Nonagency MBS Challenging Anti-Foreclosure Efforts
New York-Some progress has been made when it comes to mitigating mortgage losses and helping keep distressed low- to moderate-income borrowers in their homes, but more needs to be done - particularly when it comes to those with loans that are part of private-label securitizations, according to Marietta Rodriguez, director of national homeownership programs at NeighborWorks America.
The "delineated paths" for refinancing or modifying government and GSE loans have been somewhat helpful, she said in an interview here. But the path for similar efforts designed to stop foreclosures on loans collateralizing privately held securities remains largely "unclear," Ms. Rodriguez added, noting this is an issue that still needs to be addressed.
Like other market participants, NeighborWorks has found legal complexities and related conflicting investor interests make resolving nonagency securitized loans tough, but Ms. Rodriguez said this doesn't mean the securitization process as a whole should be "thrown under the bus."
The securitization tool is critical in terms of bringing capital into the market, she said. But capital markets might need to participate in the mortgage industry in more healthy ways going forward, Ms. Rodriguez said. Examples of this might include more transparent disclosures or other measures that give investors more confidence upfront in the loss mitigation remedies built into loan securitizations.
The American Securitization Forum - which has been active in trying to restore investor confidence in the MBS market through the standardized market guidelines it helps its membership set - as well government officials, have been trying to help tackle this problem. One of the key points in these discussions has been servicers' need for some kind of a legal "safe harbor" when modifying loans. Otherwise investors who believe loss mitigation efforts are not adhering to contracts can sue servicers for breach of contract.
In addition to the complications posed by private-label MBS, challenges NeighborWorks has faced in trying to fulfill its high-profile goal of rescuing borrowers and keeping them in homes has been the proliferation of rescue scams, some of which have even appropriated NeighborWorks' name in an effort to identify distressed borrowers who might key it into a search engine, she said.
Ms. Rodriguez, who has posed as a "mystery shopper" to investigate some of these, finds they put further financial burdens on distressed borrowers by making those looking into them pay cash upfront priced to a fictitious lower mortgage payment before they will give much information. Asked about no- or low-cost nonprofit alternatives like NeighborWorks, some of these illegal operations suggest to prospective marks that those programs are inferior because "you get what you pay for."
State attorneys general, their national association, the Federal Trade Commission and NeighborWorks itself are making some progress countering these scams. But as soon as NeighborWorks is able to shut down one operation illegally using its name, another one pops up.
When it comes to legitimately helping troubled borrowers, Ms. Rodriguez said NeighborWorks is finding that the key lies in not simply looking at their debt-to-income ratios as far as their housing debt, as is commonly done, but considering their "total" DTI in terms of all types of debt they have.
The approach mirrors a growing apparent interest on the part of distressed mortgage securities investors in valuations that include analysis of borrowers larger credit picture.
Ms. Rodriguez also advises longer-term modifications than may be typically used. "A six-month mod doesn't make sense," she said. Longer timelines give distressed borrowers more of a chance to recover from job loss and make it more possible that they might be aided by a move into a "more sustainable" economy. Recently, prospects for rising unemployment have appeared likely to only make the situation worse, she said.
As far as the effectiveness of government programs designed to tackle the problem, Ms. Rodriguez said there is "still room for more tools."
The existing Hope for Homeowners program, which is the longest-established government aid directly addressing this concern, "didn't meet the demand" for help she has seen among borrowers. Although it has made somewhat of a difference she said she has been glad to see it expanded and to see additional programs set up to meet the needs of borrowers with conforming loans.
While these programs are helpful, she advises against a "one size fits all" approach to loan mods or refis and advocates programs that would allow case-by-case approaches tailored to meet individual borrowers' needs. However, this represents a challenge, given this loan-by-loan analysis may conflict with servicers' interest in handling the process in an efficient manner.