U.S. Senator Robert Menendez (D-NJ) chaired a Housing, Transportation, and Community Development Subcommittee hearing on “The Need for National Mortgage Servicing Standards.” There was a consensus among all six witnesses on the need to develop at least some national mortgage servicing standards to improve the experiences of homeowners at risk of foreclosure, better align the incentives of mortgage servicers with mortgage investors, develop consistent expectations for mortgage servicers, and eliminate the limited and fragmented oversight by the banking regulators. Those witnesses included homeowner advocates, investor advocates, and industry.
“The mortgage industry can often feel like a confusing maze to families and even investors," said Sen. Menendez. "Developing a set of clear and consistent national mortgage standards will not only help make the experience of dealing with home lenders an easier one, it will help ensure we can keep a check on the mortgage industry and prevent a national foreclosure crisis from happening again."
Specific national mortgage servicing standards suggested by various witnesses include the following:
►The elimination of the dual track (continuing to proceed with foreclosure while working on a mortgage modification, sending mixed messages to the homeowner)
►Establishing a single point of contact at the mortgage servicer
►Eliminating potential conflicts of interest among mortgage servicers (for example, servicing first liens while holding the second; charging homeowners fees that go to affiliated foreclosure businesses, such as force placed insurance or home maintenance costs)
►Restrictions on foreclosure fees that are “marked up” by mortgage servicers
►Requirements by servicers to maximize the net present value of the loan when considering mortgage modifications regardless of their conflicts of interest
►Independent and effective enforcement of representation and warranties in pooling and service agreements
►Standardizing pooling and servicing agreements
►Improving incentives in mortgage servicer compensation methods to align those incentives more with mortgage investors and homeowners
►Greater transparency about servicer cash flows and mortgage modification efforts for homeowners and mortgage investors
►Standardize foreclosure timelines
►Not allowing foreclosures to proceed when mortgage servicing standards have been violated
Witnesses included at the hearing included A. Nicole Clowers, acting director of Financial Markets and Community Investment for the Government Accountability Office (GAO); Diane E. Thompson, of counsel for the National Consumer Law Center (NCLC); Laurie F. Goodman, senior managing director at Amherst Securities; Dr. Anthony B. Sanders, professor of finance at George Mason University School of Management; David H. Stevens, president and chief executive officer of the Mortgage Bankers Association (MBA); and Richard A. Harpootlian, attorney, Richard A. Harpootlian PA.
"I can assure you that the mortgage finance industry and servicers in particular have not stood still in addressing their mistakes," said Stevens. "Many have put in place training, internal controls and independent, third-party auditors, adding people and improved technology needed to move forward."