Magazine article Mortgage Banking

Servicing's Recent Evolution

Magazine article Mortgage Banking

Servicing's Recent Evolution

Article excerpt

IF YOU'RE NOT IN SERVICING, you might not fully appreciate how far servicing has come in the past few years. But if you happen to be a servicer--having gone through so much change--it might be difficult to appreciate positives in the midst of all of the hectic systems and process changes that have been ongoing.

But the servicing rules from the Consumer Financial Protection Bureau (CFPB) that were issued in January weren't just another challenge for the industry's servicing managers, information technology (IT) personnel and general counsels--they represent a milestone for the whole industry during the mortgage crisis.

Despite the rules' challenges--which are several--their most significant intangible attribute is they represent the culmination of a series of improvements in how mortgage servicers and borrowers interact with one another.

While reputational issues for servicers and the mortgage industry in general will take more time to heal, the new rules put into regulatory form a slightly different effort that started in 2009.

Back then, the effort had a slightly different aim than what has since become its legacy; it wasn't intended to improve the state of troubled-borrower relations, but rather to prevent home-price decline and save the economy. Here is a look at how far we've come.

The drive for mods

Federal policymakers and economists feared that the size and scope of the delinquency and foreclosure crisis in 2008--complicated by concerns about the implications for mortgages being securitized--would cause a chilling effect or worse an outright collapse of the U.S. economy.

This spurred the Department of the Treasury to bring together the largest residential mortgage servicers and encourage them to form an unprecedented alliance to address delinquencies. The alliance, known simply as HOPE NOW, became a conduit for federal policymakers to negotiate with mortgage lenders, servicers and investors about ways to help make troubled borrowers' loans affordable. They did so first by modifying the loans of borrowers struggling to pay their mortgage. These borrowers were often underwater, facing delinquency because of a looming reset in their monthly payment from an adjustable-rate mortgage (ARM).

HOPE NOW, as part of its efforts to modify loans en masse, established a hotline that allowed troubled borrowers to get homeownership counseling, connect directly with their servicer or make a complaint.

Borrowers calling the Homeowner's HOPE[TM] Hotline shared stories about facing payment shock and declining values in their homes, and also frustration with how their servicers were addressing their problems.

Laurie Maggiano, director of policy in the Office of Homeownership Preservation at the Treasury Department, shared an anecdote that wasn't unique: "Borrowers would call their servicer to discuss the modification offer they had just received in the mail, but the person on the phone said the property had already been foreclosed."

When the Treasury Department asked the members of HOPE NOW why borrowers weren't being notified about the status of their loan, Maggiano says they replied, "We don't have procedures for that."


The Home Affordable Modification Program (HAMP) was created with the primary goal of generating loan modifications, and it quickly became the vehicle for setting new standards for how servicers communicate with their delinquent borrowers.

Prior to HAMP, Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) provided detailed guidance for servicing performing loans but did not require a specific sequence of procedures for communicating with delinquent borrowers or even describe what conditions would qualify for a modification.

HAMP specifically addressed how a servicer ought to evaluate a borrower for relief in a hardship situation, regardless of whether the borrower had been declared bankrupt or was in litigation. …

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