Is the Public Missing the Point About Servicers?

Political pressure makes it difficult for anyone to make the case for servicers or come to a consensus about moratoriums as insiders worry that both the public and some within the industry are missing the point.

As of now the national focus on document process reviews has obscured the fact that “a substantial percentage” of foreclosure proceedings are uncontested by borrowers who have insufficient income or no desire to stay in their home.

In a letter to Congress, the Financial Services Roundtable, Housing Policy Council and Mortgage Bankers Association also note, “In almost all cases there are no factual disputes about whether the mortgage is delinquent, the amount of the arrears, or whether foreclosure is proper.”

Contrary to popular belief, these insiders support the foreclosure document and affidavit review process that servicers are undertaking because they expect it “will clarify the situation significantly.”

Until then, however, in addition to the fact that one home lost is too many for a family suffering the consequences of illegal foreclosure, the issue is routinely politicized.

One example is Michigan State Senate candidate Steven Valentini who is proposing a bill that would provide a 24-month moratorium on all foreclosures in the state.

He suggests a provision that would allow troubled homeowners to research their options in a well-thought-out manner and give them an opportunity to make career choices, curb the free-fall of home values by keeping homeowners in their properties longer as a way to reduce the number of REOs, and force banks to expedite their short sale and loan modification process when trying to avoid foreclosure. He also proposes to reduce vandalism, without going into details about how.

Americans for Financial Reform adds another voice to a growing chorus of moratorium advocates echoing concern about “large scale lawlessness in the mortgage and foreclosure process.”

The coalition of over 250 national and state organizations is calling for a temporary moratorium on foreclosures that should be effective immediately.

Lenders and servicers have failed to live up to their legal obligations, and to their obligations under the HAMP program, putting families who want to find solutions on the path to foreclosure, AFR said, creating “overwhelming uncertainty in the system” so they cannot be trusted “to self-certify correction.”

AFR argues that the mortgage industry still has not gotten to the bottom of the problem and a moratorium can offer “a brief step” that will allow for the creation of a new process that requires lenders to follow the law and find new mortgage solutions that can help avoid foreclosures and rebuild equity on their homes.

National civil rights groups including the Leadership Conference on Civil and Human Rights, National Fair Housing Alliance, National Council of La Raza and Center for Responsible Lending have also called for “immediate moratorium” on all home foreclosures—a measure deemed inappropriate by, among others, the Obama administration.

While the wider public sees “foreclosure-gate” as a failure of mortgage banks to assist at-risk homeowners that makes moratoriums indispensable, these insiders say they are trying to set the record straight.

The letter to Congress signed by FSR president and CEO Steve Barlett, HPC president John H. Dalton, and MBA president and CEO John A. Courson stresses that foreclosure “is the last thing” mortgage servicing companies want to have happen, especially now when they are facing unprecedented REO management costs. When a modification or a short sale is not possible servicers have no choice but pursue foreclosure, which is initiated only after many months of delinquent payments and repeated attempts to work with the homeowner to secure a workout.

For example, through August 2010 91% of all proprietary loan modifications reduced homeowners’ monthly payments in an effort to make homeownership affordable. Plus, short sales and deeds-in-lieu are offered “as a dignified alternative to foreclosure for homeowners who have exhausted all their foreclosure prevention options.”

Even the current foreclosure document and affidavit reviews servicers are conducting are part of ongoing efforts to avoid foreclosure.

According to the Hope Now alliance October data report, in August servicers completed 116,000 proprietary loan modifications and 33,000 HAMP modifications. By August 2010, 1.3 million loan modifications were completed for homeowners bringing the total to over 3.7 million since 2007. Data also show that while 1.3 million loans were modified 775,000 completed foreclosure sales.

Mortgage servicers have put final foreclosure sales on hold while they review their document procedures. But, “No change in the terms of the loan will help a homeowner if they don’t have adequate income to make even greatly reduced monthly payments, or if they have no desire to remain in the home,” they wrote.

Since facts presented to the courts “in the overwhelming majority” of foreclosure cases about the debt amounts and delinquencies have been accurate, “calls for a blanket national moratorium on all foreclosures are a bad idea and would cause significant harm to communities at risk, the unstable housing market and the fragile economy. A foreclosure moratorium would not change the ultimate outcome for borrowers impacted by this situation.”

Whether lenders, servicers and the wider public opinion agree or disagree on the validity of extensive moratoriums time will tell, says Steve Horne, founder and CEO Wingspan, a special servicing company based in Dallas, but the topic and many issues related to foreclosure-gate “will be a significant issue over the next year or more.”