Uniform servicing standards prove fractious to the mortgage market
As regulators work to develop a national set of guidelines for mortgage servicing, new requirements from investigations and policies are creating more of a mosaic than a standard. The new Mortgage Bankers Association CEO David Stevens stressed the need for these incoming obligations to be condensed and organized nationally in order for these companies to effectively comply, according to his written testimony before a Senate banking subcommittee Thursday. "Of paramount importance to the industry is that any national servicing standard be truly national and not yet another requirement on top of the myriad existing obligations. Servicers would not have the burden of looking to varying standards created by different entities," Stevens said. In January, the Federal Housing Finance Agency said it was developing a new set of servicing standards, and it would work with Fannie Mae and Freddie Mac to establish new fee structures for the industry. The Treasury Department and the Department of Housing and Urban Development pitched in support. The new standards are expected out this summer, but much alignment is needed. Federal laws such as the Real Estate Settlement Procedures Act, the Truth in Lending Act and the Dodd-Frank Act provide various requirements. State laws vary significantly around the country. Even between two judicial states, foreclosure cases can be treated differently among different courts, such as the massive standstill in New York and the "rocket docket" in Florida. Requirements from various mortgage holders such as the Federal Housing Administration, the Office of Veterans' Affairs and the Rural Housing Service each have different standards. More guidelines came from the Treasury's Home Affordable Modification Program, which differ from private bank initiatives. Even rules within these programs are constantly changing. The Treasury is currently planning to release new requirements, forcing servicers to provide a single-point of contact for borrowers seeking a HAMP mod. New rules such as those governing what loans will be considered qualified residential mortgages include how servicers must treat these loans. Additional requirements came from consent orders from the Office of the Comptroller of the Currency and the Federal Reserve, when they settled with major servicers under investigation for mistakes and short-cuts taken to get around these varying guidelines. And negotiations are still taking place between the 50 state attorneys general for the same investigation. But servicing requirements will differ. For instance, principal writedowns could still be an option under the latest settlement offer. Up until last week, Fannie and Freddie held two different sets of guidelines for how to service their loans. Only the FHFA began a project last week to align the two guidelines in what Stevens called "a very positive step." "Adding to the complexity is the fact that no two servicing standards are alike," Stevens said. "Each of the guidelines addresses foreclosure processes, outlining penalties for not performing specified collection and foreclosure procedures in particular stages of delinquency, foreclosure or bankruptcy. This results in the need for servicers to create specialized teams for each investor." Stevens said servicers working under an unprecedented volume of loans have experienced difficulty adjusting systems, changing modification programs, hiring and training new employees. "We believe a national servicing standard would be beneficial to streamline and eliminate overlapping requirements," Stevens said. "However, a national servicing standard must be truly national in scope and not simply another standard layered atop the already overwhelming number of servicer requirements." Write to Jon Prior. Follow him on Twitter @JonAPrior.