Cordray To Servicers: Invest In Tech Or Pay
Richard Cordray, director of the Consumer Financial Protection Bureau (CFPB), issued a stern warning to mortgage servicers that some of them need to update their technology in order to properly comply with the bureau’s recently updated mortgage servicing rules.
During the Mortgage Bankers Association’s recent Annual Convention and Expo in Boston, Cordray said although most servicers have done a great job of “staffing up” in order to meet new compliance mandates, “many troubling issues persist.”
“While we applaud the investments made in compliance by certain servicers, others have not yet made satisfactory progress,” Cordray told the crowd of mortgage bankers and technology vendors. “Outdated and deficient servicing technology continues to put many consumers at risk. This problem is made worse by a lack of training to use [the] technology effectively. Needless errors impose harm to consumers facing delinquency or engaged in loss mitigation processes. These shortcomings can become chronic when servicers do not implement proper system testing and auditing processes.”
Cordray said in order to “spur needed improvements in servicer compliance,” the bureau will be requesting “specific and credible plans from servicers describing how their information technology systems will be upgraded and improved to resolve these issues effectively.”
“At the same time, we will be working alongside [the] industry to make sure the updated servicing rules we recently finalized, which generally will take effect in October 2017, are implemented effectively,” he added. “These rules clarify certain issues, allow more flexibility in some areas, strengthen foreclosure protections and add some important new consumer safeguards for servicing transfers, for successors-in-interest and for borrowers who are in bankruptcy.”
In June, the CFPB released research showing that mortgage servicers are still struggling to comply with the mortgage servicing rules that took effect in January 2014, in part, because they are using “failed technology.”
In reviews undertaken since the mortgage servicing rules took effect, CFPB examiners have discovered a wide variety of violations, including misrepresentations of terms, fees and deadlines for modifications; errors in mortgage servicing rights transfers; failure to send out notices in a timely fashion; and, at times, failure to communicate with borrowers completely, the bureau reports.
Although many of these servicers have since taken corrective action, certain others continue to struggle. These servicers will likely be asked for “action plans” to show that they have the processes, software and systems in place in order to meet compliance.
“Mortgage servicers can’t hide behind their bad computer systems or outdated technology,” Cordray said in a statement in June. “There are no excuses for not following federal rules. Mortgage servicers and their service providers must step up and make the investments necessary to do their jobs properly and legally.”
To help servicers meet compliance, the CFPB has released an updated version of its Supervision and Examination Manual “to reflect regulatory changes, to make technical corrections and to update examination priorities.”
MBA Introduces Proposed Successor To HAMP
The Mortgage Bankers Association (MBA) recently introduced its proposed successor program to the Home Affordable Modification Program (HAMP), which is scheduled to sunset on Dec. 31.
The new proposed program, “One Mod: Principles For Post-HAMP Loan Modifications,” was developed by The Future of Loss Mitigation Task Force, a diverse MBA working group consisting of representatives from 20 member companies. It draws upon the experiences of lenders familiar with HAMP to formulate universal principles that should be applied to a future program, the MBA says in a release.
The program offers at least a 20% payment reduction for eligible borrowers, while also minimizing the excessive documentation requirements that have caused hardship for HAMP applicants.
It is based on the following 10 guiding principles developed by the task force:
1. Eliminate “gaps” that consumers can fall through;
2. Only require the consumer to submit documentation that is directly related to his or her eligibility for the modification;
3. Produce a positive outcome for the investor;
4. Result in a decrease in mortgage payments for the consumer immediately following modification;
5. Distinguish between short-term hardships and longer-term hardships;
6. Use waterfall of options and loss mitigation solutions that are based on criteria that have a clear impact on redefault rates;
7. Provide a solution that maximizes the relief that the consumer is eligible for in the first loss mitigation offer;
8. Offer home retention and liquidation options at the same time;
9. When a term extension is utilized, educate the consumer about how additional money applied to monthly payments can change the amortization schedule; and
10. Provide clear disclosure to the consumer of his or her loss mitigation options and the rationale for the selected loss mitigation option presented to the consumer.
The task force is co-chaired by Alex McGillis of Quicken Loans and Erik Schmitt of JP Morgan Chase.
“MBA’s task force recognizes that the industry, borrowers and investors need a successor to HAMP that is consistent and can be widely scaled,” says Pete Mills, senior vice president of residential policy and member services at the MBA, in a release. “Application of the task force’s principles and the ‘One Modification,’ or ‘One Mod,’ will go a long way toward offering deep payment relief for struggling homeowners and a positive economic outcome for investors. We look forward to continued discussions with government agencies, the [government-sponsored enterprises] and other stakeholders about these principles and the proposal.”
In August, the Federal Housing Finance Agency announced that it was extending HAMP’s sister program, the Home Affordable Refinance Program (HARP), for a third time – this time to September 2017. However, this time around, HARP is being extended in order to create a “bridge” to a new high loan-to-value streamlined refinance offering that will essentially serve as a replacement.
Borrowers Drawing Out More Equity, But Nothing Like 2005
Borrowers are drawing more equity out of their homes as home prices rise and mortgage interest rates fall; however, they are not doing so at the same rate seen in the pre-crisis years.
According to Black Knight Financial Services’ Mortgage Monitor report, borrowers tapped out about $22.6 billion in equity in the second quarter – the largest sum since the second quarter of 2009 but still nearly 80% lower compared with the peak seen in the third quarter of 2005.
The report further finds that about 42% of refinances in the second quarter were cash-out transactions.
It was the ninth consecutive quarterly increase in cash-out lending by both loan count and sum of equity draw.
In addition, 40% of rate/term refinances involved the borrower reducing the term of his or her original loan (e.g., 30-year to 20-year, etc.) during the second quarter.
Interestingly, about 73% of refinances so far this year have gone to borrowers whose prior mortgages were originated in 2009 or later.
The average credit score for a borrower doing a cash-out refinance in the second quarter was about 748, nearly 60 points higher than in the 2005-2007 period.
“The roughly 350,000 cash-out refinances in the second quarter accounted for 42 percent of all refinances in the quarter and marked the ninth consecutive quarterly increase in cash-out lending, not only by count, but also by the amount of equity tapped,” says Ben Graboske, executive vice president of Black Knight Data and Analytics, in a statement. “At $22.6 billion, that works out to approximately $65,000 in equity tapped per borrower.
“While that per-borrower number is slightly down from the first quarter – but $6,000 higher than one year ago – the $22.6 billion total is the largest equity sum tapped since the second quarter of 2009,” he says. “Just to put that into perspective, though, it’s still a nearly 80 percent lower equity draw than at the peak in the third quarter of 2005. And, given that we saw over $550 billion in tappable equity growth last year alone, this equates to borrowers only tapping into 15 percent of the growth in equity over the past 12 months, without even touching the $4.5 trillion balance in tappable equity available.
“All in all, it’s clear that cash-outs are helping to prop up the refinance market – their 42 percent share is up from only 30 percent in early 2015, when interest rates had also dropped,” Graboske adds. “What’s more, refi volumes are down from 2015 – at least through the second quarter – but while overall they’re down nine percent from the first quarter of 2015, rate/term refinances are actually down 25 percent over that same period.”
With regard to the increase in the average credit score for cash-out refinance borrowers, Graboske says, “Today’s cash-out refinance borrowers continue to present a relatively low risk profile, historically speaking.
“The average credit score of 748 among the second-quarter, cash-out refinance borrowers is 67 points higher than that of the low point recorded in the third quarter of 2006 and is, in fact, nearly 60 points higher than the overall average credit score from 2005 through 2007,” he says. “In addition, post-cash-out, loan-to-value ratios remain low. At 66 percent, it’s slightly higher than in the first quarter, but it’s the second-lowest quarterly average recorded in over 11 years.
“This is nearly six percent below the 2005-2007 average and 10 percent below the highs recorded in late 2008,” he says. “In addition, while not specific to cash-out refinancing, we continue to see prudent behavior on the part of borrowers.
Freddie Mac Auctions Four More Pools Of NPLs
Pretium Mortgage Credit Partners, Upland Mortgage Acquisition Co. and Rushmore Loan Management Services are the winning bidders on four pools of nonperforming loans (NPLs) recently auctioned by Freddie Mac.
Pretium Mortgage Credit Partners was the winning bidder on a pool of 1,813 mortgages with $292.7 million in unpaid principle balance (UPB) and a second pool of 1,283 mortgages with about $220 million in UPB.
Upland Mortgage Acquisition Co. was the winning bidder on a pool of 1,113 loans with $227.3 million in UPB, and Rushmore Loan Management Services was the winning bidder on a pool of 1,115 loans with about $222.8 million in UPB.
All together, that’s about 5,364 deeply delinquent NPLs – or about $1 billion in UPB – that Freddie Mac has liquidated from its mortgage-related investments portfolio, thus reducing taxpayer exposure to these risky assets.
Mortgages that were previously modified and subsequently became delinquent comprise approximately 47.5% of the aggregate pool balance.
All four pools are geographically diverse and have an average combined loan-to-value ratio of approximately 86%, based on broker price opinion.
All of the loans are currently serviced by either Wells Fargo Bank or Ditech Financial.
Investors had the flexibility to bid on each pool individually and/or a combination of pools. All four pools were sold at a weighted average price in the mid-70s as a percent of the total UPB.
The transaction is expected to settle in December.