With the outlook for jobs looking bleak and the broader economic recovery faltering, servicers will continue facing immense challenges next year that need broad policy support, according to Steve O'Connor, the Mortgage Bankers Associaton's (MBA) senior vice president of public policy and industry relations.
One area where servicers might find some relief is in the form of national servicing standards, he said Tuesday on a conference call hosted by the HOPE NOW Alliance, which reported this week that servicers have executed 5 million modifications since 2007.
"MBA is very much committed to developing national servicing standard," O"Connor told reporters on the conference call organized by the HOPE NOW Alliance, which reported Tuesday that servicers have executed 5 million modifications since 2007. "We think [if] we can get this done sometime next year, it will go a long way to help provide uniform practices to help borrowers."
Servicing standards could come to fruition by any number of ways, and various structures have begun to emerge in the past year. Last April's federal consent orders from the Office of the Comptroller of the Currency, the Federal Reserve Board and the Office of Thrift Supervision paved the way for new foreclosure procedures at 14 major servicers. Fannie Mae and Freddie Mac are working through their Servicing Alignment Initiative, which more closely aligns the two companies' default servicing protocols. Over the last three months, state regulators in New York have gotten a half-dozen servicers to commit to their own list of approved practices.
Meanwhile, any settlement that comes out of ongoing negotiations between the largest servicers and a muli-state coalition of state attorneys general could similarly create new servicing rules.
Additionally, several industry groups are banding together to help create standards, O'Connor said.
Beyond servicing standards, O'Connor alluded to other MBA-advocated policy solutions that could assist servicers. One long-term challenge, O'Connor said, is the shadow inventory, which the MBA estimates to total about 4 million homes. The MBA, in turn, is looking ahead to the inventory's implications for real estate owned (REO) departments.
"A lot of homes will become real estate owned, and we need a systematic way to deal with it," O'Connor said, noting that the Federal Housing Finance Agency (FHFA) in August issued a request for information on REO strategies.
The FHFA received roughly 4,000 answers back, according to the testimony of FHFA Acting Director Edward DeMarco Tuesday. Among those responses was the MBA's, which O'Connor outlined generally on the conference call.
The key consideration is to create more financing options for REO buyers, he said, explaining that one of the market's core demographics is a cash buyer who demands deep discounts.
The MBA recommends building additional safeguards into the Federal Housing Administration's (FHA) 203(k) rehabilitation loan product and making it available to investors – a practice the FHA discontinued in the 1990s.
Bulk-sale programs are another possibility, although measures would be required to discourage buyers from flipping properties, O'Connor commented. To protect against that, federal agencies and their partners would have to screen investors and could potentially mandate holding periods, during which time the buyer would not be allowed to sell the home.
Further options to entice buyers could include a capital gains incentive, although that would require changes to the tax code, O'Connor said.