Until the financial crisis hit, the Federal Housing Administration has never required budgetary support for its mortgage insurance programs. When it received a $1.7 billion infusion from the Treasury, it was seen as a sad day in the FHA’s long history by many. Others felt that the FHA worked, overall, at a relatively low cost to keep the mortgage markets functioning through the 2000s.
The budgetary impact of the FHA will certainly be factor in the politics of housing finance reform. The Congressional Budget Office has produced a report, Budgetary Estimates for the Single-Family Mortgage Guarantee Program of the Federal Housing Administration, that sheds some light on this topic. The CBO first estimated the costs of FHA loan guarantees made from 1992 through 2013 and found that between “1992 and 2013, FHA guaranteed roughly $2.8 trillion of single-family mortgages. Using the methodology specified by FCRA, CBO estimates that those guarantees account for $2.2 billion in subsidy costs to the federal government.” (2) In contrast, the CBO’s projects that FHA loan guarantees being made in 2014 and 2015, “will generate savings—negative subsidy costs—of $16.4 billion.” (2)
FHA’s critics and fans will both be able to crow about these figures. But perhaps the most important issue is whether the FHA’s capital reserve requirements can be designed to both cushion the FHA during severe housing market downturns while also keeping FHA borrowers (often low- and moderate-income households) from effectively subsidizing the federal budget by generating “savings” or “negative subsidy costs” when the market is functioning more normally. Such a goal seems to best align with FHA’s mission.
The Consumer Financial Protection Bureau has issued a Compliance Bulletin and Policy Guidance on Mortgage Servicing Transfers (Bulletin 2014-01). Mortgage Serving Transfers have been receiving a lot of attention (also here) recently from regulators as the servicing industry is going through many changes.
The CFPB is right to focus on the impact of the transfer of mortgage servicing rights on homeowners. Many complaints made directly to regulators and seen in foreclosure cases relate to the Kafkaesque treatment that homeowners receive as their servicer point-of-contact changes from interaction to interaction.
The Bulletin indicates that servicers will have to do a fair amount of planning to ensure that consumers are not harmed by the transfer of servicing rights. In particular, the CFPB will be watching to see that servicers are (WARNING: Boring and Technical Language Alert!):
Ensuring that contracts require the transferor to provide all necessary documents and information at loan boarding.
Developing tailored transfer instructions for each deal and conducting meetings to
discuss and clarify key issues with counterparties in a timely manner; for large transfers, this could be months in advance of the transfer. Key issues may include descriptions of proprietary modifications, detailed descriptions of data fields, known issues with document indexing, and specific regulatory or settlement requirements applicable to some or all of the transferred loans.
Using specifically tailored testing protocols to evaluate the compatibility of the
transferred data with the transferee servicer’s systems and data mapping protocols.
Engaging in quality control work after the transfer of preliminary data to validate that the data on the transferee’s system matches the data submitted by the transferor.
Recognizing when the transfer cannot be implemented successfully in a single batch and implementing alternative protocols, such as splitting the transfer into several smaller transactions, to ensure that the transferee can comply with its servicing obligations for every loan transferred. (3)
As a bonus, the Bulletin provides an overview of statutes and regulations that govern the transfer of mortgage servicing.