MBA Says Loan Servicers Deserve More Support in Bearing Costs of HAMP

Robert E. Story, Jr., Chairman of the Mortgage Bankers Association (MBA) told Congress last week that servicers administering government foreclosure prevention programs  should receive more assistance in bearing the costs of HAMP.  That message was communicated at an appearance before the House Subcommittee on Housing and Community Opportunity Committee on Financial Services on the “Recently Announced Revisions to HAMP.”

Story said that the announced changes are consistent with recommendations MBA presented to Treasury in February, including the recognition that borrowers should continue to pay a portion of their income toward their mortgage. The MBA also supports allowing different periods of forbearance to help ease financial institutions' concerns with the accounting and regulatory treatment of assets that remain delinquent for six months or longer. With the jobless rate near 10 percent, assisting unemployed borrowers must take priority, and MBA fully supports the creation of a temporary forbearance program to address their unique circumstances. 

However, Story said that he hopes that the administration will consider other MBA recommendations as they design details of the program.  There should, for example, be a source of funds available to the servicers to help them carry delinquent mortgages during the forbearance program. Servicers continue to advance principal and interest payments to investors and to advance funds to pay property taxes and insurance premiums even though they are not receiving payments from the borrower and, while they are ultimately reimbursed for most of advances, he called the carry time and cost “substantial”.  “This is especially true for non-bank institutions that must borrow the funds.  Servicers should be given the tools to succeed, and a loan program that is repaid with interest would not cost taxpayers.” MBA also recommends applying a cost-sharing feature to offset the investors' risk of delaying foreclosure when a forbearance plan fails.

While MBA is concerned that the optional principal write-down component proposed for HAMP may increase delinquencies, the Association is not opposed to it if it remains voluntary.  Treasury should monitor the program, Story said, to gauge whether it is causing strategic defaults and to make adjustments if necessary. 

Because of a presumed burden on servicer capacity, MBA is concerned about the decision that servicers must re-underwrite all borrowers with modifications using the alternative Net Present Value test.  This will not yield the results anticipated, Story said, and such reviews should be limited to borrowers and loan products that lien holders deem eligible for principal reduction.

The new rules regarding FHA refinance and modification enhancements should make it more attractive for underwater borrowers to refinance into affordable mortgages, Story said, and MBA supports this as well as the incentive payments proposed by Treasury.  The changes to second liens are also likely to make modifications more attractive.  The fact that the largest servicers are participating will have a positive impact on the number of borrowers receiving help.  The four largest banks hold or service $427 billion in second liens, representing approximately 60 percent of outstanding second mortgages.

Story said that MBA members are committed to helping distressed borrowers retain their homes and that its servicer members are working hard to implement the recent changes to the HAMP program.  MBA, he said, is working with the Treasury Department to suggest additional changes and servicers are providing their own home retention solutions. Since July 2007, HOPE NOW data shows that the industry completed an estimated 2.7 million proprietary modifications and in February 2010, nearly 96,000 families received loan modifications outside of HAMP. Servicers are also engaged in modifications and loss mitigation activities through FHA and VA. 

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