Robert E. Story Jr., CMB, chairman of the Mortgage Bankers Association (MBA), testified before the Subcommittee on Housing and Community Opportunity Committee on Financial Services at a hearing entitled, "The Recently Announced Revisions to the Home Affordable Modification Program (HAMP)". The following is Story's oral statement before the committee, as prepared for delivery:
"Chairwoman Waters, Ranking Member Capito, thank you for the opportunity to testify this afternoon.
MBA's members are committed to helping financially troubled borrowers retain homeownership and avoid foreclosure. Many are participating in the administration's Home Affordable Modification Program and all servicers for Fannie Mae and Freddie Mac loans are participating in HAMP.
As we speak, servicers are working hard to implement the recent changes announced by the administration. We are also working with Treasury to suggest improvements to HAMP in order to increase efficiency and ensure better outcomes. During these trying times, servicers continue to hire staff, reach out to borrowers, and employ new strategies to keep people in their homes.
According to Treasury, more than 1.4 million borrowers have been offered trial modifications under HAMP. One million borrowers are in active modifications, of which almost 230,000 represent permanent modifications. An additional 100,000 permanent modifications are pending borrower acceptance. And servicers have substantially increased the pace with which permanent modifications are being done.
In addition to HAMP, servicers are providing their own home retention solutions. Since July 2007, HOPE NOW data shows that the industry completed an estimated 2.7 million proprietary modifications. During the month of February 2010, nearly 96,000 families received loan modifications outside of HAMP. Combined with HAMP, a total of 148,000 permanent modifications were granted in February.
Servicers are also engaged in modifications and loss mitigation activities through FHA and VA. These are additional and important efforts by the industry and the government to help distressed borrowers.
I would now like to turn to the HAMP changes announced by the administration.
With the jobless rate near 10 percent, assisting unemployed borrowers must take priority. MBA fully supports the creation of a temporary forbearance program to address the unique circumstances of unemployed borrowers.
Features outlined in the administration's program are consistent with MBA's own recommendations presented to Treasury in February. That includes the recognition that borrowers should continue to pay a portion of their income toward their mortgage. We also support allowing different periods of forbearance to help ease financial institutions' concerns with the accounting and regulatory treatment of assets that remain delinquent for six months or longer.
MBA's recommendations have other important features that we hope are considered as the administration designs the details of the program. For example, there should be a source of loans to allow financial institutions to carry delinquent mortgages during the forbearance program. Servicers advance principal and interest payments to investors during this time despite not receiving such payments from borrowers. They also advance funds to pay the borrower's taxes and insurance premiums. While the servicer ultimately gets reimbursed for most of these advances, the carry time and cost is substantial. This is especially true for non-bank institutions that must borrow the funds. Servicers should be given the tools to succeed, and a loan program that is repaid with interest would not cost taxpayers.
MBA also recommends applying a cost-sharing feature to offset the investors' risk of delaying foreclosure when a forbearance plan fails.
Treasury also announced an optional principal write-down component to HAMP. While MBA is concerned this may increase delinquencies, we are not opposed to it provided it remains voluntary. We urge the Treasury to monitor the program to gauge whether it is causing strategic defaults and to make adjustments if necessary.
One area of substantial concern is the announcement that servicers must re-underwrite all borrowers with modifications using the alternative Net Present Value test. Given all the concerns about servicer capacity, this is a burden that will not yield the results anticipated. We suggest limiting such reviews only to borrowers and loan products that lien holders deem eligible for principal reduction.
With respect to the FHA refinance and modification enhancements, the new rules will make it more attractive for underwater borrowers to refinance into affordable mortgages. MBA also supports the incentive payments proposed by Treasury.
Finally, on the important subject of second liens, the administration's changes are likely to make modifications more attractive. The fact that the largest servicers are participating will have a positive impact on the number of borrowers receiving help. The four largest banks hold or service $427 billion in second liens, representing approximately 60 percent of outstanding second mortgages.
Chairwoman Waters, HAMP is a critically important effort that is assisting hundreds of thousands of homeowners. We hope to continue working with the administration and this subcommittee on successfully implementing the new programs so that we can help the maximum number of financially-distressed homeowners. Thank you."
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