A Different Approach to the Recent Mortgage Settlement
Posted by Howard Banker on January 17, 2013
A central feature of the recent $8.5 billion national mortgage settlement is a "throw up the hands and send some checks" approach as a solution to thousands and thousands of homeowners damaged over the last several years of the mortgage crisis. There is better way and perhaps it is time nonprofits, who possess and act on ground level experience with homeowners, lead the way. Again.
At the Fair Mortgage Collaborative (FMC), working with an arrary of national and regional nonprofit intermediaires, we have been researching how in fact to do loan servicing corrrectly. That is to say, how to turn the outcomes triangle upside down. Presently, foreclosures and short sales represent 50–75 percent of outcomes. We think modifications should be north of 50 percent. Way north.
The Ford Foundation, as it often does, took the lead on this by asking the question "Is it possible to improve single-family loan servicing outcomes?" It provided some funding to take a look. We have and there is.
Turns out there is almost a complete lack of public information about the percentages of the four or five different possible outcomes, including modification, re-instatement, short sale, deed in lieu; foreclosure, or the famous "other." Also a significant percentage of modified loans for homeowners have fallen back into a re-default.
Can these things be improved? Yes.
In the next few weeks we will be publishing a report on what exactly has been going on that details specific approaches that nonprofits, and the industry, can take to improve servicing.
Basiclly we find that high-touch loan servicing—what the industry refers to as "special servicing"—can deliver the results all of us want and distressed homeowners deserve. If this reminds of you of high quality loan, credit, and homeownership counseling, you are right... Stay tuned for the details.
[Ed note: The Consumer Finance Protection Board also just came out with its new guidelines for servicing standards.]