It was a year of sweeping change for mortgage servicers. When 2013 began, most servicers were still struggling to keep up with the flood of refinancings and modifications that had carried over from 2012. But by midyear, interest rates had climbed, home prices had spiked, and delinquencies and foreclosures had dropped precipitously. As a result, refi volume took a nosedive, and many servicers found themselves laying off workers in droves.
Meanwhile, servicers were faced with the tedious, time-consuming and costly task of preparing for implementation of the Consumer Financial Protection Bureau's (CFPB) new servicing rules going into effect in January – not to mention the introduction of new Basel III rules pertaining to risk retention that resulted in some of the country's biggest servicers divesting themselves of their mortgage servicing rights – much to the delight of the smaller servicers that snapped them up.
So, what do industry leaders think were the top factors that reshaped the mortgage servicing industry in 2013? And what factors do they think will continue to reshape the industry in the coming year? To find out, MortgageOrb interviewed top industry professionals including Daren Blomquist, vice president of RealtyTrac. What follows are Blomquist's responses to our questions:
Q: What do you think were the top three factors that reshaped the mortgage servicing industry in 2013 and why?
Blomquist: Surprisingly, quick apparent fulfillment of the National Mortgage Settlement by the five major lenders. In the most recent report issued by the monitor of the settlement, the settlement banks claim to have offered some type of consumer relief to 643,726 borrowers, totaling $51.33 billion, which is far above and beyond the required settlement amount of around $25 billion. The monitor has credited one of the banks with satisfying the settlement, and although he is still working on crediting the others, his statements seem to indicate he is positive about that. This has quickly helped to bring closure to this lingering servicing issue and positions these major banks to move forward with more normal servicing activities next year.
Also having a major impact in 2013 was preparation for the new CFPB servicing guidelines taking effect in January. This has been a year where servicers are in full preparation mode for these new guidelines, which is likely causing some disruption in the normal flow of delinquencies through the foreclosure pipeline. We will likely see the continued impact of this in the first half of next year, but probably by the second half of next year, most servicers will have adjusted.
Also a top factor for 2013 was the various state legislation and court rulings changing servicing and foreclosure guidelines. Most prominent among these is probably the Homeowner Bill of Rights in California, although now we have seen similar legislation pass in Nevada. The Colorado attorney general's investigation into foreclosure industry billing practices is also in this vein, in that all of these have disrupted the normal flow of foreclosures at the state level. The danger with this is that it makes the foreclosure situation look better than it actually is – down the road, these delayed foreclosures will finally work their way through the pipeline.
Q: What do you think are the top three factors that will reshape the servicing industry in 2014 and why?
Blomquist: I think the CFPB's servicing guidelines will continue to be the biggest factor reshaping the industry in 2014, for all the same reasons mentioned above.
Also promising to be a major factor in 2014 is the shift of more and more servicing to non-bank servicers and even non-industry servicers that have snatched up big batches of non-performing loans over the past couple of years. For the non-bank servicers, the question is whether they will be able to handle servicing in a way that is ‘above board’ and does not get them into hot water like the major bank servicers got into with the robo-signing scandal back in 2010. And with the non-industry servicers with non-performing loans, to what extent will they be able to get those loans performing again, and to what extent will they need to resort to foreclosure?
The other major factor reshaping the industry in 2014 is the sun setting of short sales. Short sales are already fading as a favorable foreclosure alternative for servicers. With the Mortgage Debt Relief Act expiring at the end of this year, making deficiencies in short sales taxable income by the Internal revenue Service, and home prices rising making the need for short sales less critical (not to mention the expected fulfillment of the national mortgage settlement by the major banks), I would expect to see servicers draw down on the resources they are devoting to short sales, as short sales start to fade – although there will likely be a long tail of elevated short sales since it will take years for many borrowers to regain positive equity in their homes, even with the rapidly rising home prices.
To read additional responses from other mortgage industry professionals, check out our ‘year in review’ features in the December issue of Secondary Marketing Executive magazine and the January issue of Servicing Management magazine.