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Cascade: No. 69, Fall 2008

Servicers Agree on Foreclosure Guidelines

Faith Schwartz has become a key figure in the mortgage foreclosure crisis. As executive director of the HOPE NOW Alliance, which was created last fall to help at-risk homeowners keep their homes, she speaks for the mortgage servicing industry at congressional hearings and media interviews, nudges servicing companies behind the scenes to take action, and talks regularly with housing counselors and activists.

Schwartz, a native of Lackawanna County, Pa., has served, most recently, as senior vice president of public affairs and enterprise risk at Option One Mortgage Corp. and, prior to that, as director of structured transactions at Freddie Mac, where she managed the firm’s anti-predatory lending efforts. She was also COO of Fieldstone Mortgage Company and held executive positions at TMC Mortgage Corp. and Dominion Bankshares Mortgage Corp. She has served on the board of the Mortgage Bankers Association and chaired its nonconforming credit committee. She currently serves on the Federal Reserve Board’s Consumer Advisory Council.

HOPE NOW was announced in October 2007 by Treasury Secretary Henry Paulson and then-HUD Secretary Alfonso Jackson as a publicprivate effort to create a united, coordinated plan to reach and help as many homeowners as possible. The announcement came after months of discussions among mortgage industry originators, servicers, and nonprofits. Schwartz was asked to lead the alliance by the Financial Services Roundtable and the Mortgage Bankers Association because of her diverse background and familiarity with all the sectors involved. Members of the alliance, which is located in Washington, D.C., pay an annual assessment fee to cover administrative costs and HOPE NOW initiatives.

Alliance members include 26 mortgage servicers as well as nine mortgage and banking trade associations, Fannie Mae, Freddie Mac, mortgage insurers, and housing counseling organizations. The servicers in the alliance handle over 90 percent of subprime loans and over 70 percent of prime loans, according to Schwartz.

A big change facing mortgage-servicing companies since mortgage delinquencies and foreclosure filings started rising two years ago is a change in expectations. Until then, servicing companies had the primary task of collecting payments and passing them on to investors.

Faith Schwartz, Executive Director, HOPE NOW AllianceFaith Schwartz, Executive Director, HOPE NOW Alliance

Schwartz explained: “Today, the servicers face an unprecedented situation in which they also have the goal of home retention. We’re asking them to re-think what they do and to work closely with housing counselors, with whom they had little contact before. Also, most people don’t realize the legal and financial complexities of what it takes to save a homeowner who has fallen behind on mortgage payments from foreclosure.”

Partly because of the alliance’s encouragement, its servicer members have established “different ports of entry” so housing counselors can reach servicers’ staff by phone and fax and often by e-mail. The servicers also contact homeowners with subprime adjustable-rate mortgages (ARMs) and other homeowners with ARMs that have a probable risk of default 120 days in advance of the reset. In addition, the servicers pay for a national hotline staffed by about 450 counselors at 10 intermediaries and maintained by the Housing Preservation Foundation (HPF) in Minneapolis, Minn.1

The practices and principles agreed to by the servicers were combined into a set of mortgage servicing guidelines announced by the alliance in June 2008. The guidelines pertain to communication and outreach, data reporting, loss mitigation options, performance measures, and subordination of second liens.2

In the guidelines, member servicers agree to adopt and implement a streamlined loan modification process consistent with guidance provided by the American Securitization Forum (ASF) for loans held in securitization trusts.3 The servicers also agree to consider pausing the foreclosure process when appropriate for up to 30 days (or longer if necessary) to pursue loss mitigation when that option may prevent foreclosure for homeowners who are 90 days or more past due.

Schwartz said: “The guidelines add integrity and transparency to the process. They encourage servicers to move in a timely manner on mortgages that are 60 days or greater past due and seek consistency in frontend processing of applications.”

Schwartz said that the guidelines were especially significant in the following aspects:

  • Short sales are included in a list of loss mitigation options that member servicers agree to consider. In a short sale, “the member servicer or investor accommodates the homeowner’s sale of the property for less than the amount owed,” the guidelines say.4
  • Servicers handling second liens agree to re-subordinate their loans when the second lienholder’s position is not worsened as a result of a refinance or loan modification. Conditions under which the position is “not worsened” are specified in the guidelines.
  • Servicers agree to track and report to an alliance subcontactor the performance of loans in which the servicers applied a loss mitigation option.

Schwartz said that the loan performance data will enable the alliance “to measure the effects of the guidelines until July 2010.” The alliance is building its own database and will continue to monitor adjustable-rate mortgages, she said. In addition, the alliance is organizing workshops around the country that bring together servicer representatives, housing counselors, and homeowners.

Asked about future challenges for servicers, lenders, and housing counselors, Schwartz had these observations: “We are continuing to face unprecedented increases in foreclosures, especially in the hardest- hit regions. Through softening markets, job loss, increased food and gas prices, and products that are not sustainable, homeowners are facing more stress around their mortgages. Our workshops are now attracting thousands of people who need help from their servicers to maintain homeownership. Homeowners in financial difficulty should contact their servicers. Or they can call 1-888- 995-HOPE or contact any qualified HUD-certified housing counselor and receive assistance without charge. In taking such actions, homeowners will be taking an important step toward saving their home.

“Working through their lender/servicers, borrowers will have the best chance to improve their outcome in a difficult market. And they are not alone. We will do our best to make a difference.”

For information, contact Faith Schwartz at (202) 589-2406 or faiths@hopenow. com; www.hopenow.com.

  • 1 For details on the hotline, see www.995hope.org External Link.
  • 2The guidelines say that (a) the servicers shall support activities and principles subject to their contractual, fiduciary, and legal obligations; and (b) the guidelines are not enforceable. The guidelines can be found at the alliance’s website at www.hopenow.com External Link.
  • 3To see the ASF guidance, go to www.americansecuritization.com External Link and select Market Standards and ASF Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage Loans (revised July 2008).
  • 4The guidelines say that member servicers should engage in the use of various loss mitigation options, consistent with investor guidelines or approvals or accepted servicing practices, which may include forbearance, repayment plans, loan modifications, partial claims, and deeds in lieu of
    foreclosure.

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