Tag Archives: customer service

Mortgage Servicing Since The Financial Crisis

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photo by Dan Brown

Standard & Poors issued a report, A Decade After The Financial Crisis, What’s The New Normal For Residential Mortgage Servicing? It provides a good overview of how this hidden infrastructure of the mortgage market is functioning after it emerged from the crucible of the subprime and foreclosure crises. It reads, in part,

Ten years after the start of the financial crisis, residential mortgage servicing is finally settling into a new sense of normal. Before the crisis, mortgage servicing was a fairly static business. Traditional prime servicers had low delinquency rates, regulatory requirements rarely changed, and servicing systems were focused on core functions such as payment processing, investor accounting, escrow management, and customer service. Subprime was a specific market with specialty servicers, which used high-touch collection practices rather than the low-touch model prime servicers used. Workout options for delinquent borrowers mainly included repayment plans or extensions. And though servicers completed some modifications, short sales, and deeds in lieu of foreclosure, these were exceptions to the normal course of business.

Today, residential mortgage servicing involves complex regulation, increased mandatory workout options, and multiple layers of internal control functions. Over the past 10 years servicers have had to not only modify their processes, but also hire more employees and enhance their technology infrastructure and internal controls to support those new processes. As a result, servicing mortgage loans has become less profitable, which has caused loan servicers to consolidate and has created a barrier to entry for new servicers. While the industry expects reduced regulatory requirements under the Trump administration and delinquency rates to continue to fall, we do not foresee servicers reverting to pre-crisis operational processes. Instead, we expect states to maintain, and in some cases enhance, their regulatory requirements to fill the gap for any lifted or reduced at the federal level. Additionally, most mortgage loan servicers have already invested in new processes and technology, and despite the cost to support these and adapt to any additional requirements, we do not expect them to strip back the controls that have become their new normal. (2/10, citation omitted)

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As The Economy Improves, Delinquency Rates Have Become More Stable

Total delinquency rates have only just begun returning to around pre-crisis levels as the economy–and borrowers’ abilities to make their mortgage payments–has improved (see charts 1 and 2). Lower delinquency rates can also be attributed to delinquent accounts moving through the default management process, either becoming reperforming loans after modifications or through liquidation. New regulatory requirements have also extended workout timelines for delinquent accounts. In 2010, one year after 90-plus delinquency rates hit a high point, the percentage of prime and subprime loans in foreclosure actually surpassed the percentage that were more than 90 days delinquent–a trend that continued until 2013 for prime loans and 2014 for subprime loans. But since the end of 2014, all delinquency buckets have remained fairly stable, with overall delinquency rates for prime loans down to slightly over 4% for 2016 from a peak of just over 8% in 2009. Overall delinquency rates for subprime loans have fluctuated more since the peak at 29% in 2009. (2/10)

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Modifications Now Make Up About Half Of Loan Workout Strategies

Government agencies and government-sponsored enterprises (Fannie Mae and Freddie Mac) developed new formal modification programs beginning in 2008 to address the rising delinquency and foreclosure rates. The largest of these programs was HAMP, launched in March 2009. While HAMP was required for banks accepting funds from the Troubled Asset Relief Program (TARP), all servicers were allowed to participate. These programs required that servicers exhaust all loss mitigation options before completing foreclosure. This requirement, and the fact that servicers started receiving incentives to complete modifications, spurred the increase in modifications. (4/10)

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Foreclosure Timelines Have Become Longer

As the number of loans in foreclosure rose during the financial crisis, the requirements associated with the foreclosure process grew. As a result, the time it took to complete the foreclosure process increased to almost 475 days in 2016 from more than 160 days in 2007–an increase of almost 200%. While this is not a weighted average and therefore not adjusted for states with smaller or larger foreclosure portfolios, which could skew the average, the data show longer timelines across all states. And even though the percentage of loans in foreclosure has decreased in recent years (to 1% and 9% by the end of 2016 for prime and subprime, respectively, from peaks of 3% in 2010 and 13% in 2011) the time it takes to complete a foreclosure has still not lessened (6/10)

Arbitration and the Common Man

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photo by Eric Koch

Arthur Miller

Arthur Miller, the playwright who brought us Death of A Salesman, wrote an essay titled Tragedy and The Common Man. It opens,

In this age few tragedies are written. It has often been held that the lack is due to a paucity of heroes among us, or else that modern man has had the blood drawn out of his organs of belief by the skepticism of science, and the heroic attack on life cannot feed on an attitude of reserve and circumspection. For one reason or another, we are often held to be below tragedy-or tragedy above us. The inevitable conclusion is, of course, that the tragic mode is archaic, fit only for the very highly placed, the kings or the kingly, and where this admission is not made in so many words it is most often implied.

When I read the financial services industry’s critique of the CFPB’s proposed rule regarding Arbitration Agreements, it sounds like they believe that litigation, like tragedy “is archaic, fit only for the very highly placed, the kings or the kingly . . .”

The U.S. Chamber of Commerce has criticized the CFPB for proposing this rule because it will, according to them,

cause significant harm to the very consumers it is supposed to protect. The regulation will effectively eliminate the ability of consumers to use arbitration to seek redress for allegedly improper late fees, overdraft fees, or other small individualized claims that they cannot otherwise resolve with their financial service companies’ customer service departments. A “solution” in search of a problem, the bureau’s rule would replace arbitration — a consumer friendly system that is fast, convenient, and inexpensive — with America’s broken class action system. That’s great for class action plaintiffs’ attorneys but a bad deal for consumers.

It sounds to me like the Chamber believes that the consumer is below litigation-or litigation is above them and should be reserved for the kingly alone.

The fact remains, however, that the Chamber has pushed for mandatory arbitration because it is good for the large corporations who count themselves among its members.  And, in fact, the proposed rule would not eliminate the “ability of consumers to use arbitration;” rather, it would prohibit financial services corporations from using arbitration agreements “to bar the consumer from filing or participating in a class action . . .” (Proposed Rule at 1)

You can be sure that the financial services industry will be commenting broadly and deeply on this rule. Those who care about consumer protection from a policy perspective should be sure to put in their two cents too.  Comments are due in early August. so get crackin’.