest of the industry lobbyists, but some time in the future if we don’t have a completely sociallized economy, the market forces may prevail and borrowers will be protected from opportunists who presently run the whole show.
It could be deja vu all over again.
The Honorable Judge Roy Bean
I think if you combined H.R. 3837, H.R. 3915 and H.R. 5679 there might be something workable there. Otherwise, “reasonable loss mitigation activities” simply does not go far enough. The blatant FRAUD committed by servicers needs to be addressed and punished as well and so far Washington doesn’t collectively seem to want to let something like that fly. There must be a bumper crop of pork available for harvest in order to prevent the protection of the citizen/consumer/homeowners of the United States.
Judge, I believe the phrase you may be looking for would be deja MOO – the feeling that you’ve smelled this before… And you’re correct – get rid of the captive audience and the market would take care of itself. That might be entirely too complex to enact, though, due to the very existence of RMBS.
I’m going to have to go watch the hearing when I’m in a more conscious state.
I think that Judge Bean is on the right scent, although I’m not sure he is quite there.
The problem with his analysis is that mortgage servicing really consists of two very different activities: dealing with financially healthy borrowers, and dealing with financially weak borrowers.
With healthy borrowers, I can see his argument for consumer sovereignty. A healthy borrower wants a servicer to be reliable and cheap–and is in a better position than the lender to get one. (My guess is that typical borrowers will choose cheap until their servicer slips, and then opt for reliable.) Of course, this implies that the borrower would have to explicitly pay for servicing. And the lender would need to provide a whitelist of authorized servicers. But this should all work because, with healthy borrowers, the incentives of the borrower and investor are nicely aligned. The borrower wants to pay without hassle; the investor wants to be paid without hassle.
These incentives go out of alignment with weak borrowers. At this point, the servicer must become an agent of the investors. Consumer choice would not work.
So Judge Bean’s plan requires two different kinds of servicers: a healthy debt servicer, chosen by the borrower, and a weak debt servicer, chosen by the lender. Some loans, such as high-LTV subprimes, are born weak, and might require a lender-chosen servicer throughout.
I think that a borrower-chosen servicer might work without regulation. A lender-chosen servicer would, IMO, require extensive regulation.
If only there were a choice. We got the servicers saying that regulating them would be harmful to the industry, but they have made it so that a debtor cannot choose the Co. that services their loan. There are only a handful of servicers and they all play from the same handbook.
Enough talking today, I got a live one waiting in the lobby. Another servicer violation this time post-discharge and it’s my most favorite servicer in the world. I think I am now armed with enough arrows to do battle. The insight on BPO’s on the Judges’ Blog is going to help on this one. So BPO stands for “Broker Price Opinion” right? Judge do you have the cite for that Wells Fargo case in La. ? If not I’ll find it eventually, wont take me too long…
Joe, what we’ve got now is “lender chosen” servicers – except there’s literally little to no regulation. You’ve seen all of the problems that Professor Porter and others have pointed out already… 😉
Patches, yes, “BPO” stands for Broker Price Opinion. All of those fees that had to be removed from my account. If it’s the servicer I’m thinking of, you may want to brush up on “Best Practices” to make sure that there haven’t been any violations along the way. Try checking your client’s original mortgage to see what it says about “property preservation” fees as well…
Also, there is an apparently interesting standing order in USBC Kansas – http://www.ksb.uscourts.gov/LR2007/SO07-4.pdf – haven’t had a chance to read it yet.
An article posted on the USFN’s site declares that Kansas Bankruptcy Courts will require the all bankruptcy confirmation orders include the following mandatory language:
“No real estate creditor shall ever assess, charge or collect, from either the debtor or the real estate collateral, any assessments, fees, costs, expenses or any other monetary amounts, exclusive of principal, interest, taxes and insurance, that arose from the date of the filing of the bankruptcy petition to the entry of the Order of Discharge except as may be allowed by court order or an allowed proof of claim.”
http://www.usfn.org/AM/Template.cfm?Section=USFN_E_Update&Template=/CM/HTMLDisplay.cfm&ContentID=8924&Section=Article_Library
Figured it may be of some use to someone…
Mike U da bomb man!
I’m going to rip apart the whole case start to finish. Ya… Inspection fees…. I have a hunch that the reason the servicer sill thinks there is a bal. is becuase of stupid stuff like that.
I like that standing order from KS. Without monthly statement, servicers can add anything they want by the end of the BK with almost no way to figure it out.
If BPOs are involved, Patches, you’re going to want to get the actual BPOs as well as the billing for them for comparison. They may have been upcharged in ADDITION to possibly not being performed at all. You also want to confirm who the BPO was ordered through – Residential Real Estate Review is owned by Fairbanks/SPS.
Fairbanks/SPS and RRReview were housed at the same S. Warminster Rd, Hatboro, PA address until Fairbanks/SPS shut down the Hatboro operation. Pics exist of Fairbanks’ name spray painted on a roll up loading dock door and RRReview’s name sprayed on the walk through next to it.