Posted on April 29, 2011 by Michael Fleishman

The Death of Dual-Tracking?

Housing Wire recently reported that the Federal Housing Finance Agency (FHFA) has directed the two government sponsored agencies, Fannie Mae and Freddie Mac to align their guidelines for servicing delinquent mortgages.

Previously, they maintained different requirements for how their mortgage servicers would treat loan backed by Freddie and Fannie.  This new push for alignment may be the death knell for the practice of "dual tracking."  Dual tracking has been a common practice by servicers of working on a loan modification at the same time as it is purshing a loan towards foreclosure.  The new FHFA forced allignment will push servicers into engaging the borrower as soon as they become delinquent and will prevent the initiation of the foreclosure process if the borrower and servicer are working toward solving the delinquency in a good-faith effort.

Housing Wire furtehr reports that "under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency" and "must also perform a formal review of the case to confirm the borrower was considered before starting foreclosure. Even then, servicers are required to continue work with the homeowner on other alternatives." 

Servicers for both Fannie and Freddie will also apprewarded and penalized the same under the new guidelines.

"FHFA's directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances," said FHFA Acting Director Edward DeMarco.

Freddie Mac CEO Ed Haldeman said: "Alignment of key servicing practices between our two companies will help servicers . . . to streamline their operations and more effectively target resources to distressed borrowers . . . For example, it will simplify the process for seeking help by giving borrowers one application to fill out and servicers one application to review for all Freddie Mac loan modifications and foreclosure alternatives."

This allignment, if actually followed by Fannie and Freddie-backed servicers will have a huge impact for borrowers seeking to modify the terms of their loans.  Indeed, the dual-track process is precisely what has led to many unsuspecting homeowners losing their homes, as they never understood that dual tracking was the policy.  Perhaps the common lament of "how could they sell my home, I was in the middle of a loan modification" may be a thing of the past.  I won't be holding my breath on that one.

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Posted on April 25, 2011 by Michael Fleishman

Short Sale vs. Foreclosure - What's the Difference

It seems that real estate agents will no longer be able to rely on the credit score rationale for pushing short sales.  The old mantra has been that shorts sales have less impact on your credit rating.  Unless you have a bank that is proactive enough to approve a short sale before you have actually defaulted on your loan, it appears that the difference between a short sale and a foreclosure is no longer appreciable.

According to Fair Issac Corporation, the company that brought us the FICO score, homeowners with short-sales and foreclosures on their records ended up with similar credit scores, assuming their scores were similar as distressed homeowners.

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Posted on April 13, 2011 by Michael Fleishman

Turf Battles: the Feds vs. the Attorneys General

The "robo-signing" scandal unearthed substantial regulatory meddling into the practices of the mortgage servicing industry, which has only further exasperated any hope of a recovery in the housing industry.  In October 2009, the 50 Attorneys General allegedly joined forces with the Justice Department, the Federal Trade Commission, the Treasury Department, and the Department of Housing and Urban Development to investigate whether home-loan servicers violated state laws against deceptive practices by submitting affidavits and foreclosure documents without confirming the paperwork's accuracy.  The investigation also looked into loss mitigation practices by the servicers.

It was not long before the coalitioin of attorneys general began to fracture and word of a separate federal investigation involving the Federal Reserve and the Office of the Comptroller of the Currency began to take shape. 

The AGs prepared a 27-page "Term Paper" that reads like a wish list of changes to the servicing industry, many of which do not take into account the inherent restrictions that servicers face in their relationship with the mortgage pool trusts they serve and their own vested financial interests.

Federal regulators have just announced a consent agreement with 14 of the largest servicers.  The consent agreements require these companies in part to comply with state law (imagine that!) and retool their loss mitigation processes to give homeowners a chance at modification before foreclosure. While the federal regulators made room for monetary sanctions, they have yet to release an exact amount.  Early talk by the FDIC and the AGs of a $20 Billion sanction seems to have been undercut by this consent agreement. 

Iowa Attorney General, Tom Miller, who has been leading the investigation and settlement on behalf of the 50 AGs commented that the federal consent agreements "will not impact our investigation of the nation’s largest servicers and pursuit of a joint settlement."

In apparent frustration of how the federal regulators have undercut the AGs settlement, Housing Wire reports that Rep. Elijah Cummings (D-Md.) introduced a bill in the House of Representatives pushing for more requirements such as modifications and disclosures before servicers can file a foreclosure case.  The bill, H.R. 1477, is a companion to S.489 introduced by Sen. Jack Reed (D-R.I.). Both bills would apply to loans not only covered by the U.S. government, but to all mortgages falling under the supervision of the Consumer Financial Protection Bureau. 

The mortgage service industry is under severe scrutiny right now (and rightfully so), and it will be very interesting to see how the AG's collective efforts, the federal consent agreement, potential federal legislation, class actions, and individual borrower lawsuits will will reshape how securitization of mortgages and the attendant servicing rights evolve.  The turf battles will have their own story line, but it is clear that changes to how servicers approach loan modification is long overdue.   


 

 

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