Magazine article Mortgage Banking

A Year of Market Turmoil Sets Stage for a Year of Leadership

Magazine article Mortgage Banking

A Year of Market Turmoil Sets Stage for a Year of Leadership

Article excerpt

When I reflect on 2007, I am struck by the irony of the most challenging year our industry has faced in quite some time.

From an economic perspective, it was a year in which our collective financials suffered from house-price depreciation and rising foreclosures, among other factors. As a result, confidence from capital-markets investors eroded, and liquidity, subsequently, became constrained. In short, 2007 was a tough year.

However, 2007 gave our industry an opportunity to lead by underscoring the need to have all lenders and originators fairly and responsibly make homeownership available to and sustairiable for consumers across America. The path we choose to follow to capture this opportunity will largely determine our industry's future for years to come.

In a free-market economy, buyers and sellers--with regulatory oversight--are expected to act responsibly for their mutual benefit. When this behavior breaks down, only two corrective courses of action exist: industry participants must assume accountability and respond appropriately, or the government intervenes with protective regulations and legislation.

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Our industry has been challenged to think beyond narrow self-interests, consider what is right and step up to the plate to help consumers while also safeguarding investor interests. Achieving this balance is crucial to encourage global capital-markets investors to continue to fuel real estate lending for a wide spectrum of Americans over the long term.

Early in 2007, the American Securitization Forum (ASF), New York, provided guidance on effectively modifying loans in a way that could still honor the contractual obligations inherent to investor agreements. This guidance accelerated servicer activity in developing case-by-case solutions for at-risk consumers, considering their personal financial circumstances and honoring investors' contractual requirements.

In an effort to connect with customers, a number of mortgage servicers reached out to their customers months in advance of adjustable-rate mortgage (ARM) resets, set up dedicated teams of experts skilled in finding solutions for consumers and provided additional toll-free numbers to make contact easier. Despite these efforts, industry statistics still showed that more than half of customers in foreclosure had never contacted their servicers.

Enter HOPE NOW. This alliance, formed in October, harnesses the strengths of mortgage servicers, not-for-profit counselors, capital-markets investors and the power of the U.S. government to help at-risk consumers. HOPE NOW seeks to encourage customer contact with either the mortgage servicers or a not-for-profit counselor. Further, the HOPE NOW initiative will improve the working relationships between servicer and counselor for the benefit of the customer.

By the end of December 2007, the HOPE NOW alliance--through its membership--had access to nine out of every 10 consumers in America who have a subprime ARM, had mailed more than 490,000 letters to at-risk borrowers and rolled out a new pilot technology platform to strengthen the work process of servicers and counselors.

In addition to the formation of the alliance, U.S. Treasury Secretary Henry Paulson also engaged in an effort to encourage further collaboration between the public and private sectors. The focus was on developing a "fast-track" process that would more quickly enable consumers to get a refinance or loan modification. While a half-million consumers had already paid off or refinanced their subprime ARM loans in 2007, another 1. …

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