Q: What do you see as the primary challenges facing servicers in today’s mortgage industry?
Faith Schwartz: There are a number of compliance and technical challenges facing mortgage servicers that can quickly transfer into severe monetary penalties or degradation of reputation. There has been a structural change in the make-up of mortgage servicing actors for a number of reasons – capital requirements, reputational risk and the cost of compliance. Nonbanks are more nimble, but have raised a number of concerns over safety and soundness.
The CFPB has taken their first action against Flagstar and the order includes a prohibition on acquiring or sub-servicing defaulted loans. As delinquencies remain above historical norms the two largest challenges seem to be operational execution in bulk servicing transfers and loss mitigation programs. The cost of originations and servicing has gone up exponentially with regard to overlays of regulation and when there is defaulted servicing. Finding the right balance for the business and cost structure will be key to a healthy thriving market.
Q: Earlier this year, Steve Antonakes of the CFPB gave an unusually harsh speech at the MBA Servicing Conference that suggested servicers had not learned from the mistakes of the immediate post-2008 period. Do you think that the regulators are being unfairly rough on today’s servicing professionals?
Faith Schwartz: I think there is a tendency to broadly group the industry over some repeat failures on process and execution of new rules. What many do not see is the significant efforts and investment the industry has put into place to deal with new and complex regulations.
A voluminous amount of regulation became effective this year and I think all parties, including the Bureau, realized that there would be some potential adverse impacts that were unaccounted for. Servicers, just like the Bureau, are amending and making these changes as they go to ensure they effectively address the needs of consumers and the new regulations. Like anything new, this is a journey but there is real progress that has been made across the board.
Q: One of the more disturbing developments related to servicing has been the so-called “eminent domain” controversy. To date, this has mostly been talk, with no mortgages being seized under eminent domain laws. Do you think this idea will fizzle and go away, or will some municipality or county attempt to pursue it?
Faith Schwartz: I think there is always the potential for eminent domain as a tool to rear its head in specific jurisdictions, but HUD has raised concerns and FHFA has expressed that they will initiate legal proceedings against municipalities or counties that attempt to pursue it. This leaves the use of eminent domain for private label securities, which are limited in volume to begin with.
Furthermore, most jurisdictions will likely face lengthy legal challenges, which may counter some of the benefits of enacting the program. San Francisco recently had a hearing on the issue (Oct. 1).
Q: Many industry leaders have expressed concern on the state of the wider economy and its impact on housing. If the economy remains weak or grows worse, do you see the chance for another wave of potential foreclosures?
Faith Schwartz: It has been tradition that housing leads recoveries. With a much reduced market, much reduced refinance market, housing is a much reduced footprint in our economy today. There has been a significant shift to positive equity though we still see areas in the country that are slow to recover. There are lingering concerns over readjustments in modifications that are at the end of their 3-year/5-year term and HELOCs. I think there are even larger concerns about regions that have a weak housing recovery, but also a weak economy (population decline, high unemployment, etc.).
Overall, we are continuing to see improvement in housing and are encouraged by some new expanded credit criteria offered by FHFA, GSE’s and FHA.
CoreLogic is online at www.corelogic.com.
Phil Hall has been (among other things) a United Nations-based radio journalist, the president of a public relations and marketing agency, a financial magazine editor, the author of six books and a horror movie actor. Also, as you will discover, he is not shy about stating his views.