Tag Archives: evidence-based policymaking

The Mortgage Servicing Collaborative

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The Urban institute’s Laurie Goodman et al. have announced The Mortgage Servicing Collaborative:

All mortgage market participants share the same goal: successful homeownership. Failure to achieve that goal hurts not only consumers and neighborhoods, but investors, insurers, guarantors, and servicers. Successful homeownership hinges on several factors. Consumers need access to a range of mortgage products when buying a home and need effective mortgage servicing. Servicing is the critical work that begins after the mortgage loan is closed and includes collecting and transferring mortgage payments from borrowers to investors, managing escrow, assisting borrowers who fall behind on their payments, and administering the foreclosure process. If closing the loan is the birth of the mortgage, servicing is its day-to-day care.

Despite its importance, mortgage servicing is frequently overlooked in major policy conversations, including the housing finance reform debate. That is a mistake. The servicing industry has changed dramatically since the 2008 mortgage default and foreclosure crisis and subsequent Great Recession. Overlooking servicing while implementing changes to the housing finance system has resulted in some unintended and unwanted consequences, including significant increases in the cost of servicing, a suboptimal servicing system, reduced access to credit for consumers, and an exodus from the industry by depository servicers.

To address this policy oversight, the Urban Institute’s Housing Finance Policy Center (HFPC) has convened the Mortgage Servicing Collaborative (MSC) to elevate the mortgage servicing discussion and facilitate evidence-based policymaking by bringing more data and evidence to the table. The MSC has convened key industry stakeholders—lenders, servicers, consumer groups, civil rights leaders, researchers, and government—and tasked them with developing a common understanding of the biggest issues in mortgage servicing, their implications, and possible solutions and policy options that can advance the debate. And with the mortgage industry no longer operating in crisis mode, we believe now is the right time for this effort.

In this brief, the first in a series prepared by HFPC researchers with the collaboration of the MSC, we review how we arrived at the present state of affairs in mortgage servicing and explain why it is important to institute mortgage servicing reforms now. (1-2, footnote omitted)

The report provides a short but useful history of servicing, which at the best of times is a dark corner of the mortgage market. It also provides an overview of the risks inherent in a poorly constructed system of servicing for consumers and other players in that market. The Collaborative will certainly be taking deeper dives into these risks in future releases.

As with much of the Housing Finance Policy Center’s work, this collaborative is very forward-looking. Hopefully, it will help us prepare for the next downturn in the housing market.

The State of the Foreclosure Crisis

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Rob Pitingolo of the Urban Institute issued State of the Foreclosure Crisis: Past the Peak but Not Recovered. It opens,

Much attention has been given to statistics that show new foreclosure activity nationally has slowed over the past few years. When it comes to metropolitan area markets, however, some have gotten worse, while others have stagnated. It is not simple enough to declare an end to the foreclosure and delinquency crisis when there are as many as a quarter (25%) of metro areas that have not yet begun their recovery. (1)

It continues,

the rate of 90 day or more delinquency steadily fell in 2010 and 2011, ending at 3.1% in September 2013. In contrast, the foreclosure inventory only turned the corner in mid -2012, and is still higher than the March 2009 level at 4.5%, around seven times the pre-crisis level. Historically, a foreclosure inventory under 1% is what we would expect in “normal” market conditions.” (1, footnote omitted)

It concludes, “attention must be paid to individual metropolitan housing markets. Some are in much better shape than others; and some have made great strides since the peak of serious delinquency in December 2009. However, it may be premature to declare the problem is “ending” until all metro area markets show signs of recovery.” (2) The report identifies the starkest differences in metro areas:

Three geographic regions were hard hit at the beginning of the foreclosure crisis: California metros, Florida metros, and “Rust Belt” metros (those in Midwest states like Ohio, Michigan and Indiana). All three of those regions have seen solid improvements since December 2009.

On the other hand, the Northeast has generally performed poorly in the past several years. Serious delinquency rates in major metropolitan markets like New York City, Philadelphia and Baltimore have all worsened since December 2009. Other metro areas in New York like Buffalo, Rochester and Syracuse have similarly struggled, as have metro areas surrounding New York like New Jersey and Connecticut. (5)

The report concludes with a call for a nuanced response to the current state of the foreclosure crisis:  “communities need strong examples to build upon, rigorous data and analysis, and a commitment to evidence-based policymaking that strives toward the best fit between policy solutions and policy problems.” (6) This seems like the right call and the appropriate response to headlines that report the national trend without mentioning the variations among metro areas.