For the Mortgage Bankers Association (MBA), the future of mitigating losses from mortgage loans looks a lot like the recent past.
In a new white paper released Tuesday titled “The Future of Loss Mitigation,” the MBA makes the case that, in order to ensure that borrower “receive timely and durable assistance to avoid foreclosure,” policymakers “must preserve the critical features mortgage servicers implemented throughout the COVID-19 pandemic.”
The paper provides a comprehensive look at the policies needed to keep homeownership affordable for struggling borrowers, as well as how to protect communities, with a focus on prioritizing simplicity, standardization, and sustainability.
As the paper notes, throughout the pandemic, mortgage servicers “delivered effective payment relief to over 7.5 million borrowers industrywide” through the government imposed COVID-19 forbearance.
In addition, to assist borrowers, servicers “advanced their own funds to meet the statutory obligations of the Coronavirus Aid, Relief, and Economic Security (CARES) Act,” as well as the requirements of Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA), the Department of Veterans Affairs (VA), and the Rural Housing Service (RHS).
“The government insurers and guarantors expanded the use of products that have now become household names — forbearance, partial claim/payment deferral, and extended term modifications,” the paper states. “These expanded toolkits allowed mortgage servicers to offer solutions to borrowers to either maintain their current payments or achieve a reduced monthly mortgage payment.”
Many of those programs are temporary, however, tied to the CARES Act national emergency that is due to soon expire. President Biden has informed Congress he intends to end the emergency on May 11.
The MBA, though, says the pandemic provided policymakers “with a roadmap on how to respond to future emergencies and natural disasters. “The swift change in the market also demonstrated the importance of ensuring servicers have durable solutions in their toolkits to help borrowers through any hardship,” the paper states.
The white paper offers a host of recommendations for policymakers to consider, including:
- Provide transparency throughout the policymaking process to allow all stakeholders the opportunity to participate;
For the government-sponsored enterprises:
- Expand the payment deferral to resolve temporary hardships.
- Incorporate a 30-year modification into Flex Modification.
- Allow additional principal forbearance for borrowers with less than 80% post-modification mark-to-market loan-to-value (MTMLTV).
FHA/USDA:
- Implement the Payment Supplement Account for today’s high-interest rate environment.
VA:
- Implement a permanent partial claim program.
CFPB:
- Reform Regulation X to unambiguously allow servicers to qualify borrowers for a loss-mitigation option based on streamlined application and improve the borrower experience.
All Government Programs:
- Limit required documentation to encourage seriously delinquent borrowers to qualify for a permanent solution.
- Preserve the use of partial claim to resolve temporary hardships and to combine with a modification.
- Consistently offer extended borrowers loan terms up to 480 months (or 40 years) from modification, and
- Maintain use of targeted payment relief to ensure a borrower’s new payment is affordable.
MBA said these and other recommendations it includes in the paper would help prepare the servicing industry ahead of the next adverse market event.
