The mortgage servicing industry is in the middle of its worst nightmare: being forced to do something it doesn't want to do.
And things are going to get worse. But this time, it won't be the mortgage servicers thrown to the wolves. It will be holders of 30-year, fixed-rate mortgages who remain current on their loans.
Secretary Timothy Geithner and Department of Housing and Urban Development
Secretary Shaun Donovan supported the latest initiative to raise mortgage servicing fees, so that businesses can competitively compensate attention to loans.
"The current model has not motivated mortgage servicers to invest the time, effort and resources needed to fully explore all options to help delinquent borrowers avoid foreclosure," they wrote in a letter to Edward DeMarco of the Federal Housing Finance Agency
. "As we move ahead on a comprehensive plan to reform the nation's housing finance system, addressing this issue will help better protect homeowners, investors and taxpayers, while also increasing efficiency and competition in that market."
It's a sliding scale. Mortgage borrowers who pay mortgage servicers month in and month out will get the least amount of attention. People more than 60 days delinquent, and up the default chain, will get the most.
Keep in mind the aim is to avoid foreclosure as well, so staying in the home is doubly incentivized, both for the servicer and distressed borrower. If the borrower is suddenly shut out of the property and the mortgage ends, the higher fees end as well.
So where will the money to pay these fees come from?
The amount of outstanding mortgage debt continues to fall. The absorption rate on supply
is unthinkable, let alone achievable. The refi wave is more like a ripple and those that do refinance tend to do so to get shorter mortgages.
Total revenue passing to mortgage servicers is at an all time low, as efficiencies drop at America's largest mortgage companies, according to the Mortgage Bankers Association
Meanwhile, interest rates are likely to inch up, creating potential capacity issues, according to Laurie Goodman at Amherst Securities
: "Another possibility is that at these higher rates, originators will be left with unused capacity," she said. "During prior refi waves, originators focused efforts on the most profitable loans; after the refi wave they turned their attention to the more difficult to refinance and less valuable loans."
Two things: The housing market is really shook up, and the industry is not good at enacting change.
So here comes this idea to change fees in a way that adds to cost but not to revenue.
This only means higher rates for borrowers who are best at paying their bills. And more attention for those who aren't.
Analysts at JPMorgan
still see some investor backlash to the proposed changes as they stand, and don't expect any movement until 2012 at least.
If Campbell Surveys
is correct in saying that demand for buying homes
among potential homeowners is getting stronger, well then that's good news. The industry will need those new borrowers to pay for the old loans.
Write to Jacob Gaffney
Follow him on Twitter @JacobGaffney