The Senate Committee on Banking, Housing & Urban Affairs held a hearing on Tuesday addressing the mortgage servicing industry titled, "Housing Finance Reform: National Mortgage Servicing Standards." The hearing featured an array of industry insiders, including Jack Hopkins, president and CEO of CorTrust Bank, on behalf of the Independent Community Bankers of America (ICBA); Faith Schwartz, executive director of the HOPE NOW Alliance; Robert Couch, counsel with Bradley Arant Boult Cummings LLP; and Prof. Peter Swire, C. William O'Neill Professor of Law at Mortiz College of Law of the Ohio State University. This was the eighth in a series of hearings the Senate Banking Committee has held related to housing finance reform.
"The housing recovery appears to have stalled—in part because of widespread uncertainty in mortgage servicing," said Senate Banking Committee Chairman Tim Johnson (D-SD) in his opening comments. "Borrowers aren’t certain that servicers are accurately evaluating them for modifications. Servicers aren’t confident that borrowers’ documents were submitted properly. And investors are concerned about how all these factors increase litigation risk for servicers. Homes that should move through the foreclosure process are held up because courts and servicers are concerned that paperwork has not been completed properly."
Couch, current counsel with Bradley Arant Boult Cummings LLP and former head of the Mortgage Bankers Association (MBA), said in his testimony: "Much of the recent criticism of the mortgage industry is warranted. Recently, we have witnessed sloppiness and abuse of process by some lenders and servicers. Borrowers who have actually been harmed by any malfeasance should unquestionably be fully compensated as required by law. While national mortgage servicing standards may well address these mistakes, they can also potentially cause uncertainty to creep into the markets and devastate investment, which will ultimately be felt by homeowners."
Most panelists echoed Couch's sentiments that nationwide servicing standards, while imperative, may have an adverse effect on the borrower.
"It is important to recognize that national servicing standards may not change the final outcome for many homeowners at risk of foreclosure because of their economic situation, but customers need a servicing process that gives them timely responses and consistent answers regarding their loans," said Schwartz of the HOPE NOW Alliance.
Schwartz pointed out that HOPE NOW has held more than 110 outreach events for at-risk homeowners where an average of 2,000-plus attendees come and meet with servicer representatives for advice on loan modifications and the foreclosure process.
"Our follow up from those events indicates that 43.5 percent have been assisted by resolving their delinquencies without foreclosure sales," said Schwartz. "It is also important to note that several of the larger servicers are holding their own company-sponsored events all over the country which directly reach their borrowers at risk in key markets."
Sen. Robert Menendez (D-NJ) noted the complaints of many of his constituents in his hoem state of New Jersey sharing their "terrible stories about their experiences going through foreclosure, and many with stories of being either mistreated or neglected by mortgage servicers."
"This is also a timely topic because federal banking regulators including the OCC, Federal Reserve, FDIC, and OTS recently issued consent orders as enforcement actions against some of the largest banks to require changes in their mortgage servicing practices," said Sen. Menendez. "These actions take a step in the direction of developing national mortgage servicing standards, but they’re also too little and too late to help many homeowners."
Prof. Swire used his testimony to recant a personal encounter dealing with mortgage servicers in a dispute with Washington Mutual in 2006 and 2007 regarding flood insurance on his family’s home in Bethesda, Md.
Swire provided his dealings with Washington Mutual to "vividly shows the cascade of mistakes that the servicing company made, despite several dozen calls by me to the company and detailed documentation."
The Senate Banking Committee continues their housing finance hearings tomorrow, Wednesday, Aug. 3, with the 9:30 a.m. hearing, "Examining The Housing Finance System: The To-Be-Announced Market."