Posted on Wednesday, January 19, 2011
Banks already facing many legal issues have yet another group on their hands that is closely examining servicing practices and demanding greater transparency.
The Association of Mortgage Investors has released a white paper featuring remedies to restore and stabilize the U.S. mortgage and housing market.
The D.C.-based group of investors accused servicers of making the mortgage process confusing and the paper says they look forward to continued reviews and the involvement of state attorneys general.
“… Investors have suffered material losses as a result of faulty and inefficient and at times improper servicing of the mortgage loans, for example, the improper analysis of a borrower’s finances and holistic debt,” the paper reads. “Instead of helping homeowners, servicers’ interactions with borrowers often make the process more confusing.”
The paper continues, “Investors have historically testified that the issues underlying the current housing and foreclosure problem result from a combination of bank-servicer abuses and a national consumer debt crisis. The attorneys general are poised to develop a national solution that helps distressed consumers and prevents a repeated wave of foreclosures over the next two years.”
The white paper breaks down what the investors believe is a solution into two components: “Better Execution,” and “Sustainable Solutions.”
In the first component, the paper suggests that resolving the crisis would require intermediaries to interact with
consumers and distressed borrowers in a fair and productive matter. To do this, it says, servicers must improve servicing.
“Collections operations should be staffed at consistent levels across the industry in the 120+ day delinquency bucket at not more than 100-150 accounts per employee. These accounts should be assigned to a single point of contact until they become current or need to move to a more aggressive loan resolution,” according to the investors.
Under the first component is another requirement: transparency. In addition to the mortgage servicing staff striving to educate the homeowner, the mortgage and foreclosure data must be disclosed in a public and transparent manner.
“The servicers’ first duty should be explaining the legal process of foreclosure and the alternatives available for homeowners. Improved and effective consumer debt strategies must continue to be refined. The current practices of face-to-face interviews and field collection calls may be appropriate options and should be increased and enhanced, as well as, developing improved web-based video materials explaining the process,” the paper reads.
In the “Sustainable Solutions” section, the investors say homeowners need lasting solutions that can put them on a clear path to affording their debts.
This component includes the statement that investors support sustainable modifications, which should include an option for the homeowner to re-establish a payment under a 31 percent debt-to-income ratio; a refinance at 97.75 percent loan-to-value ratio into the FHA short refi program; a reduction of all junior liens; and a provision that all consumer debt be restructured as part of the modification.
This second module also includes a bankruptcy/binding arbitration.
The paper states: “Although mortgage investors are willing to participate in the restructuring, the other debt holders, including subordinate and unsecured debts, need to participate as well. This is a basic element of fixing a credit problem, whereby all debts are taken into account, not just the most senior secured debt.”
By: Joy Leopold, DS News