Consumers
are not getting what they need from their loan servicers. Whether servicers are unwilling or
unable to meet the demands of the current situation, it is clear that there
needs to be an outside push to facilitate loan modification for those who
qualify.
I
would like to take this opportunity to note the challenges for consumers and
consumer advocates in trying to come up with a workable solution this
issue. There are three areas where
some sort of mediated loan modification program would help facilitate the
entire process. The three problems
I would like to touch on today are insufficient resources, unclear
expectations, and a lack of transparency.
Insufficient Resources:
First
I’ll talk about the insufficient resources. The reality is that loan servicers were not set up or
prepared for the tsunami of troubled loans they are dealing with in the midst
of the foreclosure crisis. Not
only has the volume increased, but the actual day to day workings of a loan
servicer have changed as well. It
seems they are just not set up to deal with the reality of the problem.
Consumers
experience these problems in the form of long on hold wait times when they call
in to their servicer, delayed responses to inquiries about their modification
applications, and a general sense of uncertainty about the whole process. With only a three month window to set up a loan modification agreement
through HAMP it is no wonder only one in five eligible borrowers is getting a
modification.
The
idea we are discussing today of creating a forum and a mechanism to tackle loan
modifications in a systematic way will be of great benefit to consumers. It would also seem to be in the best
interest of the loan servicing industry overwhelmed by the volume they are
dealing with.
Unclear Expectations of
Borrowers:
Another
reason why consumers have been reporting frustrations with the modification
process is the lack of a clear goal post.
Information and compliance standards are set by the servicer and the
expectation is that the consumer will be able to comply. But by the accounts of many consumers
the requirements either change as time goes on or are unclear to start with
from the consumer’s perspective.
In
a recent LA Times article outlining what consumers can do to manage the
modification process, Mortgage
Bankers Assn. Vice Chairman Michael Young was quoted as saying, 99% of the
packages returned to servicers are missing documents or contain errors. While this is most likely hyperbole the
sentiment itself is noteworthy. If
that many people are having trouble meeting the standards set out by the
servicers there is something wrong with the process.
Establishing
a process where there is a third party involved in collecting and analyzing the
documents requested from consumers is an obvious way to address some of this
confusion. From the consumer side
there will be a clear goal post in terms of what information they need to
submit to their servicer. And the
servicers will have a much more efficient process if they don’t have to
continue following up with borrowers for missing information.
Lack of Transparency:
Finally,
the lack of transparency on the part of the servicers has made it very difficult
to see what types of modifications are working, and which borrowers are getting
modifications.
Aggregated
data about interest rate reductions, principle reductions, or other
modifications to existing loans would make it much easier to come up with the
most effective types of modifications.
That information would be useful to everyone from counseling agencies to
government officials who are trying to help troubled borrowers.
Creating
an organized mechanism with access to this data outside of the private sector
will provide valuable insight into how to best help the millions of consumers
in trouble right now.
To
sum up, consumers and consumer advocates are struggling to make the current
programs work. The latest numbers
show that there is a lot of work to be done, and the proposal we are discussing
today has the potential to help lighten the load. It will provide borrowers and servicers with more resources
to deal with the sheer volume of the problem. It will establish clear expectations for both parties, and
it will give us a clearer picture of what is working and what isn’t.
