As lawmakers take up mortgage servicer standards at a hearing Thursday, the Mortgage Bankers Association (MBA) is advocating a cautious approach to standard-setting while trying to debunk what it says are misconceptions about servicing.
The MBA is set to release a study that outlines the different opinions in the servicing debate but also analyzes "the criticisms against servicers in order to separate real problems from 'urban myths.' "
For example, the study rejects the notions that servicers are against offering modifications, are shielded from the costs of foreclosure and have incentives to make borrowers delinquent. "Servicers have no ability to control the borrower in such a manner," it said.
The paper also airs servicers' concerns about eliminating "dual tracking," in which they can proceed with a foreclosure process while also discussing a borrower's modification options, as well as about proposals for requiring a "single point of contact" to help guide borrowers through loss mitigation.
"A plain English definition would imply that a single person would be assigned to each borrower and that the borrower would communicate only with this person," the paper said. "This is not feasible in the current environment and would create numerous problems as servicer call volumes fluctuate significantly throughout the day, week and month."
The White Paper on Residential Mortgage Servicing in the 21st Century, is the product of a recent summit held by a new MBA servicing council. The paper catalogs the perspectives on servicing from consumers, regulators and others, including those strongly in favor of servicing reforms.
At a Senate Banking Committee hearing Thursday on national servicing standards, David Stevens, the MBA's chief executive and a former Federal Housing Administration (FHA) chief, is to testify. Some lawmakers, including Sens. Jeff Merkley, D-Ore., and Sheldon Whitehouse, D-R.I., have already proposed legislation to create national standards.
The paper, an advance copy of which was provided to ASR sister publication American Banker, does not rule out supporting national servicing standards. But it calls for an approach that would give the industry time to study the matter.
Specifically, the group recommended further evaluation of how existing standards affect servicers' handling of troubled loans. It also called for further study of legal issues associated with the foreclosure process and of proposed changes to servicer compensation.
The "council notes that numerous stakeholders have put forth their respective versions of a national servicing standard, and various consumer attorneys have put forth their respective opinions on some of the key legal issues," the paper said, adding that government-sponsored enterprises have proposed changing servicer fee rules. "MBA asks that these constituents allow the council the opportunity and sufficient time to complete its studies of the issues so that these potentially sweeping changes to the servicing industry and landscape are fully vetted."
Other notions the paper sought to dispel include that servicers are averse to modifications because workouts increase their overall costs, and that servicers have a role in discouraging principal reductions. "The decision to reduce principal is at the sole discretion of the investor," the group said.