FDIC chairman Sheila Bair is calling on residential servicers to step up their efforts to modify loans and compensate homeowners harmed by the foreclosure process as part of a settlement with the federal government.
"It's time for the government and industry to reach agreement that will finally bring closure to the crisis and pave the way for a lasting recovery in our housing and mortgage markets," Bair told attendees of a servicing conference sponsored by the Mortgage Bankers Association.
As part of this settlement, servicers should agree to provide troubled borrowers with a single point of contact, an appeal process for denials, and independent reviews of denials.
At a minimum, Bair said servicers should agree to modify, pro rata, their second mortgages when the first mortgage is modified.
"In order to remedy failures endemic to the largest mortgage servicers, I hope to see enforceable requirements that will significantly improve opportunities for homeowners to avoid foreclosure," she said.
The FDIC chairman is urging servicers to create a foreclosure commission that would handle claims by borrowers unfairly harmed by foreclosures.
Bair also warned that regulators must add new servicing standards to a pending risk retention rule to ensure there is not a double dip in the U.S. housing market.
"Because effective servicing of problem loans is so important to preserving value for investors and preventing systemic instability, it is imperative that the Dodd-Frank risk-retention rules also create financial incentives that promote effective loan servicing," she said.
